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Bridging Loans – Why You Need Them, When You Need Them & How To Apply For One

When utilised properly, bridging loans are among the most effective commercial finance products. We try to answer a few burning questions about such loans in this post.

If you operate in the property market, you already know that time is of utmost importance. A good deal can become unreasonably expensive if you can’t close it in time. Worse yet, someone else is almost always ready to swoop in and steal the deal from you.

In short, if you can’t move at a rapid pace, you’ll only make things difficult for you.

But then again, it’s never easy to get property deals worth hundreds of thousands of pounds through without having some time to think, consult with people and arrange for funds. The last part – that of raising money – eventually turns out to be the bottleneck.

Breaking that bottleneck so that investors, developers, landlords and regular buyers can ‘realise’ their dream deals is the prime focus of all bridging finance products.

Before We Start – A Quick Look At What Bridging Finance Really Means

There are quite a few myths that regularly float around bridging loans, especially amongst first-time borrowers. For now, we will just try to clear the air by defining what bridging loans are.

What Are Bridging Loans?

Bridging loans are short-term loans taken (usually) by commercial entities to help ‘bridge’ the gap between required funding and available (or soon to be available) funding.

It’s common for people in the property market to use the terms ‘bridging loans’ and ‘short-term loans’ interchangeably – but that’s not always correct. An easier way to differentiate between the two is this: all bridging loans are short-term loans, but not all short-term loans are bridging loans.

Example

Let’s say you are a property developer. You already have an active project that’s nearing completion. You expect it to complete within next 10 months. For now, you’ve come across a good buy to let opportunity that you don’t want to miss out on. The only problem is, the seller wants you to make an initial deposit of £200,000. You already have active development finance on your project, so you know it’ll be tough to get a buy to let loan.

In this case, a bridging loan can be the most ideal way out. You can, for instance, take a six-month bridging loan with a fixed interest rate. This loan will cover the initial deposit for your new project – and can be paid back once the active project gets completed (i.e. your exit strategy will hinge on the competition of your active project).

Here’s how the numbers would typically work out for such a case:

  • The market value of the property to be used as security: £400,000
  • Maximum LTV offered by the lender: 80%
  • Maximum amount that can be borrowed: £320,000
  • Actual amount borrowed: £250,000
  • Initial deposit to be made: £50,000
  • Balance bridging loan amount: £200,000
  • Applicable interest rate:5% per month
  • Loan term: 12 months
  • Payable interest: £1,250 per month

Why Are Bridging Loans Used? Who Are They Aimed At?

There’s really no limit to the number of reasons people and businesses use bridging loans for.

Even though, at Commercial Finance Network, our bridging finance services focus on the property market, it’s important to note that bridging loans are used across all industries and sectors. They may take different names and forms, but the idea remains the same.

Bridging loans are aimed at people who are looking to enter the property market via any of the regular channels (buy to let, convert, develop or invest). Essentially, if you are a property developer, landlord or investor, you can and should use bridging loans as a viable financing option.

Here’s Why Bridging Loans Are Popular

  • Easy To Get: Bridging loans are easier to get if you have your business and personal credit history in good health. Even when you don’t, lenders on our panel might be interested in your application. You can get a loan for an amount as high as £200,000.
  • Fast: There’s no need to waste time. When you work with an industry-leading whole of market broker like Commercial Finance Network, you get a decision on your bridging loan application within 24 hours. More importantly, we make sure that the lender releases the funds to you swiftly.
  • Flexible: Bridging finance is incredibly flexible. It’s just a short-term loan, but can well be extended up to 12 months, should you feel the need to. Moreover, most lenders are willing to offer interest-only repayments (subject to the viability of your exit strategy).
  • Cheap: Bridging loans we broker come with lower-than-market interest rates. Some of our lenders offer interest rates as low as 4% per month. It should, however, be noted that bridging finance is more expensive than long-term mortgages.

When Should You Consider Applying For A Bridging Loan?

