Don’t underestimate bridging loan flexibility

For all of the doom and gloom about property investment of late, a significant number of landlords are feeling quite optimistic.

There’s no doubt that rising interest rates and the high rate of inflation have put some property investors in a testing spot when getting their financing in place. While some are looking for the exit, we have seen plenty of landlords instead look to expand their portfolios.

The fundamentals of the housing market are unchanged, in that we simply do not have enough homes to meet demand, suggesting that the right properties will continue to provide a healthy combination of capital growth and reliable rental income.

Of course, it’s one thing for an investor to decide that they want to add to their portfolio, but quite another to identify the appropriate financing. While brokers will no doubt be familiar with the inherent benefits offered through bridging finance, there are certain misconceptions of potential limitations of the product which may mean that these loans are not put to use as often as they could be.

Moving quickly

Our recent launch of the Express Bridge product is a good example of how bridging loans work for greater numbers of borrowers. As the name suggests, the product has been designed for those who need a rapid turnaround, to get their hands on the funding quickly, perhaps because they face a tight deadline.

The ability to move quickly has always been a vital selling point of bridging finance, opening up the potential for buyers to complete on cases more rapidly than might ordinarily be the case with more traditional forms of property financing.

But there are other elements to the product that highlight how bridging loans can be more adaptable and flexible than some brokers assume.

For example, it’s easy to become fixated on big ticket bridging loans, with lenders all too often trumpeting how they have assisted a landlord or developer with a multimillion pound case, at times covering a handful of different properties.

This can overlook how useful bridging loans can be for borrowers only looking to raise modest sums though. It may be that they just need to carry out small levels of refurbishments or improvement work to get the property up to scratch, before refinancing onto a mainstream mortgage or selling the property on.

That’s why the Express Bridge starts at just £25,000, in recognition of the fact that often borrowers are looking for more manageable sums in order to carry out the required work.

Serving the underserved

One concern that some brokers have around bridging loans is around the limitations of lenders, they worry that they will not be able to support clients who have slightly unusual circumstances.

This could be the property the client is looking to borrow against, should it be something other than a typical home or of non-standard construction.

However, location can also seem an issue. There are some lenders who limit their activity to England and Wales, and will not consider cases in Scotland and Northern Ireland, for example.

It’s important to recognise that this isn’t the case across the industry though with Mercantile Trust active in both.

What’s clear is how important it is for brokers to pinpoint lenders who are able to support a wide range of clients, in a variety of different circumstances, rather than cherry picking solely the most ‘attractive’ cases.

Finding flexible finance

Bridging finance continues to prove popular for plenty of borrowers who need some short-term finance to cover them ahead of refinancing or selling a property on.

Indeed, figures from the Association of Short-Term Lenders (ASTL) earlier this year revealed that bridging mortgage loan books have hit all time highs, a good indication of how well this sector is increasingly being utilised.

However, the truth is that bridging finance can work for even greater numbers of borrowers than it already does. From smaller sums to unusual properties, bridging finance can support even more clients, provided brokers work with the right bridging lenders.

Maeve Ward is director of commercial operations at Mercantile Trust