The bridging, or short term, finance industry has enjoyed tremendous growth over the past year. While the industry is set to continue its growth this year, the prevailing credit crunch has led to lenders in the sector tightening their criteria and resulted in more cases being unsuitable for placing with banks and other mainstream lenders. In this current climate, the role of the broker is more important than ever and is often crucial for borrowers looking to get the best deal.
Once thought of as expensive and unclear, increased awareness and bridging lenders dedicated to providing transparency have meant that bridging finance is fast becoming an indispensable tool for intermediaries. The abundance of bridging lenders in both the commercial and residential bridging markets ensures that there are plenty of options available to brokers looking to secure the best deal for their clients. However, bridging finance can occasionally present complications that may not be found in standard residential or commercial mortgages, and there are some considerations that brokers should be aware of.
Fixed Terms
Many bridging finance companies impose a maximum term on their products, ranging from days to months to years. Because finance is only required for the short term in a bridging loan, this does not usually present a problem. Complications arise if for example, the sale of a property falls through, resulting in the borrower being unable to raise the funds to repay the loan within the designated time period. In this situation, a borrower could incur penalties for exceeding the term or the broker will need to seek alternative short term finance. Brokers will need to ensure that the term of the bridge allows enough breathing space for the borrower should they wish to refinance the loan later than originally anticipated.
Exit Strategy
In present market conditions the identification of a suitable exit strategy at the outset is crucial, whether it be the sale of the property or proposed refinance to a standard term mortgage when, say, the property has been purchased. With the CML recently reporting a further reduction in mortgage lending (a 19 per cent fall in house purchase loans from December 2007 to January 2008) it is clear that lenders are tightening their criteria, making a viable exit route from the bridge a key component in the brokers service.
Speed
One of the key elements of bridging finance is the speed at which the loan is often required to proceed. A borrower will often approach bridging lenders with a short timescale to meet the deadline for a property purchase or to provide funds to solve a short term cashflow crisis and will require a broker to move quickly to secure the funds, sometimes within days. When the client needs to move fast, brokers will need to ensure that the lender they choose is able to complete the case by the clients deadline.
Many bridging lenders offer quick turnaround times for simple cases and some have an in-house legal team to quickly process more complex applications. With the increased volume of lenders in the market, competitive speed is one of the key selling points for most bridgers so there is often an option available for brokers however short the required turnaround time.
Choosing the right lender
Another potential consideration for introducing brokers can be the sheer number of products on offer. The increase in bridging lenders in recent years has led to a variety of products, with a wide range of terms and criteria, flooding the market. While increased competition between lenders can often lead to better deals being made available for borrowers, this ever increasing range of options can be overwhelming for brokers, particularly those who are new to the bridging market.
It is worth contacting lenders to get their up to date product terms and lending criteria, as well as keeping details of any lenders specialities for specific cases. With a well researched product panel, brokers will find that there is almost always a bridging loan available that suits the needs of any case they receive.
Provided that a broker has a variety of products backed by sound lenders on their panel, bridging finance need not present any more complications than a standard loan. When chosen carefully, bridging finance is an invaluable asset to any broker’s product portfolio, providing short term financial solutions to cases which would otherwise not proceed.