Bridging loans are a specialty commercial finance product. Therefore, to make the most of what they have to offer, you need to know and understand when they are a good option.

Here are some common scenarios that are tailor-made for bridging loans:

Buy To Let Projects

Buy to let projects are well served by bridging loans – especially when your existent credit line/loan is fully invested in another active project.

Residential/Commercial/Mixed Use Development

Development projects, more often than not, end up stretching your budget too thin. There are a million fronts to fight on, and it’s not at all uncommon for developers to run out of money. Such situations – before the project starts or is already in progress – can be taken care of using a customised bridging loan.

Conversions/Refurbishment Projects

If you want to undertake conversion/refurbishment projects, you can take out a bridging loan to cover the costs.

Important: Know What Your Exit Strategy Is!

Bridging loans are incredibly useful when your back is against the wall. That, however, doesn’t mean that they can replace conventional, long-term financing options.

A bridging loan is best viewed as a temporary arrangement – one that saves the day.

Therefore, before you get into a bridging loan contract, it’s important for you to know how you’re going to exit. Common exit strategies include:

  1. Selling the property (being used as security)
  2. Getting a more robust, long-term development finance package or buy to let loan
  3. Placing a mortgage on your new property

Bridging Loans Timeline

A traditional mortgage would take weeks to ‘realise’. Bridging loans, thankfully, are faster.

When you work with us, we make sure that you get a decision from lenders within 24 hours. Once you decide to go ahead with a particular quote, the lender will proceed with the valuation of your property and assessment of your credit file. Everything said and done, a commercial bridging loan can go through within a matter of days.

Finally, How To Apply For A Bridging Loan?

If you don’t want to involve a broker in the process, you can approach lenders directly. This, however, is an approach fraught with risks. When you aren’t familiar with the lender’s approval criteria, you always have a very high chance of getting multiple applications turned down. This puts a dent in your credit score, making it even more difficult for you to get approved.

Such hassle can be avoided with ease, and for a very reasonable cost by working with a leading whole of market broker like Commercial Finance Network. We have on board a panel of UK-wide specialist lenders who are known to offer low interest rates and high flexibility of repayment.

Applying for a bridging loan is easy – just complete this form or call us on 03303 112 646 to get started.

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Bridging lenders warned of the risks of cutting costs

A law firm is warning bridging lenders of the dangers of procuring legal or surveying services on the basis of price alone, after it emerged many were compromising on due diligence to cut costs.

The alert comes following a study by Brightstone Law, in which it identified a trend where new lenders in the market were seeking to drive down fees by procuring professionals based simply on price.

The law firm said while this might work commercially, on a superficial level it could potentially be damaging to lenders further down the loan journey.

Indeed, it warned a law firm or surveyor employed simply on price might not have the right knowledge, skills and experiences to handle issues and complications which might arise in short-term loans.

And it raised concerns if one of these firms were asked to provide less than a comprehensive service, a so-called lite version, which was appropriately priced, it could end up being delivered by a less senior staff member.

Jonathan Newman, senior partner at Brightstone Law said: “For the first time in all my years of practice, too many to mention, my firm is turning away new custom. The reason is not lack of capacity. Far from it. The teams and practice continue to grow to meet demand.

“Many of these new lenders don’t have the benefit of past experience, or may have erased from their memories, the hard lessons taught in the last recession. These potential new clients appear to have a fixation on price and an appetite for the dilution of service requirements – professional services lite.”

Bridging market evolution
The bridging market – along with the accompanying legislation and regulation – has evolved over the past few years, which Brightstone Law said had led to the creation of more complex challenges.

Meanwhile, the responsibility of firms to deal with their own regulatory issues such as anti-money laundering, GDPR and cybercrime created additional layers of red tape.

This, said Brightstone Law, meant more sophisticated and reliable support was required – but this came at a cost.

