As with most things, when it comes to bridging finance there’s more to it than immediately meets the eye. Traditionally a bridging loan was well defined and to be honest quite restricted. You took out a short-term loan to bridge the gap between a mortgage on one property while waiting for another to be completed.
The definition of a bridging loan these days is open to much debate; the majority of lenders and other institutions and trade bodies would define it as a short-term loan of no longer than 12 months. However, there are some that define it as anything up to three years in length.
However, the term ‘bridging loan’ has become something of a catch all to describe any form of short-term finance. No matter the term, the one significant thing to understand is that there are now many more uses for a bridging loan.
Pure bridging for me is the original requirement for a regulated bridging loan, where someone wants to buy a new residence but theirs hasn’t yet sold. On top of that, there are now all sorts of products that can be described as bridging finance. At Hope Capital, for instance, we offer bridging solutions for development funding, refurbishment funding, debt forgiveness, commercial bridging loans and property refinance etc.
The trick for brokers is to understand just how versatile a bridging loan can be, how many different client’ needs it can fulfil and how beneficial it can be to look at multiple funding sources. Of course, there will always be the traditional ‘bridge’ and, according to the latest Bridging Trends figures, mortgage delays continue to be one of the biggest uses for a bridging loan.
However, when landlords in the UK are looking at their portfolios in a different light, since new stamp duty and tax changes came into force, we have seen an upsurge in loans for refurbishment. Rather than selling more landlords are looking to enhance the value of properties already held in their portfolios. To fund these refurbishments owners are seeking short-term finance with remortgage of a higher value property as their exit route.
Flexibility isn’t just about bending over backwards
One thing that brokers should understand is that many lenders in the bridging market have more flexibility than mainstream lenders, depending on the funding lines each has in place to facilitate their loans. A privately funded and owned bridging lender, like Hope Capital, will be much more flexible on loan terms than institutionally funded lenders, and will work with a broker to find solutions for their clients.
For instance, we do a lot of short term commercial lending. Debt forgiveness deals agreed with mainstream banks are some of the best deals we have facilitated for borrowers. We have also been involved with loans where we have worked with asset finance companies to release quick funds on properties owned by their clients.
There are many types of projects and each client’s needs are different, as a result finance has to be diverse. Lenders have to have the ability to assess the borrower’s situation, work with them to ensure not just affordability in the short term, but also a realistic exit route. Recently there has been a worrying increase in the amount of re-bridging finance, which shows the number of cases where the agreed exit route has proved unrealistic.
There are now more lenders that are looking at cases with a flexible approach, whether through private funding or because the investment stream is more open to risk. At Hope, as a privately funded lender, we are able to make our own decisions, look at each case with a more entrepreneurial eye and find the right solution, term and repayment method. I wouldn’t say we bend over backwards, but we are very flexible.
The most important thing to recognise, when considering options for a client, is that if there is a time limit, whether it’s speed of completion or term, then there is usually a bridging lender that can help. As the saying goes ‘If you don’t ask, you don’t get’ and when it comes to bridging finance this is true in more cases than you might have considered.