Specialist Lending - May 2017  

Rise of bridging for advised clients

  • To learn what bridging finance is.
  • To understand the regulatory trends affecting lending and underwriting.
  • To ascertain ways to use bridging with clients
CPD
Approx.30min
 

Bridging loans are essentially a short-term borrowing solution for clients who need to facilitate a property deal, usually with a fast turnaround time.

Bridging has traditionally appealed to high-net worth borrowers needing to use their residential property as a security to raise funds.

Often, these could be self-employed professionals looking to invest in their business, or to pay a high tax bill.

But the market is changing and so are the ways in which brokers can use bridging for their clients.

Over recent years, greater numbers of professional landlords have started to bridging as a means to extend or improve their buy-to-let portfolios, or to develop properties.

Loans can be made across residential and commercial bridging, bridge-to-let and bridge-to-sell, heavy and light refurbishment, as well as development finance.

Moreover, bridging loans can provide a speedy solution for clients wanting to do any or all of the above, where traditional mortgage lending just cannot be provided quickly enough, or at all, in some cases.

As both Andrew Montlake, director of London-based mortgage broker Coreco, and Harry Landy, managing director of Enterprise Finance, told FTAdviser, "speed" is usually the primary consideration for clients wanting some short-term finance.

Tougher environment

Indeed, a tightening mortgage market overall has made it harder for some clients to get traditional buy-to-let or even straightforward mortgages, despite the ultra-low interest rate environment.

For example, Jamie Smith-Thompson, managing director of financial adviser Portafina, told FTAdviser of how one small business owner client of his, who wanted to remortgage his home to fund a high tax bill, was met with countless obstacles from mainstream lenders. 

Mr Smith-Thompson claimed the only lender who said they would do the remortgage was offering it at 8 per cent and a set-up fee of £8,000 to £9,000, prompting the adviser to "shop around" to find a non mainstream or bridging lender who would help his client.

He comments: "Since the credit crunch of 2008 there has been a tightening of lending criteria. I have been in financial services since 1999 and it is the most stringent now that I have ever seen.

"When there are remortgage 'deals' like this around, it is a clear sign mainstream lenders are taking advantage of people.

"I've now been considering second charge lending or even a personal loan."

This is just one example of an advised client needing specialist help, which illustrates how alternatives to traditional mortgage lending are becoming more sought-after.

This may explain why commentators in the video have seen a marked trend towards bridging finance among advised clients over recent years.

Choice

Moreover, there are more bridging products and even lenders for advisers to choose from, which offer everything from straightforward, small-scale bridging loans to large-scale, complex loans that require more than just a template of set rates based on the loan-to-value.

CPD
Approx.30min

Questions appear on the last page of this article.