For those who are new to the world of bridging, B&C has compiled a basic guide dedicated to the increasingly popular short-term funding option. Helping you provide your clients with the whole of market offering that is required.
What?
Bridging loans are secured short term finance solutions utilised to assist clients bridge the gap between two scenarios and consequently secure something like a property investment or a project. These loans act as an injection for the cash-flow poor and the asset rich.
Well known for its swift completions, bridging loans come into their own when they compensate or compliment the high street and private banks which may take longer to process a mortgage.
This route of funding acts as a simple alternative to mainstream lending. The making of today's bridging market is testament to this, with the surge of short term lenders occurring after mainstream banks shied from lending as a result of the 2008 crash.
Average bridging loan terms stand at around 7 months, ranging from 12 months or less. Although, longer terms are not unheard of. The market's headline rates rest at just under 0.6 per cent.
Experts in the market assure that bridging finance when used correctly can be profitable for both yourself and your client. Just be aware of the facility's APR, to keep tabs on the actual cost of the loan.
The ultimate key to a bridging loan is its exit route. This classically arises as either via the sale of a property, refinance or planned access to a bulk of funds.
Commenting on why brokers should look to bridging if a flexible loan is needed, Joshua Elash, Director of bridging specialist MTF, said: “Confronted with a case which does not fit neatly into an automated approach to underwriting, an increasing number of brokers are rightly turning to bridging finance in order to aid their clients.
He added: “There remains, however, a significant percentage of advisers who are not familiar with, or misunderstand or harbour negative misconceptions about bridging finance.
"Improvements within the industry driven by increased institutional interest has helped create a more professional and transparent sector. Bridging finance has emerged as a credible and necessary financial product.
"As a broker or adviser today it is imperative to understand the bridging finance market.”
Why?
So why is bridging used?
Chi Ho, Senior Underwriter at Challenger Bank and bridging financier, Aldermore, said: “Bridging finance is a great alternative to meet a short term funding requirement when a conventional mortgage is not available either because the property requires works or the applicant just needs to complete quickly, i.e. auction purchases or chain breaking purchases.
“There is less of a stigma attached to bridging nowadays, in that they are seen more as a short term mortgage rather than pure bridging finance. “
Short term finance can be used in a range of scenarios, such as for property investment, commercial mortgages or buy-to-let. They can also be used if a developer, for instance, needs a quick route to funding to secure against a property, obtain planning permission and start developing a site.
A bridging loan could also be used to solve something as simple as a businessman having cash flow problems and wanting to make the most out of investment opportunities with fast funding.
It can also be used for bridging's most traditional purpose. A client who wants to purchase a property and needs speedy access to funding so they can pay the full transaction and avoid losing their deposit.
Here are some alternative reasons for choosing a bridging loan for your client:
Auction Purchase: When a loan is needed in a quick completion timeframe
Light Refurbishment: Small Renovation Works
Heavy Refurbishment: Large Renovation Works
Below Market Value Purchase: Such as discounted purchases
Ashley Ilsen, New Business Executive of development finance specialist Regentsmead, said: “Sometimes deals have to be completed as a matter of urgency, for example a development plot bought at auction, which is why bridging has a huge part to play in the market.
"Lenders providing bridging finance have to battle between the urgent demands of a case and the intricacies involved in underwriting, which is what separates the wheat from the chaff.”
So what now for you? Well, get bridging!
So what now, you ask? Alan Margolis, Head of Bridging at United Trust Bank, has some suggestions and insider tips when considering a bridging loan: “Do think outside the box – for instance is other property available as additional or perhaps alternative security, even if provided by a non-borrower third party?”
“It is vital to ensure your customers declare everything – warts and all – at the outset. Lenders really do dislike discovering something negative which ought to have been disclosed. Because the time frames for completing bridging loans are usually far shorter than for mainstream mortgages, there may be less time to rectify matters or convince the lender that there is nothing else that has not been disclosed!”
Tom Garratt, Head of Intermediary Channel, The Loans Engine, talks about how to get into bridging if you are new: “The UK’s leading bridging companies’ employ some of the very best Business Development Manager’s in the financial market.
He added: "...I would also strongly suggest talking to these industry experts or an existing packager for guidance especially within the first few months.
“They will not only provide you with in-depth knowledge of their own products but will also advise you on whom to approach if the deal is not for them. A viable alternative to other lending solutions, a bridging product can be an ideal choice for those wanting quick finance or dealing with development projects of all kinds.”
So, now you know, if your client craves a loan that is flexible and bespoke to their needs, a bridging loan may just be your answer.
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