Bridging is benefiting from a real upsurge in interest after many years of being overlooked by a significant minority of financial intermediaries.
The continuing property investment boom and rising levels of wealth have translated into record bridging activity across the whole financial services sector.
The reason for this is simple. Individuals have woken up to the big advantages that bridging brings. The uses to which bridging can be put go way beyond the traditional use of such finance – where an individual simply needs finance to ‘bridge’ the gap between the purchase of a new property and the sale of an existing property – and makes the term ‘bridging’ something of questionable description.
Sophisticated
While traditional bridging is still a popular use of the ‘bridging’, the sector is now far greater and more sophisticated than this term
suggests.
You name any legitimate need for short-term secured finance, and bridging will invariably be the most appropriate product.
This is why I prefer the term ‘specialist short-term finance’. The use of the word ‘bridging’ has, unfortunately, led to a restricted mindset when it comes to such finance. Many intermediaries do not see the potential that it has outside its historical ‘chain-breaking’ use.
In essence, bridging is basically suited to anyone who wants finance at short notice, and is able to use their property assets as security.
They may want the cash to:
Beat a deadline to buy if their intended lender has let them down at the last minute.
Borrow against actual market value rather than a discounted
purchase price.
Release cash quickly without being tied into a long-term
mortgage.
Secure discounts from property developers by completing within days.
Create a revolving funding line against an existing property
portfolio.
Stay in an existing house while refurbishing a new property.
Borrow short-term against the value of a property, not against income multiples.
The list goes on, and is obviously not limited to traditional ‘bridging’.
The common denominator for all who demand short-term specialist finance is that the finance is required at very short notice. Residential or commercial property can be used as security, and applicants typically have the finance sitting in their bank accounts within two to seven days of
application.
Interest rates vary, but are typically 1.5 per cent per month, so bridging is very much a short-term vehicle.
Contrary to what some may think, short-term specialist finance is definitely not the right product for those in financial distress. On the contrary, it is purpose-designed for those who have wealth in the form of property assets and who wish to use bridging finance to easily and quickly extract liquidity from
these assets.
Overlooking the opportunity
There are many brokers with clients who would benefit greatly from a bridging facility, but, disappointingly, neglect to recommend the bridging option. This is usually because this form of finance is unfamiliar territory to them.
Can such intermediaries afford to overlook this income stream? I don’t think they can, when the costs of being an intermediary are greater than ever, with the resulting need to maximise all sources of revenue.
Bridging is usually the first phase of a two-phase financial transaction, so it can be very lucrative for the intermediary. The income earning potential is typically a 1 per cent commission on the bridging, followed by the commission earned on the second phase of finance, usually a remortgage.
Hopefully, this last aspect will interest a lot of those still unfamiliar with bridging. But, before they start signing up their clients, a word of advice is in order.
Make sure you develop a relationship with the right bridger, because they are not all the same. Your client will not thank you for a poorly processed, overly expensive, inflexible bridging loan.
