But what are those needs? And why is bridging such an important tool for brokers to have to hand?
To begin with, it makes sense to start with one of the original uses of bridging finance, to help progress transactions when there are delays in securing longer term finance or completing the sale of an asset.
This is particularly pertinent at the moment as buyers flock to complete purchases before the end of the stamp duty holiday.
Research from MFS earlier this year found that 52 per cent of current homeowners want to take advantage of the stamp duty holiday to purchase a new property but are concerned about their ability to get a mortgage.
It also found that, following the introduction of the stamp duty holiday, 43 per cent of people who have bought or tried to buy a property in 2020 have encountered significant delays or complications when applying for a mortgage from a bank.
The Conveyancing Association recently warned that turnaround times are a “massive problem” as it is currently taking sellers an average of 77 days from listing a property to getting a viable mortgage offer and a further 123 days from offer to exchange.
One way to expedite the funding process is through bridging finance.
According to MFS, securing a term mortgage can in many cases take up to 130 days.
Whereas the Bridging Trends research from MT Finance shows that the average completion time on a bridging loan in Q3 2020 was 52 days.
There have also been reports of cases where a term lender has pulled back on criteria during the application process, leaving a purchaser in a position where they may need to start the mortgage application again, which takes time and could potentially risk them losing the property they are buying.
Again, in this situation a chain break bridge could salvage the transaction, helping the purchaser to secure the property while longer term funding is sourced.
What are the risks and considerations?
First, it’s important to communicate that while bridging finance can expedite the process, it does not guarantee that a transaction will complete within a particular timeframe.
As with all applications for finance, the way the case is packaged and presented has significant influence on the speed of processing, so you will give your clients a better chance of a quick completion by providing as much information as is required upfront.
The client’s exit strategy is crucially important. In this scenario it may well be sale of the property, but what if the property takes longer than expected to sell, or at a lower price?
When it comes to choosing a lender, make sure it is clear and transparent about all fees and charges, including those which may apply if the loan is not repaid within the term.
This is where it helps to choose a lender that has signed up to the ASTL’s Code of Conduct, which includes a commitment to transparency and fairness on fees.
Bridging can be a transaction-saving tool for clients who need to complete within a particular time and it’s a product that all brokers should be ready to access.
But it’s important to understand the risks, communicate those risks to your clients, and work with a lender that you can rely on to deliver the highest possible standards of service and transparency.