Evolution of Bridging Finance

Pre-credit crunch, bridging finance was often referred to as lending of last resort. However, this perception has changed dramatically since then and particularly in the last couple of years and is now considered to be part of main stream finance.

The causes of the credit crunch have been well documented. One of the major causes being N.I.N.J.A loans, loans to people with No Income No Jobs or Assets (particularly in the states), as have the effects, Lehman Brothers filing for bankruptcy, Lloyds TSB takeover of Halifax Bank of Scotland (HBOS) and major banks being bailed out by the government.

This created a huge funding gap in the market, which in turn led to new lenders entering the market. This increased competition has meant that lenders have had to be more creative with their products and also keener on their fees and interest charges.

Historically bridging finance was used for chain breaking with residential purchases. Whilst this traditional use is still a major use of bridging, the bridging finance products have evolved far beyond this.

Main uses of Bridging Finance:

• Chain Breaking
• Light Refurbishment e.g. new kitchen or bathroom
• Heavy Refurbishment e.g. Extension, Change of use, including Permitted Developments.
• Buying at auction
• Tight financial deadlines
• Banks have let you down at the last minute
• Cash flow shortage

With new lenders flooding the market, backed by hedge funds and private equity, each of which have their own unique selling point in terms of price, service and speed of completion, it is important to deal with a commercial finance broker who is knowledgeable about and up-to-date with the bridging market.

Below are some of the major considerations that should be taken into account:

• Lender arrangements fees. These vary from 0% to 2.5%
• Interest rates vary from 0.59% to 3%
• Exit fees 0% to 2.5% of the loan amount or GDV
• Duration 1 day to 18 months
• 1st and 2nd charges
• Regulated and non-regulated
• Loans £30,000 to £15 million plus
• Legal fees
• Valuation fees
• Monitoring fees
• Draw down facilities

As the bridging finance continues to evolve and new lenders enter the market with their individual criteria, it is now definitely a case of “Horses for courses”

If you need assistance with Bridging or any other type of property finance please contact me using the form below and I will be happy to help.

Editors note: Malcolm has worked with the partners of Property118 for over 10 years.

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