“The transition should be quick, but there’s a saying in the market (usually articulated by brokers) that ‘if you want the cheapest rate, be prepared to wait’.”
To which the answer is of course “no!” People typically turn to bridge financing over a conventional mortgage because they need speed or when a property is deemed unsuitable by a conventional mortgage lender. For example, this could be where the property is currently uninhabitable, but the investor may see the opportunity to make a profit or generate an additional income stream from the rental yield once it is in habitable condition. Bridge financing allows an investor to improve a property without having to make a monthly payment, and while it is indeed more “expensive” than a mortgage, the interest is usually rolled over or withheld and accounted for. in overall profit.
Bridging should be quick, but there’s a saying in the market (usually articulated by brokers) that “if you want the cheapest rate, be prepared to wait.” However, to me, that goes against bridge financing; I consider the relay market to be less rate sensitive than other markets. That’s not to say that some lenders don’t really squeeze margins with their rates, but the majority of lenders have similar rates and compete on speed and certainty instead.
Yes, if the customer can afford to wait, their choice of lender will absolutely be dictated by the rate, but if the transaction is urgent and complex, the rate is less crucial. It’s all about which lenders can get the result in the time required, and then how do those rates compare.
There are a number of ways one bridge lender can have a faster process than another. While technology is key to this – and I’ll get into this in more detail shortly – speed is partly in the broker’s gift and this is often overlooked. They can have a huge impact on the length of a deal by identifying the exact needs of the borrower, the complexity of the transaction, the outcome required and the timeframe required. It all has to match the lender who can deliver the best customer outcome while delivering on time. This is especially vital when the case is more complex.
Now let’s move on to technology. Lenders who can process applications within days have typically invested in technology through portals and API connectivity with Equifax/Land Registry/Hometrack, allowing them to move very quickly to an indicative mortgage offer (with cases simple).
Other ways lenders can really get things done much faster are through the use of title insurance, in-house attorneys, and dual representation in the legal process. They can all help improve turnaround times, especially with purchases.
Likewise, lenders who offer AVM or “drive by” appraisals can take days or even weeks off the required time.
Finally, it is always important in the context of bridging to ensure that the exit is fully considered in order to ensure that the delay is reasonable. Ultimately, with bridge funding, lots can change after the initial request is submitted and this happens more often than not. Therefore, when evaluating which lender to choose, as well as considering the rate, consideration should also be given to how that borrower will be treated if he or she does not leave on time. From a full cost of credit position, if they haven’t exited within the discount period, how does that compare to the next cheapest? Also, if they are not released at the end of the term, what is the default charge that will be applied and how does this compare to the next cheapest?
The vast majority of brokers experienced in the world of bridge financing know that rate is not king; borrowers may not be so wise and therefore need to be told why this is the case. There are so many factors that can affect how quickly a case can progress that 0.01% per month just won’t matter as much later on. In the current environment of rising inflation, the sooner a transition case can be agreed and work can begin, the less the borrower will feel the negative effect of rising building material costs, for example.
Brokers have an important role to play in advising their client on what is really important and how to choose the right lender to move the case forward quickly. It’s not all about the lender.