Bridging’s biggest asset, speed, may prove as important as ever for a market that is constantly adapting to change
The bridging market has evolved significantly in recent years but, even as it starts to creep into mainstream territory, it still stands out for one thing – speed.
According to MTF’s Bridging Trends, in the first three months of 2016 and for the fourth consecutive quarter, mortgage delays were the most common reason for accessing a bridging loan.
With an increasing number of lenders using automated processes, some of us may be scratching our heads over why completion times are still not meeting borrowers’ requirements.
There are two possible reasons for this: either borrowers are demanding finance more quickly than ever; or internal factors are slowing the lending process. Given the swathe of new regulation recently, the latter seems the most likely of the two.
The introduction of the MCD and – perhaps more significantly – the upcoming implementation of the Prudential Regulation Authority’s new standards for underwriting buy-to-let contracts mean there is more red tape for lenders to cut through than ever before.
Given they are part of a bid to increase transparency and consistency across the market, we should regard these changes as positive. However, inevitably there will be some impact on mortgage process times.
Rather than classing this as a ‘delay’, we should acknowledge the existence of a new standard for mortgage completions. Regardless of how you view it, regulation is yet another propellant set to drive growth in the bridging sector.
Speed at heart
Bridging will always be the fastest way to secure short-term funding because it is designed with speed at heart. However, a bridge is by no means an alternative to mainstream lending and, whether your client’s aim is to sell the property or to remortgage, they should always keep their exit strategy front of mind.
If your client’s situation does not fall into the typical scenarios associated with bridging – such as avoiding a chain break, purchasing at auction or renovation – it is worth asking why they need a bridge in the first place. Even if a long-term solution is taking longer than expected and although a bridge may sound tempting, if there are no immediate time pressures it should not be considered.
That said, undoubtedly lenders will take a while to adapt to incoming regulation and during this period more clients may turn to bridging to avoid the risk of losing their property.
However, borrowers should not rush into a bridge without considering their long-term strategy. I always recommend that clients have a firm idea of the remortgage they wish to exit to before looking at a bridge.
Despite the recent dip in new business, lenders are still processing a large volume of applications and, with a reasonably healthy pipeline, some mainstream providers are under-resourced. Although more lenders are utilising automated systems, processes can be clunky. Also, with external factors such as regulation affecting the market all the time, approval times can fluctuate on a weekly basis.
If you know that a client is working to a tight deadline, it may be worth considering a bridge or consulting a specialist lender at the very least.
Specialists and boutique lenders deal with much lower volumes than high-street providers and, because they often specialise in time-sensitive cases, they should be able to guarantee a completion time on a case-by-case basis.
Rates may be higher but this could be a price worth paying if it means your client can meet their purchase deadline.
As lenders are forced to adhere to more stringent regulatory regimes, the demand for bridging facilities could be set to rise.
As long as brokers continue to advise responsibly, bridging’s biggest asset – speed – could prove as important as ever for a market that is constantly adapting to change.
Lucy Hodge is a director of Vantage Finance