Newman added: “In today’s market, these considerations should not outweigh a requirement for the right professional resource, to deliver the right professional job, comprehensively and thoroughly. I hear much about lenders and this risk curve – but those discussions centre on riskier lending, not on watered down, professional relationships.

“More now than ever before, lenders need the right professional partners to protect them, in a market where the pressure is to be flexible and commercial; where the classes of lending are trickier; and where levels of default and areas of dispute remain more common, than in the mainstream mortgage market.

“Lenders need to balance their appetite for greater distribution share, with minimising risk, not by indirectly and unconsciously increasing it.”

By Kate Saines

Source: Mortgage Finance Gazette

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Bridging loan figures suffer slight fall but outlook is positive

Bridging lending has fallen slightly during the first quarter of the year but strong competition and signs of average loan size increases indicate a market which is on an ‘upward trajectory’.

That’s according to the latest figures from West One which has released its Bridging Index showing gross annual bridging lending reached £5.5 billion in Q1 2019.

This was a slight decrease of 2.6% on the previous quarter, which yielded a high of £5.7 billion. But West One said it was always going to be challenging to maintain this powerful growth trajectory.

What’s more, according to its estimates, the average loan size increased by 11% through the quarter, compared to Q4 2018, which was the highest performing quarter of last year.

Trends: ‘Bridge-to-let’

As well as releasing lending figures, the West One Bridging Index also analysed trends within the market. It said competition had been maintained thanks, in part, to the wealth of new bridging products to enter the market.

New ‘development exit’ loans to help builders transition from repaying their development facility to obtain the sales values they want to achieve have been created.

But West One said it had also noticed increasing demand for ‘bridge-to-let’ products, which enable landlords hit by tax relief changes and affordability stress tests to bring derelict properties up to scratch to add to their portfolios.

Interest rates

West One’s data also revealed bridging finance interest rates had fallen to their lowest levels, with a Q1 average of 0.95% per month.

Factors contributing to this included a stable Bank of England base rate, strong market competition and the continued interest from new entrants combined with well-funded players maintaining attractive rates.

West One said the fall in rates was also driven by the increase in regulated bridging that was priced at a lower rate of interest. This, it explained, had meant good value for borrowers, resulting in the continuing interest and performance of the sector.

Stephen Wasserman, managing director, West One Loans: “At West One, we’ve seen robust growth in our bridging service this year, which includes completing one of our largest loans.

He added: “It is positive to see the average loan size increase, too. With the ASTL reporting a record number of applications among their membership, it’s clear that bridging finance is still very much on an upward trajectory.”

By Kate Saines

Source: Mortgage Finance Gazette

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Bridging applications hit record value in Q1 2019

Bridging loan applications totalled more than £5.96bn in the first quarter of this year, representing growth of 13.6% compared to Q4 2018 and an increase of 6.9% on the same quarter last year.

The Association of Short-Term Lenders (ASTL) found applications for the year ending March 2019 were £21.8bn.

Benson Hersch (pictured), chief executive of the ASTL, said: “The results for Q1 2019 were a mixed bag. For completions, this was the lowest result since Q3 2017.

“On the other hand, the loan book total is the highest since Q1 2018 and the applications were the highest ever. We would expect this high value of completions to result in improved completions in Q2 2019.”

Bridging lender loan books reached £4.14bn in Q1 2019, up 7.9% from Q4 2018, although slightly down on the same period last year.

The value of completions during Q1 2019 was £898.5m, representing a 13.1% decrease on the same period last year.

Included in the figure for bridging completions was £92m of development loans. In addition to this, ASTL members wrote a further £206.6m of non-bridging development loans, making a total of £236.9m.

By Michael Lloyd

Source: Mortgage Introducer

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2019 will be the year of rebridging

Rebridging will define 2019, as mainstream bridging lenders are likely to get nervous about extending deals, Chris Oatway, founder and director of LDNfinance, has predicted.

He said that mainstream lenders may want to do less rebridging this year as no one wants to keep rebridging a deal multiple times, leaving room for others to step in. He also pointed to bridge to sell as another growth area.

