GUIDE TO BRIDGING FINANCE
Don’t get it wrong with bridging loans
Brokers need to be careful about when short-term finance is right for clients as there are times when they must say no, says Rob Jupp, managing director of BrightStar Financial
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ou would be hard-pressed to find a sector in the lending industry that has had as much opportunity
as short-term lending does right now. Many indices have pointed to expo- nential growth in 2011 and for the time being the sector appears to have scope to continue to expand. It’s worth looking at where bridging can be used to full effect and at some examples when it shouldn’t.
Bridging works with: A client buying a property that does not qualify for a conventional residential loan due to lack of facilities or general condition. A bridge can be the vehicle that allows considerable capital appreciation and clients can exit to a conventional lender when the work is complete. Brokers should ensure an exit route exists prior to committing the client to a relatively expensive short-term loan. Chain breaking – A client finds a prop- erty they have to have. If they wait until they’ve sold their own property they will potentially lose their dream home. Short-term financing can arrange for
a charge to be taken over both proper- ties, reducing the risk to the lender and giving the client time to sell their prop- erty. Clients need to be realistic about how long their property will take to sell and should weigh up the relatively high cost of bridging with achieving a fair sale price.
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Medium-term bridging –A small num- ber of short-term lenders actively seek clients who want to access medium-term lending of two to three years. Many schemes allow clients to access property – commercial/residential in particular – they wouldn’t be able to otherwise.
Bridging doesn’t work with: Clients with adverse credit who can’t get a mortgage elsewhere. This is a no-no and more importantly, one of the biggest concerns of the regulator. When a client tries to do a non-regu- lated bridge when they need a regulated bridge. Although there are few regulated bridging lenders they do exist and clients should not lose the safety net of regulation to fund the business. This is fraud and the consequences are grim. People who are relying on pots of gold at the end of the rainbow to pay their bridge off. Exits should be one of the first things brokers should ascertain before they offer short-term financing. If clients are relying on a first charge lender to exit their loan and a scheme doesn’t exist right now you can be sure it won’t in six months’ time. If used sensibly and responsibly, bridging loans are appropriate in the right circumstances. But in the wrong hands or circumstances the outcome can be disastrous. If you don’t feel you know enough about them to advise your clients, speak to someone who does.
guide to Bridging Finance 2012
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