Much of the bridging press surrounds the size of a deal in £Millions and how long it took to complete. Completion times, of course, are key but how relevant is value and does this make it a more newsworthy story?
It is my experience, after 10 years in bridging finance, that the majority of the bridging transactions outside London are in the £50k-£100k space i.e. the low value, high yield property investment property sector. It is this lending that provides for the wider ‘usefulness’ of Bridging as part of the Mortgage Broker’s armoury. The bridging solution is only relevant in its application as a solution for the client, and are several transactions in one year for a client less relevant than one large transaction?
A lot depends on the focus of the company, its cost base structure and infrastructure. Fewer big ticket deals in a transaction led culture or multiple smaller transactions in a client led culture? Both have advantages – the resource required to lend £50k is often the same as to lend £500k, but, with smaller ticket size loans, the concentration risk in a lenders book is lower as risk is spread over multiple transactions.
IT infrastructure will play a role. Is the lender’s infrastructure and Underwriting and back office team geared up to multiple lower value transactions.
As bridging demand increases, Bridging Finance Solutions continues to commit to the lower value market, offering bridging loans from £25,000.
This move remains in stark contrast to many bridging providers, who stipulate a minimum £100,000 value loan whilst others start at £200,000. Identical levels of due diligence, time, effort and work is needed to arrange a £25,000 loan as a £250,000 loan, therefore many providers simply don’t feel that it is worth considering the lower end of the market.
Whilst many bridging companies simply don’t have an appetite for lower value loans, we remain committed to this market. We believe it’s very much about the internal processes that are established within a business and therefore how straightforward an agreement can be put in place. We’ve invested heavily in IT systems ensuring or processes are effective, robust and streamlined making our approach to bridging incredibly straight forward.
The nature of our introducer base does play a role in our attitude and outlook. As a north west based business, a large number of our clients and introducers are Northern based where clients are looking at lower valuer investment property transactions. Thresholds of lending are naturally lower, however, rental yields following refurbishments are strong, therefore the prospect of the loan for us is positive.
We essentially underwrite backwards from the point of exiting our short term loan onto long term funding or sale of the property within 12 months, and this forms part of our approach to responsible lending. For us it makes perfect business sense, at the lower end of the market double digit yields are realised, which will often satisfy affordability requirements for ‘buy to let’ mortgages.