Oatway (pictured) said: “There’s been a lot of rebridging over the last couple of years, increasing month-on-month. We still see there being a massive market for rebridging. The year of the rebridge is still ahead.

“Rebridging and bridge to sell will be strong this year due to the slow market. Every deal is taking longer to go through so I can see both of these areas growing.

“The mainstream lenders won’t stop rebridging but I think they’ll get more nervous in that area, spending more time assessing the deal, making a decision and not saying yes to everything like they may have been doing before.

“However, that section of the market will still be serviced by other lenders. There’s so many options you can have for bridging finance that no matter what the requirement is, whether rebridging or bridge to let, it will be serviced because there’s enough people out there to cater for it.”

Oatway said you just have to know who to speak to make sure you can get these rebridging deals done and he’s seen a lot of distressed sales with auction deals where people want to get out of it quickly, pre and post Brexit.

Oatway added: “Auction purchases will also remain strong but are not likely to significantly increase, in proportion to the bridging market, unless there is a hard Brexit and a big knock-on effect.”

By Michael Lloyd

Source: Mortgage Introducer

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Threats to the bridging sector

The ongoing uncertainty around the UK’s scheduled departure from the EU has epitomised an environment in which we have had to learn to expect the unexpected, which is not an ideal situation for lenders or advisers.

As we approached the end of last year, in the short-term lending market we were greeted with the news that Amicus Finance had entered administration, which, combined with the environment of uncertainty, has led to questions in some quarters about the future health of the sector.

With this in mind, it is useful to take a step back from the noise, to review the role the market has played in the past and to take an objective view of current challenges.

Evolution of sector

When the 2008 credit crisis hit the UK property market it was important for alternative finance to fill the gap left by the mainstream mortgage sector, and short-term lending became more significant for customers as it provided the flexibility they needed to achieve their objectives.

The Association of Short Term Lenders was set up in March 2008, initially with 19 members, with the dual objectives of protecting the reputation of the sector and providing a voice for lenders involved in bridging and secured lending for terms of between six months and two years.

The role of the ASTL has been to promote responsible lending, transparency and professionalism in the bridging finance sector, with members subscribing to our code of conduct, membership rules and value charter.

And we have achieved a lot over the past decade, growing our membership to more than 60 and developing an increasing influence with various bodies including the Financial Conduct Authority, the National Association of Commercial Finance Brokers, Association of Bridging Finance Professionals and HM Treasury.

The lending landscape has also changed significantly over this decade. More institutions have spotted the opportunity and new lenders have entered the market, increasing the options available for borrowers.

Competition is important for any market. Not only does it provide customer choice, but a larger number of players can raise awareness of the product and stimulate demand.

We have certainly seen new entrants into the bridging sector helping to spread the message about short-term lending as a flexible funding solution and there has been increased understanding about uses for bridging among intermediaries and consumers.

Those consumers have also benefited from another consequence of increased competition, with greater availability and lower pricing. But these benefits for consumers also provide a challenge to lenders.

A report by EY into the bridging market found that three key trends have emerged as a result of increased competition, with lenders experiencing margin compression, stretching to higher loan-to-value ratios and introducing more flexible product terms and features.

It is important for any lender to manage these risk factors, but amidst an environment of high competition and some significant economic challenges, it is important for bridging lenders to be cognisant about balancing their appetite for market share with taking on excessive risk. Failure to appropriately manage this risk can lead to casualties, as we have seen.

There are undoubted economic challenges ahead. The OECD’s stable forecast for the UK is based on the assumption that there is a smooth exit from the EU – and this is looking increasingly unlikely.

The OECD says failure to come to a withdrawal agreement with the EU is by far the greatest risk in the short term, suggesting that a no-deal scenario could subtract more than 2 per cent from real GDP over two years, and elsewhere, media speculation makes the OECD outlook appear decidedly positive, with the papers full of gloomy predictions.

