Bridging finance is a specialist form of short-term lending designed to support homeowners secure a dream home, do new-builds and buy land. As it grows in popularity, more and more brokers are interested in offering it to their customers. But bridging isn’t a simple product, so it’s crucial brokers do their homework before entering this new space, says Masthaven’s Sales Director Richard Deacon.
Over the past few years bridging loans have moved into the mainstream as a way for people to secure short-term lending to meet a range of everyday needs. But with the bridging market now estimated at £4 billion a year it is certainly no longer the niche product it was once seen to be. However, it is still a specialist, complex product and any broker thinking of incorporating bridging into their portfolio should choose their preferred lender carefully. Here I give you an overview of bridging finance and four things to tick off when you choose who to work with.
A bridging loan is a form of short-term finance that, as the name suggests, helps borrowers bridge the gap, typically between the sale of something and the purchase of a new thing, such as selling a house and buying a new one. Although it is often used for other reasons, as explained below.
Usually, though, Bridging finance is often centred around a time window or a deadline – generally speaking the customer needs to raise finance quickly so they do not miss out on something – a dream home, for example.
In the wake of the credit crunch, some mainstream banks tightened up their lending criteria, meaning many people found themselves unable to source lending finance from high street names. This gave rise to a number of alternative lenders who directly specialise in bridging.
What people use bridging finance for
- Buying a new home before the sale of their current one
- Building a house, moving into it and selling their old house (to pay the loan back)
- Buying land and building property - either to move into or sell
Benefits of a bridging loan
- Speed – taking a bridging loan to buy a new property prior to the sale of the current one can be much faster than arranging a mortgage
- Need – bridging loans offer fast access to cash, which is crucial when a payment deadline needs to be met
- Flexibility – bridging lenders often specialise in supporting people with impaired credit, short work histories, etc
What should you look for in a bridging lender?
Speed and precision
As mentioned above, a key bridging USP is that they offer the customer swift access to finance. This is essential if they are, for example, to pay for a house in a very short space of time. So look for a bridging lender with a track record in delivering cases quickly. However, it’s important to note that speed should not be conflated with rushing a case through. The key is to find a lender that can offer a quick turnaround but doesn’t sacrifice on diligence.
Experience in the industry
As a short-term financing solution bridging finance is a form of specialist lending. It’s important, then, to work with a lender that knows bridging like the back of their hand – look for lenders with some years’ experience or who’ve secured awards for their bridging work. These lenders will know the ins and outs of the industry much more than a traditional lender or a new entrant. Expert underwriters are crucial too – these guys help drive the cases through.
Focus on transparency
In a volatile economic world, honesty holds strong currency. Bridging finance is more complex than, say, a personal loan, so seek out a lender with a strong transparency-first approach. This means being open and honest about fees and charges, yes, but also things like complaints policies, how they assess deals, whether they’re directly funded, etc. Openness builds trust, which leads me nicely onto my next point.
In my experience some of the most successful bridging deals come off because the parties involved are used to working with each other. They know how each other operate, the kinds of processes they use and the approach they take. This familiarity often results in an excellent result for the customer. If you meet with a lender and can see yourselves working together for a long time, they might just be the one for you.