Busting myths about bridging finance

The demand for bridging finance has grown significantly over recent years, and yet, despite this growing interest a number of misconceptions about this type of finance still remain. Here, I address some of the more common myths about short term finance.

“It’s only for when you have run out of other options”
Far from being a loan of last resort, bridging finance is now commonly used as a smart solution to a range of everyday property market challenges. The current economic climate has meant that demand for fast, flexible finance is increasing and is a key growth area for brokers.

Indeed, according to the Association of Short-Term Lender’s latest figures, the bridging market grew by 15% in 2018^[1], with more than £4bn of loans written during this period.

And brokers are becoming more tuned into the potential that bridging finance offers too. Our research found that 62% of brokers expected the demand for short-term finance would increase in 2019^[2]. This is in comparison to 5% of brokers that didn’t expect the market to grow.

“It can’t be used in many situations”
On the contrary, bridging finance can be very versatile and used in a range of opportunities that require fast funding.

For example, landlords may choose to use short term finance if they’ve faced delays securing finance or need to purchase a property quickly-such as when buying at auction. This is because bridging finance providers can often act quicker than other lenders and are able to act more flexibly.

Professional landlords in need of a short injection of cash should also consider bridging finance. This could be particularly useful for those needing to complete a conversion or renovation quickly

Bridging finance can also be a valuable route for developers, particularly during times of low market activity. A Developer Exit loan allows a developer to release capital from their existing project in order to invest in their next one.

“It’s too expensive for my clients”
As demand for bridging increases, so does the number of lenders offer this type of finance. This has kept rates very competitive. Indeed, the average monthly interest rates on bridging loans fell year on year in 2018. According to data by Bridging Trends, the average monthly interest rate in 2018 was 0.81%, lower than in 2017 (0.83%) and in 2016 (0.85%)^[3].

“It’s not worth my time”
Bridging finance actually presents an opportunity for the savvy broker. Of the 70% of the brokers we surveyed that expected demand for bridging to grow in the next year, 65% of brokers highlighted the fact that bridging cases often bring in higher fees and therefore present an opportunity to earn additional income.

“It’s hard to understand”
For those new to the bridging finance sector it can seem daunting at first. However, the truth is that it isn’t as complex as it might initially seem. For any broker looking to enter this market my first piece of advice would always be to build relationships with a lender’s BDMs. They are the best people to ask about product availability and criteria, as well as being able to offer tailored advice. A broker should then feel comfortable with the products on offer that would suit their client. And should the broker run into a complex case, they’ll know which lender is the most suitable to help.