Bridging loans are now so competitively priced they should be the first port of call for property investors in a hurry
It was not long ago that short-term finance (or, more specifically, bridging finance) was viewed as a dirty word among mortgage brokers.
The rates on offer were punishing, meaning there were only a handful of situations where it would be appropriate to arrange one. Some lenders did not uphold great reputations for service standards, either. The tag of ‘loan of last resort’ was deserving in places.
Thankfully, the market today is completely different. The industry has committed to raising standards, with members of the Association of Short Term Lenders promising to abide by its code of conduct. This has resulted in a much more satisfying experience for both brokers and borrowers.
Nonetheless, we believe some misconceptions are holding back intermediaries from embracing the opportunities, and short-term finance could be used far more widely.
Competition has played a big part in the thriving bridging market we see today.
Established lenders have built solid, dependable relationships with brokers, while others, including a number of challenger banks, have seen that success from the outside and moved into the space too.
An inevitable by-product of that competition has been to force down prices. Indeed, the rates available on short-term finance today are the lowest ever.
The potential uses for bridging loans have grown, too, making them a useful tool for intermediaries. Far from being appropriate only if you cannot get funding from a mainstream lender, bridging loans are now so competitively priced they should be the first port of call for property investors looking to move quickly.
Investors thrive when they are helped to make the most of the opportunities they spot, so lenders that can deliver competitively priced funding quickly and efficiently will always hold appeal.
It is not just the price of borrowing that makes a bridging loan worth considering for clients, however. Competition has pushed lenders to be more innovative with their product design; to sculpt loans that precisely meet the needs of the borrower, rather than expect them to fall within a one-size-fits-all approach. That means building a broad, diverse product range.
For those keen on bridging, the National Association of Commercial Finance Brokers is a great place to find out more. This trade body educates members on what is available to their clients and has built a dedicated service to ensure you get the right guidance to comply with the Consumer Credit Act. It is also bringing fresh talent into the industry through its apprentice scheme.
Equally, it may be worth partnering with a short-term specialist distributor. You may have only one or two clients a year who could benefit from a bridging loan of some form but they provide a valuable revenue stream. Making use of a specialist means you enjoy an income from the client while they are looked after by a professional who knows what they are doing.
Finally, lenders are always keen to talk about their products so speak to those active in your area. Get them to explain exactly which cases they will look at and which they will not. You may be surprised by the number of your clients who would benefit.
The bridging market of old is gone. With low rates, innovative product designs and skilled, experienced underwriters in place, bridging loans are a much more flexible form of borrowing than they once were. If you are not already involved in the market, now is the time to change that.
Matt Tooth is chief commercial officer at LendInvest