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.
A good broker always gets the facts up front first. A bridging lender will always ask what the ”story” is behind a loan, always questioning why a client wants to pay high fees and costs to obtain the money in a quick time. The hard working broker will furnish the lender with all the answers generally before application stage so that the lender can make an informed decision on day one and proceed to completion quickly and efficiently.
There are brokers out there who very rarely have to resort to bridging finance, and therefore are uncertain if a bridge is best for their clients. This is where the bridging lender can provide that personal service, going through the deal make up with the broker step by step to help highlight the costs and procedures to them so that they can then inform their client if the bridge is really for them or not.
A recent case we had, detailed below highlights this perfectly:
An introducer phoned us with regard to a client he had, asking if we could help because the client was due in court to be repossessed in 3 weeks time. He informed us that the client had had some very bad luck in various build projects that he was undertaking for various clients and he had literally poured all of his own resources into these projects to get them to work, but unfortunately with no success. He owned a fantastic property in the home counties worth £1.6 million that he had developed to a very high standard, and had a £750,000 first charge mortgage on with circa £100,000 in other unsecured and secured debts that he had built up trying to save his own business. Due to the clients bad luck in his projects he had missed the last 6 months payments on all his credit (including his mortgage) and also obtained 3 county court judgements. He was resigned to selling his house, and had indeed moved in with his family for the time being until his “mess” was sorted out.
The solution we came up with for the client was to take a first charge on his house, pay off his mortgage and all other credit, including the CCJ’s so that he could stop his house being repossessed. We deducted all fees and interest from the advance so that the client did not have to pay anything upfront other than valuation and solicitors costs. He then sold the property, paid us back and had around £700,000 to start all over again with. One very relieved client and one happy broker.
There are many roles which today’s broker can take on within the residential bridging finance sector. As mentioned above, debt management is a very big part of why people take out bridging finance, as long as the exit route is via sale of property. Auction purchases where the subject property is in a non habitable state and the high street lender would put 100% retention on it is a great deal for the bridging lender. Second charge deals where the client has significant equity in either their main residence or indeed investment property that they may own is very often a great way to create liquidity very speedily to raise money for a wide variety of purposes like buying property abroad, paying HMRC, finishing a new build property where funds have dried up, purchasing closed pubs to turn into investment properties….the possibilities are endless.
Some recent industry publications will have you believe that there are now less than 10,000 mortgage broker’s actively trading in the UK. If those figures are anywhere near accurate it is a huge decline from the near 40,000 reported pre crunch. Residential bridging finance may only be a small part of today’s broker’s armoury, but it is nonetheless a vital component that he or she must be aware of and use to the best advantage for their clients.