Bridging Finance News

Tuesday 6th December 2011

Despite the significantly valuable benefits of bridging, this particular areGa of short term finance every now and then attracts negative attention from those who fail to articulate the numerous advantages of this unique financial product.

In response to an article recently published by The Times, in which the bridging industry has been described as arriving at ‘troubled waters’, Bridging & Commercial have reached out to the bridging community to allay unbalanced information about this hugely useful source of funding.

We spoke to Mark Posniak, Head of Marketing and Operations at Dragonfly Property Finance, who voiced his concerns about this kind of press. He said: “I’m disappointed that the article latches onto one aspect of bridging, rather than explaining the diversity of its uses.”

In essence, the article presents a disproportionate focus on struggling consumers who have turned to bridging for remortgage purposes. It explains how careless lenders are, exploiting those in financial difficulty by proposing a bridging loan to provide them with fast liquidity. Whilst there are some lenders who do practice irresponsibly this is very much a minority, with the majority of the industry operating fair practices.

Mark believes that it is important that attention is called to these rogue lenders. He said: “I encourage the publicity of those lenders who issue bridging loans irresponsibly – they should be held accountable.” Yet, he also expressed his concerns about such high profile press that “…represents a blanket opinion which fails to acknowledge the positives of bridging.”

Mark added that bridging is an enabler for many people in the current climate. He said: “The use of this type of finance is on the rise because obtaining loans from mainstream providers is becoming increasingly difficult. Injecting liquidity in the market to maintain growth and maximise commercial opportunity is key.”

The article advises consumers to be particularly wary of bridging finance because if repayments are not met, the borrower may be at risk of repossession. But this is the case for any mortgage issued by any lender, high street or otherwise, which is secured against their primary residence. And crucially, lenders only have the power to do so if they are regulated by the Financial Services Association (FSA).

The FSA imposes strict rules determining how, when and to whom bridging loans, secured against the borrower’s home are written, and as the article highlights, levy hefty fines on those who fail to comply by these regulations. The FSA state their rules: “Ensure compliance with regulatory requirements and standards, and ensure fair treatment of customers in arrears.”

Cheval Bridging Finance, a high profile regulated lender, who are thus able to issue loans with first charges on residential property also gave us their perspective. Gavin Diamond, Finance Director at Cheval, explained that responsible bridging lenders “…will only ever lend if the rationale for the loan is sound and deal makes sense both from the perspective of the borrower and lender – this applies to all bridging loan applications, not only regulated applications.”

He further disagrees with Sheila Nicholl, Director of Conduct Policy at the FSA, that regulated bridging loans should be limited to ‘chain breaks’. He added: “There are a huge number of different scenarios where a bridging loan secured against someone’s home makes sense and is appropriate for the circumstances. If the bridging loan is merely serving to delay the inevitable, lenders have a responsibility to decline the application as it’s not in the best interest of the borrower. Although some of the FSA-regulated loans that we do are “chain break” deals, they only represent a small percentage of the overall number of regulated deals that we do.”

We also spoke to Richard Deacon, Sales and Marketing Director at Masthaven Bridging Finance, who made it clear that sound advice is key to the successful implementation of a bridging loan. He said: “Let’s not forget that bridging finance is, and has always been, a niche product. It is up to us as lenders to inform and educate both brokers and clients alike to the usefulness of bridging finance.”

Echoing these sentiments of quality advice, Andrew Hosford, specialist bridging broker at Voltaire Property Finance offers an intermediary’s perspective. He said: “I think the help and education that we receive as brokers is good. It is always beneficial for lenders to put in the face time with the brokers and keep us up to speed with what is changing in the market place and what they are keen to lend on and vice-versa.”

Andrew explains that lenders are extremely diligent with who they take deals from as this will ultimately save money down the line. He added: “It is important that the lenders only deal with brokers that they trust and if they have any suspicions they should pull the plug on the deal. We have to be extremely diligent with whom we take deals from and who we look to place deals with.”

He continued: “We have an excellent network of established introducers, varying in profession; likewise we deal with reputable lenders. As the majority of our business comes from introductions we cannot afford to let our standards slip, we rely on our reputation and the reputation of the people that we deal with.”

Mark Posniak stressed that bridging should never be used in place of long term finance which is often a common misconception. He said: “It is an enabler for a transaction that needs a short term shot in the arm to get over the line. Clients are choosing bridging finance for its speed rather than desperation.”

Mark also observed that the bridging market is filling a void left by mainstream lenders, as they are often able to offer larger loan sizes than the high street which currently has a lack of funds available.

He highlighted the bright future for bridging and said: “There is a growing amount of innovation in the bridging market with lenders like us now offering medium term products for commercial buy to let opportunities.”

After speaking to numerous bridging lenders and brokers, it is clear that this article offers a largely unbalanced perspective of bridging, failing to take into account the diverse uses of this form of finance. Whilst raising the profile of bridging can only be beneficial to the industry, articles such as this make it clear that a complete picture is needed to offer a fair representation of bridging. 

Alan Margolis, Head of Bridging at United Trust Bank, informed us of the flexibility and appeal that bridging has for business nowadays.

It is perhaps a testament to the flexibility of the bridging product that its use has grown so noticeably over recent years. From the origins of the traditional loan to ‘bridge’ a funding gap we now offer loans for an ever-increasing spectrum of reasons. Whether it is for those downsizing who have yet to sell their existing property, protection against chain-breaking or enabling the purchase of a property at auction, bridging loans are increasingly being seen as something of a panacea for specialist funding. Speed has also been a factor in the growth of the product combined with a flexibility to address requirements such as capital raising and for a variety of niche uses such as funding lease extension premiums.

At United Trust Bank we are used to customers approaching us for bridging finance for a variety of uses and interestingly over recent months we have seen an increase in enquiries from business owners who are now looking at bridging loans to address a variety of circumstances relating to the business.

Examples of the types of the applications that we have received over recent months range from loans to support cash flow, loans to invest in the business and in one case to raise funds to buy out a business partner. So, why have businesses started considering bridging as a product? Perhaps one element is a restriction of the availability of funds from more traditional lenders. In past years business owners might have approached their high street bank for a business loan in the first instance, but in the current climate there is certainly restricted credit availability on the high street.

My belief is that it is the specialism of the lender as much as the product that has encouraged applications from new quarters. Bridging lending is bespoke lending and providers combine personal service with experience and an ability to structure more complex loans. This represents a seismic shift away from tick box lending which often resulted in a ‘computer says no’ response.

It could be argued that with loan applications considered on its own individual merits, with the decision being made by an individual with a genuine understanding of the case rather than the criteria, for all their innovation are actually signalling a return to ‘old fashioned’ lending. Many business owners will remember the days of branch based lending where the branch manager would know and understand you and your business. They would be aware of the local environment and the attitude, ambitions and plans of loan applicants. Perhaps, ironically, it is for the most old-fashioned of reasons that the most modern of products is gaining prominence for today’s businesspeople.

In a similar vein, and in keeping with responsible lending, is the paramount importance of the ‘exit route’. For each and every loan, prudent and responsible lending means understanding how the loan will be repaid. This protects both the lender and also ensures a duty of care is extended to the borrower. United Trust Bank actively encourages mortgage introducers to explore with us the opportunities that bridging loans have to offer their clients and their businesses.