No Brexit Deals and Bridging Loans

There is less than 6 months before UK officially leave the European Union. We are yet to see what kind of a deal Britain will leave with.  What does this mean for Britain’s alternative finance industry especially the bridging market?

UK’s departure from the EU without a Brexit deal might mean a rise in interest rates.  We have already seen a base rate rise to 0.75% in August and the Bank of England is not expected to raise the rates until next year.  However, the Bank of England may be forced to raise rates to defend the pound if no deal has been agreed on.  We have already seen the fluctuations of the pound since the referendum. Trevor Williams of Derby university has said that ‘bridging loans could become more expensive as if the risk is greater the lenders are likely to want better returns for it.  He has also predicted a tougher environment for investors.

At the same time, some also argue that we may see a repeat of falling house prices and the Bank of England might have to reduce the rates and will have to relax the rules around the housing market.  KPMG the accountancy firm argues that the Bank of England is unlikely to increase the rates due to the uncertainty that looms over the economy.

Interbay, the lender has found that over 52% of brokers feel that reform to the tax legislation will boost the bridging market.  19% of brokers according to Interbay, felt that the removal of the 3% additional stamp duty for landlords would help to drive growth in the market.  Some brokers also believe that the greater regulation in the sector will boost growth in the bridging market.

The last decade has seen the rise of the alternative finance market to 4.6 billion.  The government has made housing more affordable with help to buy and other schemes which have helped the large construction companies.  The smaller developers and investors have been turning to the specialist lending sector.  Bridging and other specialist lenders offer them quick short-term funds to get their projects started. Arrival of new or more lenders in the industry has meant more competitive prices than ever before. This is has led to the growth in the alternative finance industry.

To have continued growth in this sector, the focus should be to educate people of the availability of these options in the market and educating people that mortgages are not the only option available to the borrowers or to educate brokers who shy away from alternative finance about the pricing and criteria.