On this pageReasons for using a bridging loan broker Brokers can explain the options Brokers have experience and a large base of contacts Brokers speed up the process Brokers are on your side Brokers understand how the market is changing Brokers know what lenders will accept Brokers can help with non-bridging finance A word of warning Questions to ask
As the popularity of bridging finance has spread, so has the number of finance companies offering bridging loans. This is good news for customers in many ways, since it increases the range of options, with bridging finance available for varied situations, from more types of lender, with different lengths of contract and more flexibility.
Most importantly, competition between lenders means that average interest rates charged have fallen, in relation to headline interest rates, as lenders seek to attract new customers.
On the other hand, the increased range of options makes the whole sector potentially more confusing for borrowers, especially those without a background in finance or who have little experience of dealing with finance companies.
It also makes it harder for borrowers to distinguish between reputable bridging finance companies and those who have come into the sector aiming to exploit unwary customers by over-charging or providing a sub-standard service.
Bridging finance brokers can offer a solution to this problem, along with several other advantages.
At first glance, bridging finance can be a complex field, where a borrower has to choose between regulated and unregulated loans, different lengths of contract, closed or open loans and various ways of treating interest payments.
Brokers can help borrowers to determine which options best suit their circumstances, explain how best to prepare an application, estimate how long the process will take and how much it will cost, and recommend the best bridging finance companies to approach for their specific requirements.
Rather than a borrower making multiple applications to bridging finance companies, without knowing in advance which is most likely to be fruitful, using a broker cuts through this random process and helps connect a borrower with one or more suitable lenders, experienced in the specific area (such as property auction finance) and with an appropriate risk appetite profile.
Some bridging finance companies are more risk-averse than others. Some will charge higher interest rates in return for taking on riskier loans. A broker can ensure a good match between a borrower’s circumstances and a lender’s risk appetite, meaning that the borrower gets a deal in the first instance and that they also do not overpay for their loan.
In some cases, bridging finance lenders reserve their best deals for applications made via brokers – which are unavailable to individual borrowers. This is because they prefer the security of broker-arranged deals, with the broker performing a kind of vetting service on their behalf, protecting both the lender and the borrower. From the lender’s point of view, this saves them time and effort.
It sounds obvious to say lenders have to lend in order to make a profit, but not many borrowers realise that many lenders obtain their funds from large institutional lenders. Lenders that are borrowing their funds pay for the privilege of having access to that capital, even when it’s not lent out. So the longer that capital isn’t lent out to borrowers the more it costs the lender. Even lenders who aren’t borrowing their funds but are deploying their own capital don’t want to be sat on it. Where a lender has just had a large influx of capital for a recently repaid loan, the lender will want that put back out to the market as soon as possible. Good brokers have the inside scoop on which lenders are sitting on funds ready to deploy and so can also play this to the advantage of the borrower, ensuring very fast completions.
A good broker will be able to draw upon a wide range of bridging finance providers, from speciality lenders to family offices and private investors. Each will have different terms and be suited to certain types of lending.
Dealing with lawyers, surveyors and financing companies can add time and stress to a bridging loan application, when one of the major reasons for taking out a loan is speed. Because brokers are set up to complete bridging deals, they can liaise with fellow professionals, ask the right questions, make sure that you have all the right paperwork and speed up a bridging loan application.
If you need a solicitor or surveyor, they will probably be able to suggest someone who is expert in the field, once again minimising the administration period.
During the application process, brokers can advise borrowers when to submit documents, when deadlines need to be met and how to answer bridging finance companies’ questions. This all saves time and reduces stress. Think of your broker as your personal assistant for getting your loan over the line in the fastest possible time.
In many bridging loan applications, there is an element of negotiation. The lender may seek a low Loan-to-Value percentage, to protect their security. They may ask for an above-market interest rate, charge unusual fees or seek to amend a contract based on the results of a survey.
Whereas an individual borrower may be unaware of typical market rates or terms, a broker will be able to spot where a lender is proposing onerous terms and argue on your behalf. They can point out to the bridging finance company that other lenders are offering better rates, so if they want your business, they should consider matching or beating these rates.
Ideally, they will attract bids from multiple lenders and create competition between them to bring down the interest rate they offer.
Besides a greater number of finance companies, the bridging market is changing in other ways: new asset classes and types of investment are becoming commonplace, as bridging finance gains more widespread and mainstream acceptance. Interest rates have risen sharply since mid-2022, adding an extra layer of complexity to the market, as some lenders choose to push their rates up while others seek to attract new customers by freezing their rates – making them appear relatively good value compared with High Street banking loans.
Once again, these issues are tough for individual borrowers to recognise and apply to their discussions with bridging finance companies, whereas brokers are on familiar ground.
This aspect is particularly important relating to exits. Many bridging finance companies are relaxed about a borrower’s credit history, their employment status or their personal situation. What they are focused on is the exit. Without a legally watertight and financially compelling exit, they will be very reluctant to proceed.
Brokers are also highly attuned to this fact and can advise borrowers on how to structure and present their exit. For example, a piece of land without planning permission will attract a far lower valuation than one with planning permission. So the broker may advise the borrower to get this permission ahead of approaching a bridging finance company.
Equally, investing in a buy-to-let property requires an in-depth knowledge of the lettings market and the local area. If the borrower plans to remortgage once they have renovated the property, the bridging lender will have to decide how achievable this is.
A broker can advise the borrower so that they present a convincing case to the bridging loan provider, with all issues covered ahead of time.
This readiness not only saves the borrower time and effort, but it can also protect their credit rating: every time a lender refuses to offer a deal to a borrower, it can have a negative effect on their record, making it harder to gain credit in future.
In recent years, some bridging finance companies have become very selective, choosing to extend loans only to certain borrowers. This means the risk of being refused has risen, increasing the reasons for working with a broker.
Many bridging finance brokers also deal with traditional lenders including High Street banks and building societies. This means that, where for example you need to arrange a remortgage to repay a bridging loan, they can help you apply for this through their network of contacts and experience of arranging similar loans.
These connected arrangements can yield savings, through using the same solicitor for both contracts, for example. It also reduces stress since the broker can ensure that documentation reaches the right people at the right time and that payments are made properly.
Many bridging finance brokers also arrange development finance. Check on their website to see whether this is something they offer.
The fees that brokers charge – whether upfront or down the line – can range from a few hundred pounds to several thousand. So it’s worth comparing quotes to see how far the anticipated savings that the broker can help you achieve are offset by their fee. (Some will ask for an application fee, which is refunded upon the loan completion.)
Equally, some brokers are ill-equipped to deal with the complexities of bridging finance. Make sure to quiz brokers that you’re interested in working with, to be sure they understand the subject and will be well-prepared to help and represent you.
Be prepared to ask bridging finance brokers:
How long will a loan take to arrange, whether they have arranged any recent loans similar to the one you’re looking for, and what interest rate they were able to achieve. Ask about their fees, their processes and the companies they work with.
Ask whether they have access to ‘whole of market’, meaning speciality lenders, family offices and private investors; whether they arrange regulated or unregulated loans, whether they can offer dual representation via a firm of solicitors; whether you will need an in-person or desktop valuation.
One way to judge whether a broker will be a good partner in a bridging loan application: how responsive are they to your queries? If they respond quickly and address your query properly, this is a good sign. Communication and speed are key to a positive bridging experience.
Stephen Clark at bridging finance broker Finbri comments:
“The evidence shows that bridging finance brokers save clients far more than the fees that they pay for the service. With so many providers competing for borrowers’ business, there are excellent deals to be found, but your chances of finding them a hugely reduced without the help of a broker.”