Having conquered the short term lending market, the entrepreneurial minds behind some of the UK’s leading bridging finance providers are eyeing up the opportunities presented in the less saturated medium term loans market.
“In terms of 2-year to 5-year products, I think there is a niche for it. I think it’s a specialist sector and for those lenders with access to funds, I think there’s an opportunity there,” said Bridgebank’s Managing Director, Laurence Goodman.
Christian Faes of Montello added: “Montello currently does not lend for longer than 12 months. It is a market that we are looking into quite closely.”
Intermediaries within the market appear to be welcoming the possible increase in medium term products, which they see being utilised not only as an additional offering for borrowers, but also as an adjunct to bridging.
“It’s an excellent way of fulling the requirements for those who it just wouldn’t be feasible to consider a short term loan, and would hopefully provide a transition into traditional bank lending a few years down the line when constraints we are currently experiencing become less prevalent in the mainstream arena,” said Lucy Barrett, Director of Vantage Finance.
Dragonfly Property Finance have already added a medium term product to their portfolio. Jonathan Samuels, CEO, explained that the product’s launch, approximately one year ago, was driven by a growing demand from borrowers looking for buy to let finance but struggling with the high street lenders.
“Whilst high street mortgages are for the long term, in reality borrowers tend to view mortgage deals with a 2-5 year time horizon hence the popularity of the 2-5 year fixed deals. Our medium term product is fixed for three years so even if the base rate moves up the borrower knows where they stand,” he said.
Yet whilst several lenders have expressed their interest in the medium term market, and a few have already launched theirs, for the majority of companies a transition would not be simple.
This is in part due to the nature of the typical funding lines which support most lenders. The monies tend to be provided at a comparatively high interest rate to the bridger and therefore profitability is dependent on high returns from the borrower - something which is much easier to demand in a short term product than in a longer one.
“Ultimately a lender will need to source or provide a different funding structure to enter a product of this nature,” said Gareth Lewis, Head of Business Development at Tiuta.
“Demand is one thing however being able to meet demand with a product that suits the potential borrower and delivers for the lender is another.”
Christian Faes added: “In the current market it seems that the decision for a short term lender to evolve into a medium term lender all depends on what their cost of funds are and how much capital they have access to.
“If you are a lender with relatively expensive capital and a smaller loan book, then you are likely to want to stay a short term lender. If you have access to relatively cheap capital and a lot of it, then a medium term offering could make sense.”
Having spoken to most of the leading names in the bridging finance sector, it seems that the only thing stopping these lenders launching a medium term product is their current funding structures. Furthermore, even those whose current funding lines would not support the products could not rule out the possibility that they may extend the length of their bridges in the near future.
Tiuta, Montello, Bridgebank, Omni and Precise are all thought to be pondering the proposition with ‘due diligence’.