Bridging lenders continue to report increased business levels, but the whole process of accessing and utilising this form of financing can be vastly improved, which will in turn generate even greater business growth in this sector. This article discusses some important and helpful issues that will assist Introducers.
The Association of Short Term Lenders, the trade body for bridging lenders, reported at the end of 2012 that bridging finance, whilst still being a small percentage of the overall mortgage market, continues to be regarded as an ever developing and significant source of property finance; and therefore introducers need to have reliable bridging lenders on their panel.
Short term bridging finance can be used for both residential and commercial transactions. Not all lenders are the same, it’s important that introducers do their research. Bridging loans are a form of short term finance secured against property, designed to finance property projects over a short period prior to sale or remortgage.
Bridging loans can be used to finance a wide spectrum of property projects, but are most frequently used by professional property landlords. Short Term Property loans are also used by developers who require funds to complete residential or commercial development projects, and by owner occupiers who require bridging funding to either bridge the time gap between a sale and new purchase or complete renovation works on their family home. Additionally, some lenders will pre- approve a bridging loan facility in advance of an auction purchase, giving the buyer confidence that they can complete the purchase transaction should they be successful at the auction.
As demand in the private rental sector has increased over the last four years and will continue to do so for the foreseeable future, property landlords and developers are opting to use bridging loans to facilitate both acquisition and completion of works quickly so that they can meet market demands in short time frames and start to generate income from tenanted property portfolios. Introducers should advise the use of bridging finance for borrowers when long term funding is not an option until works have been undertaken and the property has become habitable or tenanted.
It’s paramount that introducer intermediaries choose a bridging lender who is experienced, trustworthy, open and transparent. A good starting point is for introducers to research lender accreditation for example FSA regulated lenders, Members of the Association of Short Terms Lenders (ASTL) and Patrons of the National Association of Commercial Finance Brokers (NACFB) as they have been undergone a vigorous application process to gain such accreditation.
Introducers should look beyond merely advertised headline grabbing rates and marketing campaigns, and consider other factors such as the level of legal and valuation fees to be charged; along with a lender’s skill and expertise in the bridging sector and a proven reputation to customise the best and most appropriate deal structure and terms for the borrowers property project financing needs. A lender’s reputational credibility is an important factor in decision making when placing an enquiry with a lender. Bridging lenders should be able to complete their underwriting and legal due diligence in a considerably short time compared to that of a mainstream lender, and hence get to a position to release funds in days, not weeks, given the third party constraints of Valuation Reports and the Legal process.
Prior to presenting a proposal for bridging finance to a lender, the introducer must carry out a level of “Due Diligence” on the client and property project concerned, so that the deal can be submitted correctly, and easily understood and underwritten with accurate and complete information by the lender.
The application must be submitted to a lender with all information, whether that be positive or negative information, necessary for the lender to assess the proposal properly and understand the risk profiles of the case; full disclosure has to be given from the outset. This prevents any delays during the underwriting process and gives the lender a level of confidence as to the integrity and professionalism of both the Introducer and Borrower, with the result that the lender concludes very quickly that the deal is something that they are interested in backing from the outset.
Introducers must ensure that the proposal they are presenting to a lender has a realistic and deliverable exit strategy in place, as bridging lenders will insist on being able to assess this aspect with confidence in order for the bridging loan to be repaid at the end of the term.
In conclusion there is a growing number of bridging and development lenders in the sector offering short term bridging finance on workable and deliverable terms and structures. It is therefore important that introducers regularly review and meet their lending panel partners to keep abreast of lending strategies and parameters. The most successful bridging lenders will take time to manage relationships with their key introducers, to keep them informed of any new funding, new products and new criteria; and to get the most fitting terms for their clients, introducers need to be partnered with the best lenders, those who can meet their client’s requirements, have good reputations and have the appetite and ability to write business.