A bridge to growth
The bridging finance sector is growing at an immense rate. It is this growth and the continued strength of the sector that proves 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 unfamiliar with how it works.
Extra income source
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.
A bridging house could offer an equity release for them to fill that timing gap. In cases where time is of the essence, bridging finance can enable a developer to avoid costly delays. In most cases, bridging providers can give a decision within hours and issue funding four or five days later. However, bridging finance is not only applicable to commercial developments and can be an option for a number of clients looking for a ‘time gap’ solution.
We recently had a call from a customer who wanted to purchase an £850,000 property. 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 property 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.
Considering the options
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 Financial Services Authority (FSA) in October 2004 and we also have in place our own ‘Code of Practice’.
Intermediaries 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 (AIP) only for it to bear no resemblance to the final offer letter.
For bridging to be a viable and respected option, brokers and their clients need to know exactly where they stand and what they can and cannot do.
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 finance is an invaluable tool for investors, developers and intermediaries. We know this because we have seen so many successful developments that would not exist today without the facility of bridging finance, and we are keen to work alongside mortgage intermediaries as this market sector builds on the growth we have enjoyed so far.