Is Bridging a Bridge too Far?
The market is buoyant, opportunities are plenty, so how do clients access funding to support their investment and take advantage of the climate? The cost of finance can be immense if not structured in the right way, inexperienced and experienced individuals get it wrong. The advice, guidance and support from a property finance expert is vital in such an arena.
Bridging has a somewhat tarnished name for a variety of reasons. Usually down to onerous charges, high penalty costs for over running the term, high monthly costs, bad news stories of properties being re-possessed and the list runs on. HOWEVER important to point out is that at the time we go to press, there are somewhere in the region of 125 bridging lenders in the market place. So unless you have the advice of a professional broker/consultant who do you go to? When dealing with an introducer check them out, their credentials, their experience. Always remember its your liability, not theirs so thorough homework is a must.
The FCA defines bridging loans as property secured loans for a period of 12 months or less. The fact is that a bridging loan does exactly what it says: It bridges the funding gap. Bridging loans are being used for purchase at auction, property development prior to sale or refinance, raising money to clear business debts etc.
Bridging finance attracts a variety of pricing dependent upon the security on offer. So if you have a plot of land with planning in the very south west of Wales, you may be looking at 1.25% per month and a loan to value of 50/60%. If you have a prime residential property with 50% loan to value in Kensington, you will be looking at 0.59%, whereas an industrial unit in a less desirable city location at 75% ltv would attract a rate of nearer 1.45% Most lenders charge a 2% arrangement fee, and no exit fee.
Retained interest where there are no monthly fees, but the monthly interest is rolled up and taken as a charge against the property, leaves clients cashflow in their pockets. We can also go to 100% finance utilising other security.
There are some innovative products known as “Bridge to Term”. Using a bridge facility at the front end and a term mortgage to exit – all with the same lender to ease speed of transaction.
The beauty with bridging finance is the speed of the transaction, however this comes with a warning sign. Speed of transaction is down to the client providing all the information promptly and the legal teams working closely at every stage of the deal. FCA regulation has hindered processing in more recent times and rightly so to protect the clients. Generally most bridging will take 4-6 weeks, although we have seen deals complete within 5 working days. A survey recently said that the average length of time to completion is 46 days, key is the team around you and the speed at which they all move.
Most bridging lenders will look for facilities of 6-12 months. We have some lenders that will go to 36 months. We have lenders who will fund 1st and 2nd charge main residential properties, this comes under FCA regulation and has a certain set of criteria/requirements. We have lenders who will fund land, commercial and agricultural properties. The mix is phenomenal.
As property finance experts in the marketplace our job is to identify the best lender to suit the clients needs and plans. Clients should lean on their broker to find the best solutions and cost of finance, leaving the client to focus on their project and looking for the next deal. The opportunities are there, and we are waiting with the funders to do business.