The underwriting process for bridging loans
Laura Carr is head of underwriting at Hope Capital
The USP of bridging, as compared to traditional mortgage lending, is that it is fast.
Borrowers – and their brokers – come to us when they want funds fast to finance a specific project.
At the same time, lenders need to ensure that we apply the same skill, care and due diligence when underwriting a case, irrespective of the speed of the funds needed.
I am firm believer in underwriting each loan individually and transparency between all parties so that we can fully understand all the details of a case and keeping in constant contact with brokers to ensure they understand what is happening and any requirements we have of them.
By maintaining this high level of interaction and engagement, we are often able to lend on cases that other lenders are unable to consider – because only by understanding all the issues, can an appropriate solution be found.
The key to effective underwriting is to focus on the borrower’s exit strategy, ie how viable the actions and the timeframe it depends on.
The most important factor is the borrower’s circumstances, aims and aspirations for the funds.
Another important factor is getting accurate valuations of the property (or properties) against which the borrower is seeking to secure the loan, including reliable comparisons with similar properties in the nearby area.
This will give lenders a good idea of whether an investment project is soundly based.
To this end we will also take into account a wide range of potential issues that may cause costs to escalate or timescales to stretch into the middle distance.
Where the borrower needs planning permission for change of use, for example from commercial to residential use, this will have an impact on our view of how long it will be before a property can be resold at profit or begin to generate significant income and obtain longer-term refinancing.
Once we have the full picture we can support and guide to structure the proposal to suit both client and lender.
The borrower’s own experience as a property investor, doing similar projects or their contractors’ experience, as well as their personal financial history, is important, too.
If they have a track record of successful projects, this will be a significant factor in giving a lender confidence with the deal.
In order to perform all these checks and assessments, it is absolutely vital that we as the lender receive the right information from the broker, from day one.
Neither borrowers nor lenders can afford to get this part of the process wrong.