Banks Abandoning Property Lending
Over the last seven years, as banks and other traditional lenders have moved away from property lending, and lending in general, new companies have taken their place offering new ways to borrow. These lenders fall into the broader category of ‘Alternative Finance’ – companies providing businesses and individuals with new ways of accessing credit. These ways are faster, simpler, and more convenient than going to a bank for credit. The European Alternative Finance sector grew by 144% in 2014.Some alternative finance companies are using technology to focus on a single aspect of a transaction and make it better for clients. This has, in turn, led to the rise of ‘FinTech’ – the specific category for companies focusing on using technology to improve financial transactions. At Borro, we did this in 2009 by using technology to allow client to use luxury assets like watches and cars to raise capital, and have provided over £160m in lending to over 10,000 clients. Since then, FinTech has exploded: in 2008, approximately £650m was invested in FinTech companies, by 2014, it was £9.3bn.
Looking for Speed in the Bridging Finance Market
But where is Fintech in the bridging market? Consumers continue to look for lenders that can provide funds faster than the 50 day mortgage industry average. Yet the bridging industry is beginning to lag behind. The most obvious sign of this is time to close: in an industry that promises speed, the average closing time is now 46 days, nearly the same as the wider mortgage industry.
There are some companies innovating in bridging. FinTech companies like Lendinvest, Wellesley, and Landbay are leveraging peer-to-peer funding to give borrowers access to a new source of capital. They have created a new process that allows borrowers to access a whole new funding source. But significant opportunities remain in the market. Securing a bridging loan is still cumbersome. It involves too much waiting – and there are too many potential places for loans to be held up: This isn’t good enough. As I said before, the average time to close is creeping and this is because the process as it exists now is too complicated.
Borro’s Innovative Platform
This is where Borro is innovating, since we launched our bridging loans in September 2015, we have been developing a new platform for our partners. The platform will make it easier to refer, manage, and check the status of deals. Real time tracking gives partners and Borro the ability to see where a client is in the process, where they are going next, and most importantly, what is required to keep the case moving. The current process of phone calls and emails can be replaced with a single online portal. This will make it simpler and faster for everyone involved to manage their bridging lending.
But there is still space for much more in the market. FinTech in other markets often focuses on underwriting – creating new ways of assessing and understanding risk. This will be key part of the bridging market in 2016. Record investments in commercial property are expected to continue in 2016 and despite increased regulation, most are positive that bridging will continue to grow. At the same time, Borro is seeing increasing enquiries for development finance, a trend we hear echoed by partners across the industry. More and more lenders focus on development and commercial properties in order to drive growth. Doing so will require lenders to develop competency very quickly, and FinTech is on hand to help!
- Interview with Borro’s Head of Underwriting & Credit on how she approaches a property case and what makes Borro different from other lenders.
- Significance of the HMO Property Market – A look at the House of Multiple Occupancy market and on just how lucrative this asset class can be.
- Growth in Bridging Loans – The state of the current bridging loan market and what does the future hold.