Brexit is not the only risk ahead. There are many indications the global economy has passed its peak in the cycle and there have been signs of volatility in markets across the world.

It is also widely expected that there will be a property price crash in Australia, with recent data from CoreLogic confirming house prices have fallen the most in a single quarter since 2008.

History tells us the world can be a small place when it comes to economic contagion, and if banks suffer losses in Australia, they may become more risk averse in other regions.

In addition, we do not know the impact the UK’s growing mountain of debt will have during a downturn.

The country’s total debt is projected to reach £6.7tn by 2023, with households accounting for £2.6tn of that, a larger share than both the government and non-financial companies, according to analysis byPWC.

Cautious optimism

There are certainly challenges, but there remains opportunity among the danger, and perhaps reason for cautious optimism about the sector.

The unemployment rate is historically low and real average earnings have risen. These are strong economic foundations and, if the Brexit situation is resolved without inflicting significant damage to the economy, there is potential for a bounce-back.

The OECD says Brexit-related uncertainties have held back economic growth since the referendum in 2016 and so any positive outcome from negotiations could lead to stronger than anticipated results.

The key for short-term lenders is to proceed with care. Companies need to invest in people to ensure the threat of skills shortage is mitigated and to have confidence in the decisions employees make.

They also need to invest in technology to help deliver this peace of mind, so that skilled people have reliable data to work with, and information-gathering needs to be improved.

This is why it is so important that, as an industry, we are able to put aside commercial differences and come together to share expertise and best practice.

Increased competition among bridging lenders can grow our market and increase opportunity for everyone, but it also comes with risks, particularly in such an uncertain environment.

By working together we can help to identify those risks and agree a shared approach to mitigate them.

Developing this approach of mutually beneficial co-operation will be a key focus for the ASTL in 2019.

With a cautious approach and the ability to share and adapt, we believe the bridging sector will emerge from the uncertainty with greater resilience and more opportunity.

By Benson Hersch, chief executive of the Association of Short Term Lenders

Source: FT Adviser

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Surge in new lenders entering the bridging market

There’s been a surge of short-term lenders entering the market over the last 12 months, up by 50% on 2017, Brightone Law has found. 

Short-term lending transactions are also up 15% year-on-year.

Recent figures from the Association of Short-Term Lenders (ASTL) also show that bridging lending amongst its members rose by 15% in 2018.  The value of applications have also increased, up by 13.4% to nearly £21.5bn and total loan books increased by 3.6%.

Jonathan Newman, (pictured) senior partner at Brightstone Law, said: “Despite Brexit and slowing house prices, the industry has remained resilient.

“The current economic and property market conditions do not seem to have adversely affected transactional volumes, or the appetites of lenders to fund over the market as a whole.

“Whilst some lenders have applied greater caution in underwriting, others have seized the opportunity to gain a foothold.

“Short-term commercial lending is regarded as the last area of unregulated lending, and therefore relatively quick and easy to set up to lend and open to all.

“With the current climate amongst institutional lenders remaining cool and processes viewed as tiresome, labour intensive and unsatisfactory, significant volumes of finance are being redirected into the short-term lending space.”

Newman added: “We are also seeing a loosening of lending criteria and increased flexibility from new lenders entering the market. These new entrants are driven, passionate and have a willingness to adapt and innovate.  They will disrupt the market, just like the first wave of challengers did 10 years ago.

“However, what is deeply concerning is that some of these new lenders lack experience and so have the potential of being exposed to poorly non-performing customers, or unsuitable security.

“Many of these new players are unable to identify future problems and may not  have the personal  know-how, gained from experience, to deal with problem issues in an effective and sensible way.

“However, they can reduce some of those risks by tapping into the experience of professional partners for support.”

Newman said that selection of key professional partners is all-important to securing a successful start.

He said: “Cost is a factor in that selection process but should not be the sole one.Hence selection of key partners is vital.

