Bridging loans an increasingly important part of the adviser toolkit
It’s fair to say that the wider property finance market is an interesting, and increasingly complicated, sector at the moment.
Competitively-priced options which might have been readily available just 18 to 24 months ago are no longer an option, and the higher interest rate environment presents a significant number of challenges particularly in terms of borrowers meeting the affordability challenge.
Whether these are residential purchases or refinancing, auctions, landlord-focused needs, developers looking at ways to make their builds or refurbishments work, brokers are going to need to be flexible, and perhaps sometimes creative, in terms of the options they look at and the recommendations they make.
In such an environment, it absolutely pays to have access to the widest range of product solutions available, and importantly, to fully understand that those options – which may be considered outside the ‘mainstream’ – can actually be the most suitable for that client at the particular time.
Bridging loans, for example, can be a tremendous option in all sorts of different scenarios, which is why it’s crucial for the industry to help educate brokers on when they can make a real difference.
Bridging can work for all sorts of different borrowers
One feature of bridging that can often be overlooked by those who don’t handle a lot of short-term loan cases is the wide variety of situations in which it can prove useful.
This is well demonstrated by some of the deals we have worked on recently just within London.
There have been the classic bridging cases, where clients need the funds quickly not only to complete a purchase but also to carry out refurbishment work.
The wide range of types of clients this works for can be underestimated though, ranging from a £350,000 loan in Chingford to a £2.8m facility for a property in Chelsea.
Bridging loans can therefore prove effective across the board, from the premium side of the market to those that are more modestly priced and in need of some work.
Bridging can also prove an outstanding option for those who need to go through with new build purchases where they have been served notice.
We helped a client in this situation to purchase two new-build properties in Acton, with a desktop valuation completed in just 48 hours.
Brokers will have had plenty of clients over the years who have been driven to distraction by the prospect of a pressing deadline and a traditional mortgage lender dragging their heels. These time pressures don’t have to be quite so stressful when making use of a bridging loan.
When it comes to new builds, it’s worth remembering that bridging can be a fantastic tool also for those building the units but who perhaps need a little more time to finish the project and get them sold.
A bridging loan can work as an exit vehicle, allowing them to pay off the original development facility and deliver the additional cash for concluding the build or simply marketing the completed units.
A plan B for landlords
Brokers will know only too well the dilemma that many landlords face currently when it comes to refinancing their portfolios. The rate increases seen on regular buy-to-let mortgages have made it tougher for landlords to pass affordability assessments, leaving them with the prospect of significant increases to their monthly repayments.
Signing up to such a situation for a couple of years through a fixed rate mortgage is far from appealing for these clients. We have seen a host of landlords make use of the greater flexibility on offer through bridging loans in this situation. They can take out a 24-month bridging loan, perhaps carry out some improvement work on their properties, and then refinance to a traditional buy-to-let mortgage if and when rates fall.
Similarly, landlords who are considering selling off a unit or two over the next couple of years are also increasingly interested in adopting this route, realising that in doing so they can sell as many properties as necessary without having to worry about exit fees as would be the case with a typical buy-to-let deal.
Opening up more options for borrowers
All mortgage brokers want to deliver the best possible experience for their clients, and that means offering them the widest possible range of financing options.
The need to deliver a broad toolkit of property loans has only been heightened by the introduction of Consumer Duty and the requirement to prove that every possible step has been taken to deliver a positive outcome for clients.
For some this will mean partnering with bridging loan experts, opening up the ability to refer suitable clients as and when necessary. Others will recognise the opportunities this sector offers to their business on a regular basis and seek to build their own skills and knowledge.
Whatever path you opt for, the current state of the market has made clear that bridging loans continue to offer a flexible and valuable option for all sorts of investor clients. Being able to assist those clients in arranging the funding they need is therefore essential for mortgage brokers of all kinds.