A bridge to growth
The bridging finance sector is growing at an immense rate. Last year at Catalyst, we sustained growth of 250 per cent. Our net profit rose from half a million in our first year to £2.3m in our second year. It is this growth and the continued strength of the sector that convinces me that bridging offers excellent opportunities for brokers.
Bridging is not a complex process but in our experience, in most cases brokers do not offer bridging simply because they are not familiar with how it works. If that is the case, I would encourage brokers to pick up the phone to have a conversation with one of our business development managers.
At Catalyst, the brokers we work with on an ongoing basis are of utmost importance to us. We value them highly and are also always keen to develop good working relationships with new brokers. We are always happy to go out to see brokers and talk through the bridging finance process.
Brokers who begin to offer bridging finance soon discover that it is an extremely profitable extra source of income. It is a different discipline to commercial and residential mortgages but can run alongside the more conventional services very effectively. As a tool used properly, bridging finance allows brokers to facilitate a wider range of property deals for investors and developers.
For example, a developer might have a development site that has outline consent but is three or four months away from receiving full planning. At this stage, they might need to do some preparatory work but without full planning they are unable to acquire the required finance from a high street lender.
As a bridging house, we can offer an equity release for them to fill that timing gap. In cases where time is of the essence, bridging can enable a developer to avoid costly delays. In most cases we can give a decision within hours and issue funding four or five days later. However bridging is not only applicable to commercial developments.
We recently had a call from a lady who wanted to purchase an £850,000 home. She was in the process of putting her £500,000 home on the market but any delay would put her purchase in jeopardy. We arranged an equity release at 70 per cent on the house she currently owns and one she is buying. She can then repay us when she has sold her existing property.
Interest rates for bridging loans are higher than a mortgage acquired through a high street lender. Generally the industry standard is around 1.25 per cent upwards. We always stress that bridging finance should only be used for its intended purpose. Anyone considering bridging should consider a few points.
My advice first of all would be to always use a reputable bridging house. We were one of the first bridging houses to voluntarily register with the FSA in October 2004 and we also have our own Catalyst Code of Practice. Reputable bridging houses will also be happy to provide case studies. At Catalyst, we pride ourselves on our reputation of delivering on our promises.
Brokers need to know they can rely on the bridging house to deliver the agreed deal within the agreed timescale. Otherwise, they risk losing the deal and the relationship with the client. In the past, the bridging industry suffered from a negative reputation largely due to the practice of a few houses offering an Agreement in Principle only for it to bear no resemblance to the final offer letter. We only ever issue an offer letter and anything in that letter is adhered to rigidly. The broker and client then know exactly where they stand.
Anyone taking out a bridging loan should have a realistic exit strategy. They should be sure that they can settle by the agreed date. We recommend use of a specialist property lawyer to ensure that all timescales are met and relevant documentation is submitted as early as possible.
Used properly in the appropriate circumstances, bridging is an invaluable tool for investors and developers. We at Catalyst know this because we have seen so many successful developments that would not exist today without the facility of bridging finance. We are keen to work alongside brokers as this sector continues to grow.