Bridging is the ‘most diverse and growing area in financial services’ – Precise Mortgages

Speaking to Specialist Lending Solutions, Precise Mortgages’ head of bridging Richard Lawton (pictured) said that overall, the bridging sector was back to pre-pandemic levels in terms of criteria and loan to value (LTV), which were reined in during the pandemic.

Lawton explained that during the pandemic, although the bridging market had “fared well”, criteria and LTVs were restricted due to “unprecedented times of uncertainty”. He added that this was especially the case for bridging as it had a more “risk-based lending approach”.

He added: “The exit in bridging is usually sale or refinance and during the pandemic nobody knew how these would be affected and if timescales could be increased.

“People saw their costs spiraling due to the cost of materials increasing and there was uncertainty as to whether trades people would be available or allowed into peoples’ properties during the lockdowns.”

He noted that now optimism was growing amongst lenders, and several were looking to expand offerings further. This included Precise Mortgages and Lawton hinted that there would be a number of key developments to its proposition in the coming year.

“The bridging sector is the most diverse and growing area in financial services so I believe we will see an increase in lenders in the sector. I see that as a positive – a massive positive. An increase in competition is good for the sector, the more lenders and even brokers that come into the space,” Lawton said.

He said areas of opportunity for bridging lenders included private landlords and property developers using bridging finance to acquire and develop properties either for sale or to retain in the portfolio.

Lawton said Precise Mortgages was already seeing increased demand from landlords and property developers for bridging finance and added that changes to permitted development rights would allow “further redevelopment of high streets and change of use from commercial to residential”.

“The housing market is seeing an increase in demand for private buy-to-lets and with the lack of properties being built the need for bridging is going to be more important,” he noted.

He added that sustainability and energy efficient homes were a “hot topic” and said bridging could be increasingly used to refurbish homes to improve energy efficiency. Lawton said this would apply to both the owner-occupied and buy-to-let markets.

Lawton said economic uncertainty in the coming year due to rising inflation, cost of living and ongoing consequences from the conflict in Ukraine presented a challenge for the bridging market.

He explained that especially given economic uncertainty, applicants should go into a transaction with an idea of costs, especially as these could increase.

“We have seen situations in the past where they [applicants] have refurbished a property and we were told costs would be £20,000 and due to the increased costs of raw materials that has quickly grown to £25,000 and £30,000. It is a consideration as to whether the applicant and broker have factored in those additional costs into the transaction to see if it is still financially viable for their clients to proceed,” he said.

‘Biggest elephant in the room is that bridging is expensive’

Lawton said bridging finance was a solution brokers should “keep in mind” as it was diverse, and the experience of specialist lenders meant the market would assist customers with wide-ranging financial requirements.

“Lots of brokers realise the benefits of having bridging in their armory, they will see the competitive advantage they have over other brokers who do not utilise or want to use bridging,” he said.

However, he added that there were misconceptions about bridging finance, with the main one being that it was expensive.

“The biggest elephant in the room is that bridging is expensive, which is mainly from brokers or borrowers who haven’t used it before or may have had negative experiences in the past,” he said.

Lawton said the bridging market had “evolved and developed immensely” over the past decade and had “moved from a niche product offering to become more mainstream”.

Precise Mortgages entered the market in 2010, with the aim of improving standards and increasing transparency according to Lawton.

It did this by offering documentation which detailed overall costs, and introduced charging interest on the net advance retained or rolled up interest as opposed to on the gross advanced. This meant that additional interest on top of loan interest was not charged, which Lawton said was “cheaper and fairer for the applicant overall”.

He added that overall, the vast majority of lenders in the space were charging interest fairly to customers.

Lawton called for more education and communication about bridging finance as a solution, and said that partnership with specialist brokers and packagers could help some brokers become more comfortable with it.

He said: “More open communication is needed between all parties, whether that is the applicant, broker, lender or solicitor, the better the communication the smoother and quicker the transaction will complete.

“Not all transactions are what is perceived as ‘vanilla’, there will always be some quirks and issues, but the sooner we know about them the better and we can try and find a solution for the finance request.”

He said the bridging team at Precise Mortgages had a combined 350 years working in the industry so it was likely that the “quirk” would have been seen before and the lender would be able to help.