When we first got started with LendInvest in the UK, post the financial crisis, bridging finance was a much more nascent product than it is today.
There was hot debate as to the size of the market, but given that it’s an unregulated product in the UK, there are no government bodies collecting data to provide accurate statistics on the entire market.
At that time, it was believed there was around £1–2 billion a year in lending happening, with only a relatively small group of active lenders. Fast forward, and the current UK bridging market has grown into a roughly £5 billion+ annual industry, supported by a large number of professional and institutionalised players. Bridging finance in the UK, as we all know, has grown into a relatively mainstream mortgage product.
ACROSS THE ATLANTIC
As you might expect, in the U.S., it’s a beast with many different names: ‘hard money’, ‘Residential Transition Loans’ (RTL), bridging finance, or more commonly (and more confusingly), just called ‘private lending’. There isn’t really a single moniker that is used across the industry.
In any event, the scale of the market for bridging finance (we’ll call it that for now) is truly staggering. House flipping alone accounts for nearly 300,000 properties a year, representing a market of around $80 billion annually, and there are estimated to be over 130,000 bridging loan transactions annually — pushing the size of the bridging finance market to $30–40 billion annually.
These stats aren’t put together by any regulatory or government body in the U.S.; however, there are a number of large data platform businesses that publish very granular data on the market.
Generally speaking, the amount of data you can access is pretty amazing – and it seems a far cry from the constraints wrapped around the UK market by things like GDPR. There are even multiple platforms that will essentially allow for the pulling of data detailing every single loan that a particular lender transacted in the market over a period of time (including the contact details for their borrowers!). This is an absolute treasure trove to competitors and means that in many respects, while it is a massive market, it is also a proper knife fight to scale and originate business.
In the U.S. there are a number of trade bodies representing the sector, reflecting the serious market fragmentation. You’ve got the California Mortgage Association (CMA), the National Private Lenders Association (NPLA) with a growing national footprint, and the American Association of Private Lenders (AAPL), just to name a few. Each of these groups hosts its own conferences and events, advocates for lenders (some with paid lobbyists on the payroll), and offers their own ‘codes of conduct’ and requirements for membership.
You also have the complexity of dealing with 50 different states, each with quite broadly similar rules and regulations around ‘business purpose’ lending, but also with their own nuances and requirements. It’s a big market and a big jigsaw puzzle to put together — worlds apart from the more uniform environment and jurisdiction in the UK.
UNDER THE RADAR
Despite the size of the market and the number of different players actively involved, bridging finance in the U.S. is actually a relatively under-the-radar product. If you speak to most “conventional” mortgage brokers, they are often not that familiar with how bridging finance works—and it would be a far cry to call the product a mainstream mortgage product in the U.S. (despite the actual size of the market). So whilst it’s a massive market here, it is also a relatively fragmented market.
Having said all of this, the real estate bridging finance market in the U.S. has also become very institutionalized – even more so than it is in the UK, which really says something. Last year we saw the first rated public securitization of U.S. residential bridging loans, and a number of other public securitizations have quickly followed. That has driven even more capital into the sector, and also ‘institutionalised the credit box’ further.
The more institutionalised the product becomes, the more it starts to look like a loan from a bank that it’s meant to be ‘bridging’ to. However, that’s a story for another day.
I imagine that it won’t be long before we see a similar move in the UK, and see public-rated securitizations (and the capital that flows with it) in the not-too-distant future. It will be interesting to watch as the two markets are quite different, but also quite similar.
