There’s no denying the success of the bridging sector over recent years. It has continually grown in size and importance, even when other areas of specialist lending have struggled.
Last year, despite all of the turmoil in the lending markets, bridging completions increased by 15.5% on 2021 and bridging loan books increased by 28.9% on the same period, according to the Association of Short Term Lenders (ASTL).
Intermediaries expect this growth to continue. According to Together’s Property Market Report 2023 (well worth a read, in case you haven’t), bridging is expected to be the leading growth area of specialist lending this year, with 66% of brokers predicting a rise in bridging volumes.
The impression I get when talking to brokers is that the majority of them see bridging as the means to fund refurbishment, auction purchases or to just generally help investors access finance quickly. This could be to seize an opportunity that’s just appeared or react to a situation when a term lender may have pulled out of a case. In other words, unregulated bridging.
They wouldn’t be wrong to associate bridging with these scenarios; after all, they occur on a very regular basis and highlight the strengths of bridging finance. But I think it’s important that regulated bridging finance isn’t forgotten about, as it can serve just an important purpose to homebuyers.
In the unregulated bridging market, investors or landlords who lack immediate funding to secure a property that has just appeared on the market or that they have become aware of may simply elect to sit it out and wait for a better opportunity to come along, both financially and time-wise.
In comparison, residential buyers tend to be more emotionally invested in their purchases, making it less likely for them to pass on a property that really appeals. After all, they are not just buying a property, but investing their dreams and feelings into it – imagining their children playing in the garden, planning a new kitchen or picturing their BBQ parties in the garden during the summer.
Unfortunately, the process of buying a home is fraught with obstacles. Broken chains in property transactions are a common occurrence in today’s market, leading to wasted time and money, stress and disappointment. This is particularly tough when you have a client looking to downsize as often there is a limited selection of suitable properties to start with and so missing out may mean a long way until another comes along.
However, even when buyers are devastated by a broken chain, a smart broker should reassure them that they still have a chance to secure their dream home. By employing a regulated bridging loan, the borrowers can effectively become cash buyers, disconnecting from the broken chain and remaining competitive.
Regulated bridging loans are also currently popular when a buyer spots a property they really like but hasn’t yet listed their own house for sale. At the present time estate agents are effectively telling potential buyers that they won’t be taken seriously unless their property is up for sale and has had offers on it, the mortgage company has produced an AIP, and so on; to get to this stage from a standing start may well take too long and so the client would likely miss out. A regulated bridging loan can be the solution to the problem here; with a 12-month window to sell their home, the bridge can help secure the property they want to buy now.
In both these above cases, the regulated bridging loan can not only expedite the process but also mean that the now ‘cash buyers’ might be able to negotiate a property discount, potentially offsetting the bridging loan’s cost.
Meanwhile, in the current buyer’s market, sellers can often be faced with a dilemma: either to accept significantly reduced offers or to hold out for their desired price while risking the loss of their next property. For these sellers, a regulated bridging loan could be a feasible solution to maintain momentum while they negotiate or wait for a sale.
Don’t get me wrong: unregulated bridging loans are great tools in a broker’s arsenal that can and do help investors every day; but brokers who only consider unregulated loans when thinking of bridging finance are overlooking the power of regulated bridging finance. It can be the basis of an effective strategy and a valuable asset to keep their residential mortgage clients happy in the current climate.
If a broker doesn’t have the experience in the regulated bridging market then they should partner with a packager such as Specialist Finance Centre who does have the expertise and track record from working with a range of lenders in the marketplace. We can help you through the process and secure the dream outcome for your client.
Daniel Yeo is managing director of Specialist Finance Centre