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Tough rules on lending are already hitting millions trying to
get amortgage and
many borrowers are turning to the bridging industry for help, according to
short term secured lender West One Loans.
Britain’s mortgage drought has seen the proportion of bridging
customers, traditionally landlords, developers and businesses, who are owner
occupiers increase. In February 2012, owner occupiers represented 16% of
bridging loan customers,
according to mortgage brokers polled by West One Loans but that has now climbed
Mainstream lenders’ ability to lend is already being hobbled as
they have to increase their capital reserves. But the Bank of England's
Financial Policy Committee has now told banks to raise even more capital to
build up their capital buffers, to cover the risk of losses on loans to
borrowers who may struggle to repay, meaning they have even less money to lend
‘The problem is that the mainstream mortgage market isn’t doing
its job properly. Five years into the credit crunch, residential lending is
still a fraction of what it was during the boom as banks desperately shore up
their capital reserves,’ said Duncan Kreeger, chairman of West One Loans.
‘Households can’t get the credit they
need from the high street banks and as a result, more owner occupiers than ever
are turning to bridging. And if banks are forced to redouble their efforts to
raise capital, the squeeze on high street lenders will tighten further. While a
bridging loan is a very different beast to a long term mortgage, in the right
circumstances it can get things off the ground,’ he explained.
The rise in the number of owner occupiers turning to bridging
lenders for finance is
reflected in the number or loans being taken out to refurbish properties. In
February 8% of brokers listed purchase and refurbishment as the most popular
use for bridging. This has now risen to 15%.
‘There’s a huge housing shortage in Britain. There are many ways
the government could solve the problem, from building on the Green Belt and
liberalising planning regulations to turning up the heat on the redevelopment
of brown field sites or increasing taxes on second homes. At present none of these
things are happening and, as a result, there are too few homes to meet demand,’
‘That’s keeping prices artificially high and pushing more and
more people and developers toborrow from
bridging lenders to buy dilapidated, inhabitable properties which mainstream
lenders won’t offer a mortgage on,’ he added.
He pointed out that despite the government’s best efforts,
borrowers have found a way to overcome the obstacles in their path, by borrowing against
value rather than purchase price and seeking alternative finance when a
conventional mortgage cannot be arranged.
While the Bank of England and Financial Services Authority say
Barclays, HSBC, Lloyds and Royal Bank of Scotland will collectively need to
raise between £5 billion and £35 billion of capital, peer to peer lenders like
West One Loans match a pool of investors with individuals looking for short
term secured loans.
‘Peer to peer lenders like us are becoming more and more
important as traditional lenders fail to deliver. Rather than being backed by
shareholders like HSBC and Barclays, or the taxpayer, like Lloyds and RBS, we
are funded by private investors who back individual loans. That means we’ve
been able to step up our lending while
high street banks languish,’ explained Kreeger.
Brokers say they are writing 51% more bridging business compared
to 12 months ago. Meanwhile, the West One Loans Bridging Index shows that in
the third quarter of 2012, quarterly gross lending grew by 14% to £399 million
in the third quarter of the year, up 65% from the equivalent period in 2011.
‘Mainstream lenders are
being squeezed between higher capital adequacy requirements and the lack of
confidence the money markets have in them. Although we only lend to
landlords and developers who want commercial loans, the high street lenders’
pain has been our gain,’ added Kreeger.
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