One item that seems to get significantly less coverage is the topic of bridging loans. While undoubtedly the younger sibling to the larger markets of traditional, longer-term residential and commercial lending, the bridging industry has been making great strides, and should in fact be jostling for attention among the other property headlines.
The West One Bridging Index recently reported that gross bridging lending now totals £2.02 billion in the twelve months to 1st March 2014, representing an increase of 26 per cent compared to the previous twelve months.
While undoubtedly good news to both lenders and intermediaries, it is important to remember that these numbers represent an additional group (one that is often absent from these figures), that of the customer. As the economic recovery begins to take hold, and with it the increasing confidence that leads businesses to invest and expand, it is welcome news that all aspects of the property industry seem to be flourishing: the rising popularity of bridging loans shows that both lenders and intermediaries are helping firms towards the right kind of financing for the business plan. While the property market is undoubtedly helping the increasingly positive economic mood, successes such as this in the bridging market speak to a wider level of confidence with buyers willing to realise their ambitions.
Bridging loans are favoured by investors who are often constrained by time limits that require a quick turnaround, such as those who have purchased property at auction. With the expansion in lending, the industry will become ever more competitive, as the higher average interest rates give firms more flexibility to adapt their loan terms. The rise in activity for alternative lending methods such as bridging loans or peer-to-peer demonstrate a willingness from both lender and customers to try different approaches, and a market driven by innovation and more tailored lending can only be a good sign for things to come.
A successful bridging sector also keeps larger lenders on their toes, as customers expect a faster refinancing process in order to keep their interest payments down, meaning all parties involved are prioritising the client’s needs. The variety of reasons someone might seek a bridging loan means that brokers must very quickly assess whether their client is making the right decisions, whether it be a client looking to buy property at developments or auctions or whether they need funding for refurbishments and conversions.
Given the small timeframes often involved, additional effort must be made to ensure that clients are kept in the loop and made aware of exactly what they’re committing to: there are a variety of factors that an applicant may not have thought of, such as the risks posed by putting in an offer for a property without a buyer lined up for your existing one, as some vendors will only entertain an offer on a property if the one being sold is under offer. Making sure the client has a carefully considered exit strategy is essential to make sure they receive a loan that they can afford: as any additional time on the loan will be expensive, access to online avenues make things easy for a client as they can keep a constant check on the feasibility of their loan process.
In 2011, the Financial Services Authority as was, said they were concerned that some mortgage brokers are using bridging loans as an “imaginative” solution to help people buy property they cannot really afford, with many customers viewing a bridging loan as a direct alternative to traditional lending.
The market has moved on since then. Bridging finance is a short term solution to a long term issue and it is extremely important for lenders to help the customer make this transition from short term to long term financing. Access to information and good advice make the role of brokers in bridging deals especially important, as inexperience can be extremely costly for an applicant.
Bridging loans can help a wide variety of those seeking finance, whether it’s for a special purchase, cash-flow assistance, or to fund a tax or VAT charge. While a bridging loan isn’t the right choice for every customer, the rise in uptake demonstrates a willingness and the success of both lenders and intermediaries advising their clients of the best possible financing for their situation, and while the sector is unlikely to overtake the more traditional lending platforms, the figures from West One have definitely caused others in the industry to sit up and take notice.
By Rob Lankey, Managing Director, Commercial Mortgages, Aldermore Bank
Leave a comment