A bridging loan is a common way of raising short-term finance. In an article that appeared at MortgageSolutions.co.uk in June 2015, Benson Hersch, CEO of the Association of Short Term Lenders (ASTL), looked at their history.
In the 1960s, Hersch said, bridging loans were mainly given by high street banks and building societies. Unlike today, the only reason for a bridging loan at that time was for people moving home who needed short-term finance to cover the gap between completing the purchase of their new home, and receiving funds from selling their existing home.
Soon, small specialist firms also competed in the bridging loan market, though their share was small. The Assured Shorthold Tenancies act of 1988 stimulated the buy-to-let housing market, and bridging loans were created to finance the refurbishment of buy-to-let properties, or to secure the purchase of property at auction before a long term finance solution could be arranged.
After the turn of the century, many lenders made it easier to obtain bridging loans through the introduction of the self-certification process. This led to a rapid rise in the bridging loan market as house sales picked up and more people invested in buy-to-let properties.
In 2007, the collapse of the Northern Rock building society and the subsequent credit crunch resulted in high street banks restricting lending. This was a boost for independent financial companies who filled the gap in the bridging loan market.
Hersch points out that it is hard to measure the exact scale of bridging loans, but emphasises the ASTL’s commitment to ensuring responsible lending and that the bridging loans sector maintains a positive reputation.