Oct 12 2016

A fresh approach to specialist lending 

Sponsored by
Enterprise Q4 2016
Sponsored by
Enterprise Q4 2016

According to the Enterprise Finance Second Charge Report – what was the Secured Loan Index until recently – looking at the types of people using second charges, we are seeing average loan sizes of £56,000 behind an average first-charge of around £265,000. With an average LTV of 56-61%, this tells us that these are prime customers who, for a multitude of reasons, decide a second-charge mortgage is more appropriate for them than remortgage or further advance options. That is really encouraging as it shows that we are now dealing with good quality borrowers, which should be reassuring for advisers. Moreover, it confirms that second charge mortgages are a useful alternative for advisers to consider when evaluating options for their prime clients.

Q: How does bridging finance fit into this new environment? 

A: Bridging has enjoyed spectacular success, reaching over £4bn of lending in recent months, up from just £2bn a couple of years ago. Bridging lenders successfully stepped in to fill the void formed when high street banks retreated from the market after 2008. There are now a variety of lenders with a choice of offerings that can be very useful, especially where time is of the essence for the client. Bridging is fast and flexible financing, which can really help in the right circumstances. 

Bridging loans can be used shrewdly by professional developers, buy-to-let investors and those who can refurbish and sell on a property quickly. This can include buying a property swiftly to get it off the open market, or buying at auction where there is typically just 28 days for completion. Those people then have the option to repay the loan by way of refinancing or selling the property. Bridging finance allows them to do that and, while interest rates are higher, these professionals simply factor that cost into the overall deal. These loans can also be used by individuals who encounter completion delays or a broken property chain when they’re buying a house.

For advisers, bridging offers access to customers who can prove very lucrative. A professional property developer might do 2 or 3 deals a year, where they first purchase those properties then sell or refinance, depending on their exit strategy. That gives potential for 3-6 transactions an adviser could do for that customer in a year. Brokers also build up a much stronger bond with that sort of client than with someone they might only see every couple of years at their review. 

Q: What role does Enterprise Finance play?