“Valuers with longstanding experience of market volatility, but with particular experience of the chosen asset class; intermediaries that introduce, but who are active in the wider finance market, and who understand the borrower and maintain the relationship to contribute and participate in the exit too; solicitors who have the technical competence and process to transact the property side competently and securely, but with transactional  experience, knowing what can and sometimes does go wrong further down the timeline, and how to deal with that; solicitors that do not just identify issues but are capable of offering solutions.

“Brightstone Law has a well-established reputation for short term finance transactions and recovery I take great pride from the longevity of our lender client relationships.

“So many of our clients were once those disruptor new boys on the block and now, are established, key players, leading brands and the benchmark for new entrants. To have played a role in their growth and success is truly satisfying from our perspective.”

Source: Mortgage Introducer

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Could bridging loan business surge in 2019?

A plethora of TV property programmes have over the years inspired a generation of property investors and restorers in the UK, which has given a boost to property auction houses and helped fuel an increase in bridging loan activity.

In addition, changes in buy-to-let have caused landlords to chase opportunities for better yields. Some investors have made good returns by purchasing properties at low prices and renovating them to increase the value and potentially derive attractive rental yields.

The Association of Short Term Lenders (ASTL) recently reported that bridging lending recorded a 21% increase in the 12 months to September 30th, 2018.

Buying rental property at auction

For those looking to invest in rental property at auction, there are time pressures around financing.

You must pay 10% of the property auction price on the day and settle the full amount within 28 days of the auction taking place. Some houses may offer 56 days, depending on property and auction house rules.

Securing a mortgage in that timeframe is generally impossible. Regardless of timescales, if you are purchasing a property that is uninhabitable (no functioning kitchen /bathroom), a mortgage lender generally would not extend a mortgage. This is where a bridging loan comes in.

A bridging loan is a form of short-term lending and can be arranged in much less time than a buy to let mortgage. Turnaround times are typically 28 days, although one of the lenders we work with has the ability to pay out funds from as little as two weeks from application.

This means you can go to auction with a timely means of securing the finance you need to purchase your property.

Bridging loan uses

Bridging loans are not just useful for auctions.

They can help to finance a number of scenarios such as renovation work on a property, with the aim of either selling the building for capital growth once the work has been carried out, or letting it out (when it is in a suitable condition) for rental income.

A bridging loan can also be used to purchase land for future development, or (as mentioned above) to purchase uninhabitable property.

Borrowers can usually secure bridging finance on up to 75% loan to value and, at the time of writing rates start from 0.44% (this is subject to change).

Exit strategy                                                                                                                                            

When using a bridging loan, it is vital you have a clear exit strategy – i.e. a definitive plan on how you will pay it off.

Bridging loan rates are more expensive than buy to let mortgage rates and they are charged monthly not annually. Not having a robust method of repaying the loan risks unnecessary and expensive repayments at best, which could lead to financial hardship.

No broker should ever arrange a bridging loan for you without planning the exit, and if there is no viable way to pay off the bridging loan, they should not recommend a bridging loan to you.

An exit strategy could be as simple as the intention to sell the property to pay off the loan.

It could also be that the property, once renovated, is intended to be used as a rental property. In this case, the borrower may opt to pay off the bridging loan with a buy-to-let mortgage. The property would have to be in a suitable condition to meet lender criteria and have enough equity to satisfy the lenders’ loan to value limits.

In cases where a business has taken out a bridging loan, future operating cash flows may be used to pay off the loan. However, a projection of future cash flow is not a secure exit strategy.

How commercial bridging loans can contribute to solving the housing crisis

Land availability and securing planning permission can be tricky propositions.

Yet the declining UK high street could be a viable means of helping to create living spaces.

A report from the Federation of Master Builders, in 2017, suggested that as many as 400,000 new homes could be built or created through conversions above shops.

The conversion of empty office blocks or shops into homes, could save greenfield and brownfield belts, whilst supplying much-needed homes from existing structures, saving on tools and materials by recycling buildings.

