In recent years, bridging finance has become far more mainstream as a property finance option. The term ‘bridging’ came about from the need to bridge a gap but has evolved into a more comprehensive and appropriate category which we typically refer to as short term finance. It is still widely used for chain break scenarios but has become far more diversified in it’s use and there is considerably more liquidity in the space from specialist and more mainstream lenders alike.
What is bridging finance used for?
Bridging finance is typically used to fund property refurbishment and development projects, time-sensitive purchases (such as off-market opportunities and auction purchases), to resolve chain break situations when moving house, and in any situation where short-term finance is required where a conventional mortgage, BTL or commercial mortgage are not appropriate.
What alternatives are there to bridging finance and how do these compare to each other?
There are a couple of alternatives to bridging finance and if you haven’t used this type of short term funding before you may want to compare all the options first. Development finance is your first alternative, which is more appropriate when the level of works are greater (as opposed to small refurbishment projects). For smaller projects the hassle of Quantity Surveyors and stage payments can make bridging more appealing, however where the cost of work is greater bridging is not always a practical solution.
Mortgages provide a more traditional option, including commercial, residential or Buy-to-let. By design, bridging is a short term solution and if funding is required beyond 12 months there is every chance a bridge is not the answer. If long term funding is required, a bridge should not be sought to delay a problem (i.e. because a mortgage cannot be obtained as it still needs to be repaid at the end of the bridging term and that is a good way to get into difficult).
Vantage Private Finance are experts in all types of finance options and see bridging as an increasingly popular and accessible short-term finance solution. CEO Lucy Hodge explains…
“Bridging is no longer the lending of last resort as it was once considered. The market has been awash with liquidity in recent years and serves the property professional community very well. I love the diversity within the market – no two deals are the same, but a vast majority come with a time sensitive requirement to satisfy making it a fast paced and challenging market.”
How hard is it to obtain bridging finance?
As with any type of finance, there are key drivers for any lender when assessing credit risk and what’s important to some lenders is perhaps less so for others. In some instances a lender will be mostly concerned with the security and will prefer to steer to more ‘vanilla’ property verses that at the quirkier end. For example, one lender may be happy to lend on a property which has a known planning breach (at the right level to allow the client to rectify and enhance the property’s value) as they see the opportunity in the project, but another may not and might see it as high risk. So it’s all about finding the right lender with the right appetite to suit a project and the client behind it.
Lucy Hodge goes on to explain the best way you can prepare when applying for bridging finance…
“It’s important to be prepared. If a deal loses momentum in the early days that deal fatigue can carry through the whole process. Do your homework and present it in such a way that makes for sensible, easy reading. Different lenders have different criteria and a good broker will make sure that they ask the right questions to understand what is driving the client and what information they have available as well as transaction timetables. It’s a minefield out there with so many active lenders but it’s important not to chase headline rates because they are not always what they seem and criteria and speed of delivery in my opinion rank just as highly for most.”
For more information on bridging finance or to get advice and guidance on this type of short-term funding, visit our Finance Forum where our resident experts from Vantage Private Finance are always available to answer your questions. Or contact them directly through their website here.