The opening weeks of 2024 have certainly proved highly encouraging from an enquiry and completion perspective across the short-term lending marketplace following a rollercoaster year in the wake of a turbulent economic environment which gave rise to a somewhat cautious approach to property.
This was summarised nicely in Bridging Trends data for 2023 which showed that volume rebounded and remained consistent throughout the second half of the year, with £191m worth of bridging loans transacted by contributors in Q3 and £195.5m in Q4. This followed a total of £278.8m in Q1, the highest level of loans transacted in a single quarter, and £165.7m in Q2.
This gradual uptick in activity levels over H2 2023 provides a solid platform on which to build. The result being a noticeably more bullish approach being taken by property professionals who are detecting, and more encouragingly, acting on property-related opportunities as they arise across the UK.
However, these opportunities still come with their fair share of challenges from a funding perspective as mainstream lending purses remain restrictive and criteria requirements are far removed from where many property professionals need them to be. Speed also continues to be a barrier of entry for some transactions and this is where bridging finance can deliver a variety of fast financing options for both purchase and refinance purposes by utilising facilities such as automated valuations, internal solicitors, title insurance options and typically, as payments are deducted or roles up, there are no affordability checks – depending on individual cases.
In terms of the types of cases where bridging finance can be used, borrowers may require such funds to overcome a problem when the initial finance has been withdrawn for reasons such as a chain break, a lost buyer or restrictions around the valuation. In these types of cases, bridging finance can be used to expedite the finance required by using information already gained through the current process.
But how do intermediaries identify potential bridging finance candidates?
This remains one of our most asked questions and can be solved with one simple question of your own to the client – when do you intend to repay the loan?
If the answer is shorter than 24 months then bridging finance should clearly be a consideration, especially if the other products being deliberated have early redemption penalties.
Having a short-term need to raise capital against property always represents an opportunity to have a conversation about bridging finance. After all, there are many different reasons why mainstream lenders struggle to support a cross-section of borrowing needs, including property condition, location and type, plus the client’s future plans for the property, funding deadlines and the timescales surrounding the application.
So, how can intermediaries streamline the bridging finance application process?
The most important aspect of this process is to understand the short and medium-term goals of the client and the asset. A good way to do this is to assess the plausibility of the bridging loan exit to ensure the lender will be comfortable with the repayment strategy. Although, it’s not always easy to ascertain the right lending partner at any given time due to ever-shifting rates, criteria and policy.
It’s also vital to manage client expectations in regard to the pricing, cost and timescales attached to a short-term lending product. Obtaining bridging finance doesn’t always mean a quick turnaround with no credit and underwriting checks, multifaceted processes and information can still be required in certain cases.
It’s also vital to manage client expectations in regard to the cost and timescales attached to a short-term lending product. Obtaining bridging finance doesn’t always mean a quick turnaround. Turnaround is very reliant on a number of factors such as, where the transaction currently sits in the overall process, the lawyer engagement and the type of valuation instructed.
None of these factors are straightforward in their own right, which is why so many intermediaries consistently use a trusted specialist packaging partner to deal with these intricate and time sensitive matters.
Due to our many years working with short-term lenders, we can minimise these turnaround times to ensure applications are packaged correctly first time and then successfully managed all the way through to completion. And the value on offer from such a service will only continue to rise as demand for short-term lending grows and securing the right solution becomes ever more complex.
Donna Francis (Née Wells), Managing Director at Envelop
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