'You can lead a horse to water but you can’t make it drink' is an age old proverb. This particular proverb has been in continuous use since the 12th century. John Heywood listed it in the influential glossary ‘A Dialogue Conteinyng the Nomber in Effect of all the Prouerbes in the Englishe Tongue’: "A man maie well bring a horse to the water, But he can not make him drinke without he will."
Of course this has since evolved linguistically but even in modern times the sentiments remain the same. And this is especially relevant in terms of bridging finance and the intermediary marketplace. This is certainly not meant to be disparaging in any way, far from it. Bridging providers have made a real effort in recent times to highlight the benefits attached to short term finance and ways it can be incorporated into any intermediary’s everyday business practices. While everyone is delighted with the continued surge in new business, when compared to the amount of trade show exposure, marketing campaigns, and trade media content, there is the question of whether this has converted into as much business as it could have.
There are still some lingering perceptions of bridging finance being tainted with descriptions such as ‘cowboys’ and 'loan sharks'. In truth, historically at least, some bridging finance providers had not been as interested in the customer as they were in themselves, but those days are well behind us, provided brokers do not trawl too far away from the well established lenders of today. Today’s industry has worked hard to transform itself to fit into a modern, transparent and professional lending environment.
However, despite this investment of time and resource, there does remain a level of misunderstanding amongst some brokers. Which is surprising considering the ever growing need for alternative lending in a time where high street lenders continue to ignore all too many creditworthy borrowers.
So, with that in mind, let’s take this opportunity to briefly outline some of the types of short-term finance currently on offer.
The most recognisable of bridging loans continues to be as additional funding to buy a new home when the sale of an existing property is still ongoing, or has been held up. This remains the bread and butter of bridging finance, but there’s more to short-term finance than this.
Another ‘classic’ use of bridging is for buying property at an auction. Bridging is especially useful thanks to the short time frames involved to complete the purchase. Unlike many other forms of finance, bridging is extremely time sensitive. This means that bridging lenders are experts at processing even the most complex of applications quickly and effectively.
Then we have a range of finance for property refurbishment and development purposes. These are generally broken down into light refurbishment, heavy refurbishment and development finance, although some lenders using their own monikers. The lighter end of this market is generally the most competitive and centres around providing additional funds for borrowers to undertake some necessary works, such as installing kitchens and bathrooms before remortgaging onto a mainstream residential deal or a buy to let mortgage (this is also sometimes referred to as bridge to let).
Heavy refurb and development finance is currently the domain of fewer lenders as this is a more specialised and often riskier lending scenario. Having said this, it is one of the current growth areas within short term finance and we expect to see more providers opening their doors to this type of lending in the future.
Moving away from property related uses, it’s also handy to realise that borrowers in combating credit rating issues also use short term funding. This type of finance can enable some borrowers to get back on a solid financial footing by potentially discharging bankruptcies, clearing IVAs, and staving off bankruptcy or repossession.
Now this is a whistle stop tour of just some of the more commonly available solutions offered through bridging finance. From the outside it can still appear a little daunting and a little pricey but, and this is a huge but, I can’t stress enough the positive strides that have already been made within this sector to become a genuine alternative borrowing solution for a growing number of your clients. And one which has placed itself in a stronger position than ever to provide a range of flexible solutions to cover a multitude of borrowing scenarios.
It's also important to remember that help and support is constantly at hand. Lenders and specialist distributors are here to help individual brokers get a better grasp of how it works, how it’s improved and how it can work for their clients. And in the modern regulatory environment where the onus in on advisers to consider the most appropriate form of finance from across all sectors, this means that getting to grips with bridging finance is not only a no-brainer but, thanks to the raft of resources at your disposal, is also easier than you might think.
Phil Jay, director at Complete FS