A key driver of the growth in the bridging loan sector has been the increasing realisation by brokers that short-term or bridging loans have the capability to solve problems.
If people need cash quickly and they have a property asset with enough equity in it, a bridging loan could be the right solution.
If long-term lenders do not like the type of property, are unable to take the security across a number of properties or want to retain some or all of the funds until renovations have been completed, a bridging loan can solve the problem until long-term finance can be arranged.
Increased competition is currently propelling bridging finance onto a new level. As with so many niche markets in the financial services arena, new ideas, new products and new providers force the existing players to update and rework their offerings.
Lenders are now offering up to 80 per cent loan-to-value, rates as low as 0.95 per cent per month and products with no exit fees. These are just a few examples of the improvements which has enabled the potential of the market to grow significantly.
Ann-Marie O’Neill, head of sales & marketing at Commercial Mortgage Desk, says: “We see more and more bridging lenders adopting a flexible attitude towards client’s circumstances and tending to look at the client’s overall plans and situation rather than the enough ticks in the box style of underwriting, that seems to have come about in the residential mortgage market.
“That said one still needs to deal with packagers that have specialist bridging teams, because of the need to understand exactly what the client is trying to achieve and what issues are likely to arise, in terms of underwriting terms, valuation and accompanying legal and title issues.”
Angelo Trapasso, operations director at Magic Loans, agrees but highlights the fact that some areas of the sector do require special attention.
He says: “As with all markets, the valuation is important but what is included in the survey is more important than ever in this particular sector. Lenders are now looking at the comments by the surveyor about ‘the area’, the saleability and most importantly the future value.
“These can be quantified on properties and land with and without planning permission. It’s also vital to understand just how important the exit strategy is to the whole process and ensure extra time is taken to talk this through in order to get a firm understanding of each and every individual customer’s intentions.
Brokers recommending bridging loans must make sure the borrowers are fully aware of all fees and charges. Are there minimum loan terms and early repayment charges? Is the interest charged only for the days the loan was outstanding. Thankfully transparency is increasing with in the marketplace and lenders are continuing to innovate to incorporate these standards.
In the past month Link Lending has launched an online case tracking facility offering registered brokers access to the progress of their cases from start to finish, at any time on any day of the week.
It allows users to see correspondence and documentation and all communications between the lender, solicitors, brokers and customers.
John Maclean, managing director at Link Lending, comments: “This latest addition to our communications technology has not been designed to replace the human element and stop brokers calling us. We are keen to stress that the class leading service standards we have brought to the sector will continue undiminished and we welcome any queries that brokers need to discuss.
“However brokers may need to check out the progress of their cases earlier and later than our office hours – especially in a lending sector that is characterised by clients that are often seeking very fast offers and advances.”
The need for speed
Speed has always been a vital element in bridging finance. Most bridging can help clients move quickly and capitalise on opportunities that they would have otherwise missed. In the long term this creates more business opportunities for both the client and you the introducer.
Unlike many other forms of finance, bridging is extremely time-sensitive. Individuals want the bridging monies in their bank accounts within days, or not at all. They need to move swiftly because the purchase is time sensitive.
If they cannot complete to the seller’s schedule, the preferential terms evaporate and the deal is off. This means that bridging lenders are experts in processing applications within very short timeframes.
In reality, bridging loans can facilitate many situations – from those facing repossession to family members who are expected to pay inheritance tax on a property before it is transferred into their name. Bridging loans are a powerful tool for companies and individuals who simply need a rapid cash injection.
A short-term financing solution may give a business and home owners the time to implement the necessary actions to solve more immediate problems. People in this position might consider the options of remortgaging or downsizing to bring their expenditure into line. They might also consider financing to overcome short-term adverse trade flows.
Ryneveld van der Horst, finance director at Bridgingloans.com, says: “Remortgaging is an effective way to reduce monthly outgoings and a short term loan can pay off any outstanding payments – providing property owners with time to shop around for a mortgage that is more affordable.
“In other cases, the answer may be to downsize to more affordable premises. As everyone knows, moving a business or a home is time consuming, awkward and, above all else, stressful. However, by taking out a bridging loan people can purchase before the old premises are actually sold.”
In the wake of the credit crunch and with the news from the Bank of England declaring that the rippling affect of this Summer’s credit crunch is far from over, the future still looks far from certain for many residential and commercial property buyers and owners.
Horst adds: “However, working with specialist bridging loan providers – particularly those that are principal lenders with complete control over their lending – can help ensure maximum flexibility to cope with any specific circumstances that clients may have.”
If the old image of bridging being ‘lending of last resort’ is shed and universal standards for the sector achieved , brokers should be able to sell bridging loans to their clients in full confidence they are getting a fair and transparent deal. How far this is away is unknown but at the speed bridging finance moved then it may be sooner than you think.