Why do some intermediaries ignore bridging finance? ASTL

Possibly this is because bridging finance is still perceived by some as borrowing of last resort. This is a perception, not reality, and one that is very much misplaced.

The sector has become increasingly competitive and the costs for standard ‘vanilla’ bridging loans have tumbled in recent years. Indeed, because of the flexibility of lenders who view each application on its own merits, rather than trying to fit it into a rigid tickbox structure, often a bridging loan is the best solution.

The primary basis for a bridging loan is to enable the customer to get from A to B – to overcome a temporary financial need until a more permanent solution is found. Repayment can come from a variety of sources. These include the sale of property, long-term refinance, sale of other assets or maturity of an investment. The latter would particularly apply where early liquidation of the investment would yield a much lower return due to early repayment penalties.

Another perception is that bridging is only useful for property purchases – this is not the case. There may be an opportunity which requires immediate funding; a temporary cash flow problem in a cyclical business or a wish to delay a property sale until spring time; or until refurbishment has been completed. What bridging can achieve is to provide the time to achieve the best possible result for the customer.

For serial property investors, bridging enables them to make quick purchasing decisions e.g. at an auction, or to restructure portfolios. It also allows them time to make refurbishments and find tenants, so as to maximise their long-term funding.

Where property has been inherited, it allows for beneficiaries to obtain funds before a sale takes place.  This will allow time for the property to be marketed to get the best possible price. It could also solve an issue where some beneficiaries want cash and others would like to hold on to the property. If the property has been lived in by the same people for many years, it may need updating to make it saleable.

Another use is where the older generation wish to downsize, but have to refresh their property first. Bridging would either allow them to buy their new, less expensive property, or to release funds for them to help their families buy their own homes. Where this situation exists, lifetime mortgages may not be an appropriate solution.

The sector has become more professional and more responsible and intermediaries should always consider whether bridging is appropriate in a given situation. Bridging lenders have skilled underwriters who are able to assess a case and provide a custom-made solution, rather than a ‘one size fits all’ attitude.