Property bridging loans are secured by legal charges, and all responsible lenders will ensure that there is a very clear exit route from the loan.
Bridging loans differ from mainstream loans, not only by being short-term but also because each bridging loan is individually underwritten. The lender has a more holistic approach, with a clear idea about the borrower, the property the loan is secured against, any redevelopment the property will undergo and the repayment route.
In addition, many lenders will carry out ongoing due diligence throughout the term of the loan, especially in the case of refurbishments. All of this can make a bridging loan, in many cases, much safer and more secure loan than a long-term residential one.
While it is estimated less than 20% of property bridging loans fall under the regulated lending category, bridging lenders do deal with a large amount of residential property loans. In many cases they will deal with developers who are buying a property to do it up and achieve a quick turnaround. In some cases they will help businesses who need extra funds to grow their business and who will secure the loan using property as collateral.
In both of those cases, with the correct underwriting, there is much more security than with an automated valuation and an assessment of the borrower’s long-term income stream.
The very nature of a short-term loan means there is much less likelihood of circumstances changing over a six month to one-year term than there is over a 25-year term.
All of which makes me wonder where this perception of ‘risky’ came from. The number of defaults in bridging is low. Often a lender may exercise forbearance; and extend the term to allow for a sale or refinance. If lenders are forced to repossess then they will almost always recover all of the outstanding debt. Yes, there is always the danger of fraud, but this applies equally to long-term mortgages. Equally, irresponsible bridging lending, with inadequately skilled underwriting, could lead to disaster as it could with a long-term loan.
Well thought out and well underwritten short-term loans deliver a valuable service, usually in a short time frame, and almost always yield what they promise.
Benson Hersch is CEO of the ASTL
