The collapse of Tricolor and First Brands in the US late last year began to challenge a core assumption that specialist lenders are well positioned to manage any cyclical downturns. Both cases exposed vulnerabilities that were not primarily about credit losses in the traditional sense. Instead, they revealed weaknesses in liquidity management, governance, funding structures and the alignment between asset duration and capital terms. It has prompted a wave of audit and due diligence reviews in the UK since and, with increased scrutiny, it is perhaps inevitable that some anomalies begin to work their way out of the woodwork.
At the end of January, bridging lender Century Capital Partners entered into administration and that has rattled some of those operating in this market in the UK and has, as a result, sharpened funders’ focus on tightening their governance checks here in the UK. There are several solid and sensible reasons for this. For more than a decade the bridging sector expanded in unusually benign conditions. Funding was plentiful, base rates were close to zero and asset values were rising across most segments of UK real estate. Specialist lenders could operate with relatively thin margins because liquidity was cheap and exits were predictable. Refinancing into term debt was straightforward and distressed outcomes were rare. In that environment, scale mattered less than access to capital and the ability to move quickly.
But the increase in base rates has done more than simply raise borrowing costs, it has shifted the balance of risk between lenders, their funders and their borrowers. The cost of warehouse lines and institutional funding has risen while the value of underlying collateral has become more exposed to local market dynamics. Exit routes have narrowed as mainstream lenders have tightened underwriting. The result is a compression of margins at precisely the point when credit risk is rising.
Bridging lenders’ business models depend on short-term funding lines from a mix of banks and private credit investors. These structures work well when assets can be turned over quickly. They are far less forgiving when refinancing slows and loans remain on balance sheets for longer than expected. As deals extend, funding costs accumulate while income remains fixed. Even a lender that appears profitable on paper can find its liquidity position deteriorating rapidly. This dynamic is not unique to one firm. Funders are understandably more cautious. Covenants tighten and the margin for operational error narrows.
There is also a regulatory dimension. Much of the bridging market sits outside the perimeter of full FCA authorisation because loans are typically unregulated and secured on investment property. This has allowed lenders to operate with flexibility and speed, which borrowers value. But it also means the sector lacks the buffers and oversight present in mainstream banking. When conditions tighten, failures can emerge abruptly because there are fewer formal mechanisms for early intervention.
None of this suggests a wave of imminent collapses. The sector is diverse and many lenders are conservatively funded with long-term institutional capital. Some have deliberately slowed originations and strengthened underwriting in anticipation of a tougher cycle. Others have moved towards lower loan-to-value ratios and more diversified funding structures. These firms are likely to remain resilient even as conditions remain challenging.
For years bridging lending has been perceived as a growth market with strong returns and limited downside. What we are now seeing is a strengthening of governance oversight – a systemically reassuring move. The era of abundant liquidity that supported rapid expansion in specialist property lending is becoming more focused on cautious underwriting and a sharper distinction between lenders with durable capital structures and those dependent on short-term funding.
Some lenders will adapt successfully and consolidate their positions. Others may struggle as the economics of their models become less viable. For the UK lending market as a whole, the adjustment will be a test of resilience.