Borrowing levels on a commercial bridging loan can be available up to several million pounds and financing can be completed in two to four weeks.

On commercial property, you can borrow up to 75% loan-to-value, with most lenders averaging at 65%.

Exit strategy on a commercial bridging loan

Once again, you must have a clear exit strategy as typically any bridging loan must be redeemed within 24 months.

Your options are to refinance to a term loan, which is usually secured for three or more years for commercial lending. This suits a scenario where a building has been renovated for commercial or residential letting, and the borrower is interested in retaining the investment and generating monthly income.

Alternatively, you may look to sell the building for capital growth and pay off the outstanding loan, providing enough value has been created in the property.

As the housing crisis continues to attract concern and political debate, this section of the bridging market could be set for growth in the coming years.

Source: Mortgage Introducer

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Bridging loans provide cost-effective solutions

As indicated by falling transaction volumes over the past 12 months, selling a built asset is never easy in today’s market, whether it’s a residential or commercial property. Offers that realise the full value of an asset have, in my experience as a specialist finance loan provider, taken longer than normal to materialise over the past year, especially when a developer is selling multiple units at a time.

Some developers will opt to reduce their prices for a quicker sale – and we understand that, especially when they’re waiting for multiple sales rather than one.

But others, equally understandably, are wary of dropping their prices and want to realise what they believe to be the full value, even if that means waiting longer to find the right buyer. For those developers, companies such as ours can offer development exit bridging loans to give them some breathing space, and we’re seeing more and more developers seeking that kind of facility.

There are a number of reasons a developer might want such a loan. Development finance for the project at hand might have tight terms that require payment within a few months of completion. Active developers might also want to free up equity to fund other schemes while they wait for a sale at the right price. These developments are completed, often to time, and are effectively de-risked – so why shouldn’t developers be able to pull some money out of them?

Whether or not a developer is looking for this type of loan is naturally very dependent on the term they have on their development finance, how complicated the build was, any time or cost overruns, and how much time they have to sell, but nonetheless it is a trend we are seeing across both residential and commercial markets. It is not just our existing clients that are seeking development exit loans; we are seeing a mixture of smaller, new developers alongside larger, more established players looking for this type of flexible finance.

Bridging loans

For the most part, developers simply want more time to find the right buyer, and in most cases they’re seeking a like-for-like refinance of existing loans. They might have a development loan reaching term end, for example, and a bridging loan from a company like ours can give them piece of mind by effectively increasing the term on their finance.

These bridging loans are not necessarily more expensive either: at the lower end of the loan-to-value spectrum we offer rates starting at 0.55% a month, and we do not charge any exit fees. That means that, as well as providing developers with more time, these loans can also sometimes be more cost-effective.

It is something we have been doing for years, but now that more companies are looking for this type of solution in today’s market, we hope to be more flexible than ever. We understand that circumstances change quickly on development projects. That’s why, in some cases, we can offer loans with an 18-month term, which is longer than for a normal bridging loan.

Buy-to-let

We’ve also had cases where investors looking to sell a number of residential properties have moved into one of the units, and the loan then becomes a regulated bridging loan. Essentially, if there are variations along the way or bumps in the road, we’ll be able to accommodate it – and we have a large, dedicated loan team on hand to see to our clients’ needs.

Unlike some other bridging lenders, we also provide a full spectrum of finance products, including development finance, which means we understand developers more than most. Last year, we also launched longer-term second charge mortgages on both residential and buy-to-let securities and we have exciting plans to launch into other areas of lending next year in the hope that it gives our clients surety of not having to jump between different lenders, offering them a one-stop shop for their financing needs.

Development exit bridging loans are a product that we are very much used to offering, and the main variable on our part is the length of the loan term. When a developer is selling multiple units, such as a residential apartment block, then we are very used to working with them to come up with the best strategy.

