What challenges might bridging lenders face?

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Question

The bridging lending market has experienced impressive growth in the last few years. However, due to economic uncertainty, the housing market could slow down, which could decrease the demand.

House price rises are currently, slowing particularly in London. One of London’s leading estate agents, Foxtons, has reported a 64% drop in profits during the first half of 2017.

Many lenders have entered the bridging finance market over the last year, and so far, they have only known a buoyant housing market and a high demand for bridging loans. If the housing market goes through a period of stagnation, bridging lenders face a challenge. Most established bridging lenders take a long-term view of their business, so a temporary dip in the housing market is unlikely to stop them trading.

Bridging finance brokers have a long relationship with established lenders. When it comes to newer entrants in the market, a good broker will assess them carefully before recommending them to a client. Due diligence by the broker will establish whether or not the company is financially sound and has the necessary funding to sustain a long-term business in the face of a slowdown in the housing market.

Many new lenders are offering loans at very low rates, which could benefit borrowers, but if their profit margins are too low, their business could suffer if loan demand slows down.

Even if the housing market dips, though, borrowers will no doubt continue to need bridging loans for property purchases.

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