‘Absolutely tons’ of bridging business is happening but exit preparation is vital – SLS In Focus

The participants agreed that the bridging market was seeing an increase in activity, which could partially be attributed to fixed rate deals in the mainstream market being pulled after the mini Budget, leading more to seek a bridging solution.

Another factor for increased activity was that some bridging lenders may have had to pause business or had their funding tightened, so enquiries went to other providers.

They all agreed that brokers needed to think carefully about the exit from a bridging loan as lenders were assessing this even more carefully now.

Pritchard said: “I think more than ever, good brokers need to understand what lenders can do, not just now, but from an exit perspective as well.

“We are really assessing what the exit routes will be for customers, but bridging will be a good solution in this time and [we] are seeing increased flow. That could be due to bridging lenders who are not able to write deals or people who need to get a deal done and cannot get that from the long-term market.”

Smith continued: “I think the big concern for bridging is not if there is any business out there – there is absolutely tons of it – it is the exit and the exit strategy.”

He said brokers had to be careful about the exit loan to value (LTV) and whether that would still be viable in the 12 to 15-month term of the bridging loan.

Smith continued there would be exits available, but customers may have to go on a variable deal or on a lower LTV than they had been previously.

Extended terms and ‘dynamic’ stress testing

Lewis said he expected more consumers to look at extended terms for bridging, adding that terms were historically around 12 months.

“The reality is brokers will look at how they can adapt…to a longer period of time to give clients more stability.

“Having a longer period of time and a longer period of certainty in a transaction creates that stability and comfort blanket for the consumer,” he continued.

Pritchard said a few residential buy-to-let deals were as long as 24 months to give some more stability.

He added that another significant area for borrowers to consider was the stress test on the exit.

Pritchard continued that from an underwriting perspective, bridging lenders needed to be stress testing “appropriately”, possibly “dynamically” in order to keep up with upcoming interest rate changes.

Communication and education vital for bridging

Smith said bridging could be the right solution for a lot of brokers and their clients so it would benefit them to diversify.

He continued: “The proc fees on bridging developments are strong, as well as it is a right solution if the customer if they cannot get what they really wanted from a term loan.”

Smith added that as term loan pricing was increasing, a bridging loan could actually be similar in price over the seven to 12-month period.

Lewis added that during his time in the bridging market “education has always been needed”.

“You always have to tell and stimulate ideas around what bridging can be used for. No one ever wakes up and says they need a bridging loan, they have a transactional need and they need a solution for it.

“The more brokers engage with specialist markets, they can then offer that true whole of market financial solution and think outside the box,” he explained.

Pritchard said communication from lenders would “draw in more brokers” as if they explained rationale around why certain rates were changing or why lenders could be shifting to a more “variable rate environment” that would improve understanding.

“Communication will help with education, which will draw in more brokers. Those brokers who say they don’t do bridging need to recheck that because it could have been the right solution today that it wasn’t three weeks ago. That is the way you will survive through this.”

Watch the full video [10:36] hosted by Anna Sagar, assistant editor for Specialist Lending Solutions, featuring Gareth Lewis, commercial director at MT Finance, Steve Smith, sales director at Roma Finance and Glenhawk’s director of sales Jamie Pritchard. 

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