SPECIAL FEATURE: Selecting the right bridge
With the recent news that challenger bank Aldermore is set to enter the bridging sector in 2014 in a bid to take a share of the multi-million market, property investors appear to be spoilt for choice.
Over the last two years there has been a multitude of new entrants into the market. Demand for bridging has soared over the last 12 months, predominantly as a result of continued high street inactivity.
The alternative finance market now includes challenger banks, specialist banks, private lenders and even peer to peer platforms.
I have and continue to experience first-hand the continuing demand for bridging products. In the last quarter, my company has seen property investors applying for bridging finance increase by 18%, compared to the same period in 2012 and I expect this trend to continue into 2014.
With so many options on the table, how do you go about selecting the right bridging loan for you?
I have put together some helpful tips and suggestions that will help you make the right choice:
• Know your Lender – All lenders work at different speeds and have different capabilities and processes. If it is an urgent case, is the lender really capable of meeting your deadline? Is a decision maker on hand to approve the case? and does that decision need ‘rubber-stamping’ by someone else? Can the initial indicative offer letter be relied upon, or will the pricing or terms change as the case progresses?
• Loan To Value – what value is the lender working with? Open market value, 180 day value or 90 day value?
• Pricing and costs – Usually the pricing structure of a bridge is made up of an arrangement fee and an interest rate. In addition, the borrower will be expected to cover the costs of the valuation and legal fees. Other fees to look out for are exit fees, administration fees, processing fees and broker fees.
• Term – some lenders will only ‘bridge’ up to 6 months, whereas some will be comfortable up to 18 months.
• Flexibility – is the lender more institutional and therefore ‘rigid’, or are they willing to work with you if the deal is not straightforward and the applicants or the property are somewhat ‘quirky’? If the loan reaches maturity and redemption is not possible, will the lender call in the debt or attempt to work with the applicant to find a solution?
• Professionals – check out which solicitors the lender will use (and make sure your own is capable!), and also which valuer will be instructed. These third parties will be relied upon to facilitate a timely completion. In addition, your broker is key to a smooth transaction.