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Britain needs to build 3m homes - but just where have the banks gone?

Britain's Bridging Housing Market

Despite the threat of impending Brexit and the painfully slow recovery from the financial crash of 2008, the UK economy is holding up well. However, one area which has yet to recover is the property finance market. Since 2008, over a third of traditional lenders who were supplying finance to UK house builders and property developers have left the market. This has contributed to a growing problem within the sector. Britain needs at least 3 million houses, and traditional lenders have vanished like rats from a sinking ship, leaving Britain’s small and medium property developers high and dry.


A Bridge Over Troubled Water

However, although bank lending remains at a historically low level, bridging finance from alternative lenders is providing the investment required for small and medium sized house builders to complete their projects. Bridging finance consists of a short-term loan which is secured against existing property or land.


The typical length of a bridging loan is between one and 18 months. The process of applying for and receiving a bridging loan from an alternative lender is much quicker than applying for a mortgage or loan from a traditional high street bank. This can take weeks, or even months, before an application is approved. The majority of approved bridging loan applicants receive the money within two to four working days, which allows the UK’s housebuilders to get to work building the 3 million homes the nation urgently needs to help solve the housing crisis.


Increased Financial Freedom

The amount that can be borrowed using a bridging loan is almost entirely dependent on the value of the asset(s) being offered as security. Because alternative lenders are not subject to the narrow criteria of traditional lenders, they are often able to offer larger amounts of finance provided it is backed by realisable security, such as land and property, which means that developers can quickly access the large sums they require.


A bridging loan from an alternative lender will typically not be subject to the same conditions as finance supplied by a high street bank. Many traditional lenders specify precisely what the loan can be used to finance, which can limit developers who wish to use the loan for other purposes alongside property development or refurbishment. Applying for a bridging loan from an alternative lender provides developers with much more freedom as they commence their construction or refurb work.


The Continued Growth of Bridging Finance 

Growth in UK Bridging Loan Market 


Source: ASTL


According to figures released by the Association of Short Term Lenders, in 2011, £750m was lent via bridging loans. By 2016, this number had grown to £2.83bn. Bridging loans are continuing to play a significant role in helping to maintain a competitive but fair housing market in the UK, by supplying the funds needed by house builders and buyers who may not otherwise be able to access them.


With the uncertainty of Brexit and the weak recovery of the British economy, it is likely that this trend will accelerate over the next decade, as alternative finance continues to supply the capital needed to help to solve the UK housing crisis.

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