How to choose the right short-term lender
Jonathan Caplan is CEO of Grosvenor Funding
The bridging market has grown exponentially over the last decade, with recent stats from the ASTL showing that annual bridging completions reached just £474m in September 2011, compared with September 2020, where they topped £680m. It is very possible that we could see completions reach well over £700m by the end of 2020.
Demand for short-term lending is growing as a result of some key drivers in the market including increased availability of short-term loans, with more brokers and lenders than ever before, the tightening of high street BTL lending, the speed of funding, and large demand for purchases pre the stamp duty holiday ending.
With the bridging industry becoming more competitive, there has been lowering of bridging interest rates, a rise in LTVs and an increase in diversification. Lenders are offering a greater choice of products, including loans that go beyond the traditional six-month bridge; short-term loans that migrate to longer term loans; and more bespoke lending – stepping away from traditional fixed criteria, to look at each deal on its merits.
Increasingly, borrowers are looking for fast and flexible funding as a stop-gap when they need money quickly for a property acquisition, refurbishment, redevelopment or to satisfy a short-term cash flow requirement.
So how can brokers ensure they select the best bridging lender to meet their client’s needs?
Below are some helpful guidelines:
- Check that the lender can meet the client’s timescales – they need to be fast and flexible in the current market, as getting the deal over the line is paramount. There is no point in having a cheap rate if you miss the deal due to prolonged underwriting
- Look at the bigger picture – if the client needs to get out of a bridge currently and they’re being charged £x amount a day/month and the case make take three to four months with a different lender. Then the lower rate starts to become not so low, if not more expensive. Also consider other factors in other costs such as the valuation, upfront legals etc.
- When considering a bridging lender, ensure they are clear on your timings and check they can deliver the funds on time. Be sure to ask questions of discount lenders that they can deliver within your client’s timescales.
- Don’t use a lender who wants day one fees (with the exception of the valuation fee). We have seen a number of lenders requesting ‘legal fees’ on day one. There is no need for this
- Will the lender be there in six months’ time for the second tranche of funds? In the current market, you need to be sure of the lenders’ viability and security. Also always ensure the AIP from the lender is credit backed