As long as the exit is clear and underwriting is professionally done, bridging is now an established part of the finance market
Bridging in its purest form was originally marketed as a chain-break solution. If you sold your home and bought a new one, only to find that completion of the sale of the previous one took longer than anticipated, a bridging loan came to the rescue. Post-2008, the unwillingness of mainstream lenders to ‘bridge the gap’ created an opportunity for other lenders that looked beyond traditional lines and were not scared of their own shadows.
Delays in selling homes, whether downsizing or upsizing, have been recognised in the latest Budget. The additional 3 per cent stamp duty land tax on second homes can now be recouped up to 36 months (rather than the originally proposed 18 months) after the purchase of a new residence.However, it would be wrong to imagine that chain-breaking is the main purpose of bridging loans. Indeed, financing of owner-occupied homes amounts to less than 30 per cent of bridging.
Today, many bridging firms call themselves ‘short-term lenders’. They have even expanded into medium-term lending. The common denominator is that loans are secured primarily by property. Some lenders will even consider a blend of securities, including high-end jewellery, vehicles and works of art.
The purposes of borrowing are many and varied. They include short-term cashflow requirements for businesses, such as building up stocks; investment opportunities that require immediate cash; or even the wish of borrowers to go on the holiday of a lifetime or buy a new car. Often, early redemption of investments incurs penalties or property assets may take a long time to sell, either because people wish to maximise the price or because they are waiting for probate to be completed.
As long as the exit is clear and underwriting is professionally done, bridging is now an established part of the finance market. One day, perhaps, it will be regarded as mainstream, rather than alternative, lending.
Benson Hersch is chief executive of the ASTL