Bridging Introducer: You must know your market
A significant amount of intermediaries still don’t know how much a bridging loan costs. It is therefore imperative the industry remains transparent to make the cost of bridging finance as a clear as possible, particularly in a time of regulatory change and scrutiny, including the MCD which is now well underway.
Bridging loans are a short-term financing solution so the vast majority of intermediaries understand that these loans are typically more expensive than mainstream mortgages.
Although bridging finance is sometimes seen as a relatively high expense, more often than not it is an essential one. This is particularly true given the projects that would yield significant profits through enhanced values having undergone renovation and are not deemed to be mortgageable by mainstream lenders. This means the only option available is either a cash purchase or a bridging loan.
The speed of a bridging loan can often allow the client to secure a property at a much more favourable price and the cost of bridging can be offset by such a saving.
Even without a reduction in price, a good opportunity to purchase a property that has a lot of potential can be missed by using traditional finance given the time it can take.
Therefore, by making intermediaries fully aware of the associated costs this will give them peace of mind. Also, it’s evident that the intermediary market is becoming increasingly aware of the potential costs and, if anything, they often expect the costs to be higher than what is quoted.
The missed opportunity for achieving a particular goal or for making a profit can more often than not be even more harmful than the enabling cost of a bridging loan. In some instances, bridging finance is the only way to actually get a project up and running and it’s therefore no surprise that this form of specialist lending is being used by more and more borrowers for a range of purposes.
Despite fairly high interest rates and the 3% stamp duty premium, I don’t think there is much pressure to consider buying only once sold. In fact, more often than not, these transactions are at a low LTV, meaning the rates are generally lower than what clients and intermediaries expect them to be. In my experience, there is usually enough equity for the additional cost of the stamp duty to be factored into the bridging loan itself.
The additional tax can be refunded if the property is sold with an 18 month period which means the only added expense is the interest and the fees that the client will pay on the 3% stamp duty. In my opinion, this isn’t enough to put people off buying a property that they really want and are willing to go the expense of a bridging loan in order to obtain it.
In recent years, there has been more of a push towards the use of specialists for finance such as bridging, the reason being that they have a greater understanding and a better grasp of the market and how to structure a loan, simply because of their years of experience.
It is important that the intermediary community is continued to be educated in these particular areas, although they often choose to not get too involved and leave it to the master intermediary to deal with the enquiry.
In the past, some of the industry had a rather negative perception of bridging lending. However, any client or intermediary that has used bridging in the last few years should not feel this way, unless they have used a particularly bad lender.
On the whole the vast majority of short-term finance providers are ethical and have a strong Treating Customers Fairly ethos, often to the point that it can make some loans difficult to get through. For example, a lender may be overly cautious by asking for more information and clarification which the intermediary or client may feel is unnecessary.
Bridging finance is undoubtedly a buoyant sector and, by covering all facets of finance, we’re able to recommend bridging loans to intermediaries that would not have even considered it as a previous option and it is imperative that they are informed that a significant amount of the historic negativity associated with the short-term market is just that, history.
A large proportion of lenders are FCA authorised and as the industry has come such a long way in a short amount of time, we now look forward to the challenges and opportunities that lie ahead.