Choosing the right bridging lender

Gavin Diamond – Mortgages and Bridging

In a few years’ time when we look back at the world of short term bridging finance in the aftermath of the Brexit decision, a speech given by Linda Blackwell to the Association of Short Term Lenders (ASTL) Annual Conference in September may prove to be a watershed moment.

In her speech, Ms Blackwell provided feedback on the FCA’s data on bridging loans and I recognised many of the characteristics of the FCA data that was displayed on the screen.

In summary, for regulated bridging loans at least, the loan size is larger than “typical” mortgages. Unsurprisingly the average value of the security property is greater and the borrower profile is that of older and wealthier individuals.

Ms Blackwell spoke reassuringly positively about the regulated bridging sector, but voiced concerns about the data black hole that exists regarding the unregulated part of the industry and undesirable practices that may be occurring there.

At United Trust Bank’s Bridging Department, a significant proportion of our business comprises regulated loans, but of equal importance to us is our ability to provide non regulated loans, often highly tailored or structured to meet the borrower’s requirements.

What I would like to emphasise here is that the UTB approach to underwriting our non-regulated loans is the same as that for regulated. That is not simply because we are a bank and a regulated lender. It goes beyond that to our core principles, the approach we take and the questions we ask ourselves when providing bridging loans.

These are; (1) do we understand the background and purpose of the loan? (2) does it make sense for the applicant to enter into the loan? And (3) is the exit strategy viable and realistic given the proposed loan term?

If the answer to all three of the above is in the affirmative, then we can move on to assessing the adequacy of the security being offered and the LTV etc.

This may be obvious to experienced and responsible mortgage intermediaries and advisors, but the intimation from the ASTL conference was that this may not be a universal approach in the unregulated short term bridging sector.

As the bridging loan market continues its seemingly inexorable growth with an ever increasing range of lenders, most of whom are not regulated, the need for mortgage intermediaries, especially those unfamiliar with the sector, to select the right lender for their client has rarely been more important. Furthermore, thrown into the mix since the Brexit decision is the possible impact on lenders’ funding lines.

So where to start? You receive an enquiry for short term finance. Your first decision cross road is whether the loan will be regulated or not. If it will be, then of course your choice of lender will be restricted to the relatively few that are regulated.

However, there is a significantly wider choice of potential lender for non-regulated loans, so a filter that could be used to limit the number on your shopping list could be to restrict it to those which are members of a recognised and respected body such as the ASTL which have minimum standards of conduct for their members.

From there, excluding personal relationships or a history of previous dealings, the factors that determine who is the most appropriate lender vary but generally speaking include:

Pricing – the cheapest funding tends to be with those lenders who are banks or have bank funding lines.

But pricing of course is only part of the mix and when you drill down to a customer’s requirements it is not always the most important element.

Loan to value (LTV) – According to recent research, the average loan to value for a bridging loan is around 50%. However, I expect that the average LTV for non-regulated loans will be higher. For borrowers that require a LTV greater than 70%, the choice of lender will be limited.

Type of property security offered – clearly for regulated loans, the security property will by definition involve a residential element. Non regulated bridging loans can be secured against a variety of property types, such as commercial, semi-commercial, maybe even industrial, but more likely, it will be residential investment property. Don’t forget that bridging loans can be secured against a mix of property types and / or a portfolio of property – we at UTB have lent against several property portfolios over the years, sometimes containing a variety of property types.

Speed – one of the standout features of good short term lenders is their ability to complete loans in a very short time frame. Our record is less than 3 working days from the point of enquiry to draw down. However, the reality is that most bridging loans do not need to complete in such tight period and 4-6 weeks is more typical. What is important is that Borrowers need the comfort of knowing that their loan can draw down when required.

Complexity and the ability to structure – the phrase “bridging finance” can be misleading in that it only refers to one characteristic of these loans and that is to provide finance in the short term. What that ignores is the sheer range of complexity and variety that this encompasses. UTB’s Bridging Department completes many very straight forward “vanilla” cases. Elderly downsizers immediately spring to mind – the purpose is clear, the exit achieved by sale of the existing home, the time frame appropriate and the customer is not requiring or seeking a long term facility.

However, where UTB can provide extra value, is in our ability to structure, complex bridging facilities. The complexity may lie in the ownership structure or nature of the security property or a combination of both factors and more! As mentioned before, our loans may have a varied portfolio as property security and we can accept first or second charges or a combination. Offshore borrowers, whether trusts, companies or individuals can usually be catered for, subject of course to the additional KYC and due diligence requirements.

So the challenge for the introducer is to find the lender that ticks all, or in the very least, most of the above boxes for their particular case.

With your narrowed shortlist of bridging providers I would now suggest you pick up the phone and call them. Talk to them about your case. Does the person you’re speaking to impress you with their knowledge and attention to detail? Do they inspire you with confidence or do you get the impression they are merely punching details into a computer system? Genuine experience is very difficult to fake and you should soon ascertain which of the people you’ve spoken to you’d be happy to recommend and introduce to your client. We meet many of our bridging borrowers, so you will literally introduce them to us at some point during the application. Not all lenders can offer that level of interaction. For us it’s part of the process and the service.

At United Trust Bank we have the knowledge, experience and expertise to provide bridging funding for both regulated and complex unregulated cases.