The amount of time it takes to complete a bridging case has increased significantly: the recent Bridging Trends report shows the average to have risen from 30 to 39 days between the first and second quarters of 2015.
This is ironic when most lenders quote speed as one of their unique selling points.
There are a number of reasons for this slowdown but the bottlenecks experienced can mostly be identified as, first, valuation and, second, legal.
A common misconception is that bridging finance entails fewer checks and less legal work – but this is not the case. With an increase in the number of FCA-regulated bridging transactions, the requirements for evidence of income are not much different from those of mainstream mortgage lenders. Whether residential or buy-to-let, transactions using bridging finance are typically more complex, carry more risk and require more checks than those funded with mortgages.
Title issues, change of use, refurbishment works and so on are all commonplace on bridging transactions, which often adds to the legal work faced when taking out a mortgage.
The real challenges come when borrowers use a solicitor who is perhaps not familiar with bridging legal work and does not know the process. We see cases time and again when the client’s solicitor has a ‘hissy fit’ over the amount of information a lender requires. The case goes to the bottom of the pile with inevitable delays.
A borrower’s solicitor typically acts for both lender and borrower with a mortgage, whereas in bridging it is common for the lender and client to have separate legal representation. There may also be a lawyer for the conveyance process, not to mention the firms above or below in the chain, which all add to delays.
Law firm panel
A possible solution discussed at Association of Bridging Professionals meetings is a national panel of law firms well versed in dealing with bridging finance from which the client can choose. I stress the word ‘choose’: I am not proposing the railroading of clients into using a suggested lawyer but a recommended panel could speed up the completion process.
We have all seen the trade press headlines along the lines of “XYZ lender completes bridging loan in record 48 hours” and, yes, this is possible. But these are cases where the valuation is already in and all legal work is completed. As such, it is just a case of checking everything and transferring funds. It can be done – several lenders are capable of completing bridging transactions within five working days – but it is not the norm.
Solicitors are not the only reason why bridging loans are taking longer. Many surveying firms laid off staff during the credit crunch and are now struggling to replace them quickly enough to meet demand. Although it tends to be a geographical issue, with certain areas less well covered than others, it is a problem that slows the process.
If a lender has only one or two approved surveyor firms on panel, it leaves itself vulnerable to service issues and delays, which can be exacerbated because some lenders wait until valuations are in before fully underwriting a case, making an offer and instructing a solicitor. This is usually to safeguard the client’s fees but, where speed is crucial for that client, it can be better if valuations and legals are instructed on day one. Again, it boils down to choice for the client.
What is wrong with having two panels of approved surveyors: one with a pre-agreed service level agreement to carry out and return a written report within 72 business hours at a higher cost; and one that will take seven to 10 days but at a lower cost? Some cases are time sensitive and a client may choose to pay a premium to obtain funds more quickly, especially if a large deposit is at stake.
Of course, this requires a judgement from client and lender. But this is where the individuality usually applied to each bridging loan case should come into play, together with lender assessment of other similar cases.
Flexibility and identifying the right lender for a specific transaction are key. It is not all about rate and cost.
The broker plays a crucial role by establishing the client’s priorities and, if speed is of the essence, communicating this to the lender so that it can instruct the solicitor on day one and get the process moving.