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Has bridging shaken off its ‘dodgy’ reputation?

by: Jonathan Samuels
  • 25/04/2013
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Has bridging shaken off its ‘dodgy’ reputation?
Jonathan Samuels, CEO at Dragonfly Property Finance, looks at how the bridging industry has changed in recent years and what the opportunities are for mortgage brokers.

Over the past few years we’ve worked with a growing number of brokers who have used bridging for the first time. And it’s encouraging to see.

In the absence of funds from the high street, finance had to come from somewhere and alternative finance, which includes bridging, stepped up to the plate.

There are no end of industry figures outlining the growth of the bridging sector over the past 3-4 years, from lenders and packagers alike.

But the way the industry has come on is about more than just growth. It has also matured considerably and thrown off its image of being a dodgy sector and the loan option of last resort.

There is a new sense of professionalism and the majority of new lenders are very much focused on being around for the long term, not just in it for a quick buck.

So what are the benefits of bridging finance for brokers who may be new to the sector?

Firstly – and most importantly perhaps – bridging is a highly active sector at present. Demand is rampant. The professional investor is busier than ever. The same can’t be said of term mortgages where owner-occupiers remain cautious.

Indeed, the latest figures from the Council of Mortgage Lenders show that gross mortgage lending in the first quarter of 2013 was 9% lower than the final quarter of last year.

Second, bridging loans can be far more lucrative for brokers than term mortgages: proc fees are often five times higher than those on mainstream mortgages.

In fact, we know a number of brokers who are a lot more proactive with short-term finance because of the fluidity of the sector and the commissions on offer.

Third, and I think this point is often underestimated, understanding bridging and being able to recommend it to clients where appropriate, can give additional credibility to a broker.

Showing your clients you can think outside the box and offer alternative finance solutions to their needs is a big tick in the box.

So what are the uses of bridging? There are endless situations where a bridge could be the appropriate vehicle.

The most common uses are buying at auction, broken residential chains and also a quick way to raise money to cover a sudden overhead, such as an unexpected tax bill (the bridge gives you the time to remortgage, for example).

Ultimately, as long as the bridging lender is comfortable with the security and the ‘exit strategy’, lenders are usually open-minded about what the person needs the loan for.

The ‘exit’ is typically a remortgage with a mainstream lender or the sale of a property. In some cases, it could be a guaranteed bonus. Again, it all depends on what the individual lender is comfortable with.

Above all, what you will find with bridging lenders is that they are not box tickers but will go out of their way to make a deal work.

I can’t speak for all bridging lenders, of course, but ours is an old school approach to lending where a picture is built for every case and that case is underwritten on an individual basis.

In this approach, the pros and cons of a deal are assessed in their entirety rather than a decision made based on a digital score.

That in itself is one reason why more and more brokers are turning to bridging loans: unlike with high street lenders, they don’t end up banging their heads up against a brick wall.

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