A recent report by the Ernst and Young Financial Services Corporate Finance team has concluded that the number of bridging lenders operating within the sector could decrease in the next two to five years as intensifying competition leads to an ‘organic’ expansion of leading industry players, the increased acquisition of smaller lenders and the growing necessity of ‘unique selling propositions’ to dictate ongoing survival and growth.
Based, in part, upon a survey of 11 prominent bridging lenders, the report is designed to present an overview of the current market landscape and to help ‘shape (the) strategic direction’ of existing companies, especially those which are contemplating possible sales of business within the projected time frame. But, what does the report tell us about market longevity?
‘Fragmented’ levels of market competition have led to a boom in flexible, time and cost-efficient consumer deals in the past few years, as well as a comparative surge in business activity.
Lending figures posted by members of the Association of Short Term Lenders (ASTL) for Q4 2017 have revealed that completed loans surpassed £1 billion for the first time ever in a single quarter, with annual figures reaching well in excess of £3.5 billion- an increase of 24.6% on equivalent data for 2016. Moreover, recent ASTL research has suggested that its members are increasingly buoyant about the short-term future of the market, with over 75% of affiliated lenders expecting volumes of business to grow over the next six months.
Nevertheless, the EY report has identified a growing trend towards ‘institutionalisation’ within the sector and has estimated that the top ten lenders are now responsible for over 75% of the current business. In addition, the report predicts that a consolidation of smaller firms (predominantly by ‘nonbank lenders and private equity investors’), a growing reliance upon ‘unique’ forms of funding, underwriting, technology and a need for greater diversification of products will help to determine the ability of lenders to withstand ‘market correcting forces’ and thrive (or otherwise). Indeed, determining factors such as these are an inevitable and necessary by-product of the competitive process, especially given the rich rewards that would be available in a market-driven by fewer players.
All available evidence points quite clearly to the sustainability and long-term profitability of the bridging model (after all, short term finance will always be needed) and the emergence of even stronger brands can only help to ensure and to strengthen that market security. Of course, some businesses will choose or will be compelled by irresistible market forces, to sell up in the next two-five years (hopefully at a profit), but the fact remains that these are really exciting times for the industry. There is a world to be won.