Specialist Bridge Lender Celebrates 30 years

Retrospective or Introspective…

This month, we are celebrating 30 years as a specialist bridge lender and even longer in property finance generally. It is hard not to consider the past when thinking about today and the future, so what have we learned and where to next?

Going back to the beginning, bridging was usually the fix when a mainstream lender was too slow to meet a deadline or worse, made a belated negative decision. Bridge lenders were often called upon to step in and save the day. Our process was not very different from mainstream lending, we did all the same things, we just did it more quickly and charged a little more because our funds cost more. We did not have the bureaucracy of the big banks or the property finance off-shoots of the hire purchase companies, but nonetheless we looked properly at every deal.

So, what was “looking properly” and how did we do things quickly with limited use of mobile ‘phones, no email, Zoom meetings or the web? There was no dual representation or AVMs, not even valuation panel providers, but we focused on getting the job done and did! We met every borrower and visited every property, and then issued terms which were credit approved and subject only to due diligence. This is something which is not so common now, but if it was more deals would close more quickly.

How much easier it is to interpret the valuation or the report on title and to make correct lending decisions more quickly having seen the asset and discussed the proposal with the borrower as well as the introducer. In this way issues can be identified and then resolved in far less time and with more certainty. Now it is often guesswork or gut instinct with the decision in principle based on minimal information, with the hope assumptions made will be confirmed during due diligence. Of course, as experienced lenders we do all we can to add certainty but too often it is not easy to do so.

Today bridging is just another source of finance. It is expected to happen more quickly than the mainstream, and often does, but it amazes me just how lethargic borrowers and their solicitors are after they receive the decision in principle. Why is that so? A dozen different reasons but all avoidable if borrowers and their solicitors would prepare in advance and then respond when requested to do so. Well, that’s just me getting 30 years older and showing it!

Moving on, the bridging business is far better today than it was in those glory days. This is because of competition and the much wider offer available to brokers and their clients. Interest rates are lower now because lenders need to rely less on their own limited capital but gear it with bank lines providing a lower, blended cost of funds. Also, the range of products is vastly expanded with both regulated and non-regulated loans, commercial and residential bridging, development finance and overdrafts. In fact, a diversified bridging lender should be able to meet every short to medium term property finance requirement from the smallest loan to at least £10M and perhaps more.

It is interesting how the business has evolved. Strangely, today the average loan size may be larger, say just under the million, but the number of larger loans of £5M plus has reduced and this leaves a gaping hole which brokers and lenders could fill to their financial advantage. Also, repayment periods have extended from 6 to 24 months and there is the availability of interest-only 5-year term loans.

Originally it was loans secured on private dwellings, some residential investments, the occasional commercial property and for us development sites because we were very active in residential development finance. Fast forward and there are very few property assets against which we have not made loans and this includes mixed property portfolios, HMOs, student housing, residential and commercial developments, retail parks and shopping centres. Further, we have progressed from static bridging loans drawn down in one tranche to an overdraft arrangement with unlimited drawdowns and repayments with interest only paid on the balance outstanding – liquidity on tap!

Loans for refurbishment, some including structural alterations, are offered by a number of lenders and some extend to residential development finance if they are broader based and have the availability to asset manage the loan. These in-house skills are important as the best laid plans can go adrift and then experienced lenders know how to continue their support, making decisions swiftly with minimal fuss.

And with the passage of time, a sense of reality has entered the market place. It is now recognised that a white elephant will remain a white elephant however much money you throw at it. So, forts in the Solent, crumbling castles in Scotland and North Wales, vacated shopping centres and remote and unusual properties will, and should, remain on the decline list for brokers and lenders alike. However, this does not mean that the bridging industry will not continue to expand its borders.

We and a few others have successfully loaned in Scotland notwithstanding the different legal system and plan do so more and more with BDMs on site to offer local support. I expect there will be similar progression into both Southern and Northern Ireland and there have been the first rumblings of going further afield into Europe and I am sure that will come too. However, before it does there is the need to establish distribution routes and to understand local markets, the different legal processes and how to deal with problems as and when they occur.

So, bridging has matured but there is still a long way to go for both brokers and lenders alike; where will we be in 30 years’ time?

Click here to read the article in the April issue of Bridging Introducer.