Development finance

We believe the increased flexibility of companies such as ours is part of the trend that is seeing smaller, specialist lenders stepping in and providing ever-more cost-effective solutions for developers, which helps get more homes and offices built. Even with Brexit and all the concerns people have about the housing market, there is still a shortage of property and there are pretty big targets to hit to meet housing needs, which makes specialists like us more important than ever.

Our development finance starts at 7% a year, and that is getting close to the high street and other established lenders. Specialist lenders like us can also give developers more leverage – and clearly, cash is very important when it comes to development. Having the liquidity to make sure the project gets finished correctly, and on time, is vital. The ability to push the loan-to-value to a higher level than the high street or more traditional development lenders is therefore an increasingly attractive option.

By offering the full spectrum of financing options, we hope we can build long-term relationships with our clients, and give them the confidence that we will be with them no matter the situation. In that way, development exit bridging loans, as well as our upcoming buy-to-let product, feel like a natural extension of what we have always done and will continue to do.

Predicting what will happen to the residential and commercial markets over the next year is difficult, but as long as transactions are taking longer than usual, bridging loans can offer developers the time and support they need to sell their high-quality completed assets at the right price.

Source: Property Week

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Industry calls for dedicated bridging qualification

Bridging experts have called for the introduction of a bridging qualification to improve reputation, education and self-regulation across the industry.

Brian West, director of Central Bridging, who sits on the board of the ASTL (Association of Short Term Lenders), namedropped the old FISA (Finance Industry Standards Association) qualification for secured loans, which he said drove up standards and confidence.

He said: “I regularly push for examinations and training. Pretty much everybody, every underwriter within the main brokerages took the old FISA qualification and got their certificate.

“The bridging industry should be more aspirational. Why don’t we have a bridging foundation course?

“Let’s pull together the ASTL, NACFB and FIBA and some of the bigger lenders. If Brightstar put all its staff through it then Positive would follow suit as would every brokerage out there.

“With regulators you have to be seen to be doing the best you can to self-regulate, so it’s better if the FCA looks at an industry where the main trade federations and bodies are pulling together to produce a bridging foundation examination, even if it’s only a one or two day course to get a basic foundation in bridging rather than seeing an industry doing nothing.

“There are plenty of lenders and organisations that would get actively involved and would be prepared to pay and help.”

Rob Jupp, chief executive of Brightstar, has called for a bridging qualification before and is surprised one hasn’t yet been introduced.

He said: “The short-term lending market has grown significantly in recent years and lenders, distributors and brokers have all worked hard to raise standards and make bridging finance a more accessible solution for thousands of customers.

“But short-term mortgages are a distinct product that come with their own considerations and I am staggered we have still not introduced a qualification that can help brokers to demonstrate their understanding of the sector.

“We worked hard to get this across the line when I was chairman of the AOBP and we need to continue to continue that work to help continue to raise standards in our industry.”

Damien Druce, director at Assetz Capital, agreed, emphasising it should be driven by the industry, not regulators.

He said: “There’s definitely room for this but it should be driven by the industry rather than the Institute for Financial Services or the FCA.

“If you can get all the trade bodies in a forum with some key players, brokers and lenders, you can probably come up with some kind of qualification that’s probably not as formal as a CeMAP but has that practical side to it.

“The biggest benefit to this is the reputational enhancements to the bridging market because there’s still probably a little stigma attached to it, although it’s nowhere near as it was a long time ago. It’s improved massively.”

However Mathew Tooth, chief commercial officer at LendInvest, was against the idea of an industry wide qualification, favouring an on-board course at individual organisations instead.

He said: “It’s up to each to decide how they work and what they invest in. I think it should be an on-board course.

“The notion of a full qualification with an exam at the end where bridging and development is so interlinked and the syllabus would expand, wouldn’t serve a great purpose but some kind of on-board course lasting a couple of days for different types of stakeholder, for someone starting at a brokerage, someone starting at a lender, would be really good.

“So I’m for on-board training but not an industry wide qualification at this stage.”

Source: Mortgage Introducer