Bridging Life

Residential bridging finance has been experiencing something of a renaissance in recent times. The "old" uses of bridging finance such as chain breaking and the day 1 remortgage are now more a distant memory, as the industry has been seriously keeping up to speed with all that has gone on around it.

Renovation and refurbishment, 100% of auction purchase, payment of tax bills and probate property transactions are all recent examples of where bridging finance is being used nowadays. If you use a good bridging lender who also provides second charge facilities, then there really is no better way to gain short term funding.

There have been casualties along the way in the last few years, as indeed there has wherever you look in all aspects of business. The positive spin to come from all this however is the emergence of a new breed of bridging finance providers who are leaner, hungrier and who will "take a view" on a deal as opposed to treating it as a tick box exercise.

So, all is rosy in the bridging finance world? Well, nearly. There is of course the spectre of regulation looming over all of our non regulated heads. What does it mean, where will it go, what will happen? The general consensus of opinion is that the bridging finance market will be regulated at some point, but with all the uncertainty in the financial industry and indeed the political arena, quite when this will be is anyone's guess.

The role of the broker in residential bridging finance is more important now than ever before. In past times the brokers role was easily defined, as all he or she had to do was highlight a client who required short term funding, and then almost let nature take its course and let the bridging finance provider do the rest.

The exit route is a much tougher aspect to all bridging loans in these days of post crunch, with virtually no sub prime lenders around, which takes out the refinance option for those with a poor credit history. Then there is the residential market which has tightened LTV's and criteria for the man in the street consumer as well as the BTL professional landlord.

So what should a broker be doing to ease the path of the client through a bridging loan?

Firstly, establish the real reason the client needs a bridging loan. Bridging loans are in essence short term finance for a client who needs to create liquidity quickly. So whether the client needs to raise money for a tax bill, or needs funds to finish a self build project, or, has put their hand up in an auction and has 28 days to find the rest of the purchase price, is bridging the best, and most cost efficient answer for them?

Often the answer is yes, but does the broker know the best way of finding out the real answer? Most lenders lend their bridging funds at anything between 1 and 2% per month, but the client wants to know what the "deal cost" is going to be. The monthly interest rate is only one small aspect of the overall cost of the loan. What about the arrangement fee, application fee, valuation and legal costs? Is there an exit fee, are there early repayment charges? Is the interest applied monthly or daily, and of course what is the broker themselves charging the client?

If the overall "deal cost" of borrowing the money is acceptable to the client, then it is the brokers prerogative to then source which company will actually complete on the deal. Many bridging loan providers will say they will happily take the deal on, then at the last minute change their mind or go cold on the deal thus costing the client money, and more importantly time.