Bridging To Beat The Box
Tomer Aboody – Director – MT Finance
Speaking daily with brokers and financial advisers it is clear that there remains a great deal of difficulty in the mortgage market.
Whilst liquidity remains an issue, equally of concern is the approach being taken to risk assessment and underwriting by the major banks.
Liquidity levels appear to be incrementally improving. According to the Council of Mortgage Lenders (CML) gross lending at £12.7 billion in July was 2% up on a year ago. Whilst at the time of writing estimates for gross lending of £12.6 billion in August represent a figure 4% lower than a year ago, the year on year figures to date published by the CML, coupled with the anticipated impact of the Funding for Lending Scheme (FLS) launched in July, suggest that gross mortgage lending this year will exceed that of the previous year.
There have already been some reported signs of a boost to liquidity stemming from the FLS. Reports of an increase in the number of higher LTV offers, and a small number of lenders announcing improved mortgage deals suggest the outlook may begin to brighten further. It remains too early to assess the full impact the FLS will have, particularly when some of the U.K.’s major banks remain focused on deleveraging.
Even as liquidity constraints show signs of potential easing, obtaining a mortgage offer for residential or commercial property remains an uncertain and often cumbersome task. Too often a standardised tick box approach to assessing applications is being employed by the major banks. If a case doesn’t tick one of the required boxes, lenders are often no longer prepared, or equipped, to listen.
Commentators looking back at the growth in the mortgage industry throughout the period stretching from 2002 to 2008 typically now focus on the negative. Irresponsible lending practises, insufficient regulation, the danger of self-certified mortgages. Some criticism of this period is merited, but it is important not to diminish the extent to which there was also positive.
Pre-crisis banks were keen to listen to proposals; development projects, purchases at undervalue, gift deposits schemes from developers, off shore borrowers, mezzanine finance, short leases, commercial property, higher LTVs, the self employed, unconventional income streams. At MT Finance we continue to consider these types of cases on a daily basis.
In the post crisis era the pendulum has swung too far back in the opposite direction – commercial consideration has too greatly given way to a tick box approach to underwriting. If an application does not fit within a specific prescribed criteria there is little flexibility for further consideration.
Traditionally bridging finance was a niche financial tool employed when time was of the essence. The prevailing conditions in the financial markets have created a broader array of instances when and where it is not only sensible for bridging to be used, it is necessary.
Confronted with a case which does not fit neatly into an automated approach to underwriting an increasing number of brokers are rightly turning to bridging finance in order to aid their clients. The equation is simple. If a client is prevented in the immediate term from taking advantage of an opportunity, and that impediment is something which can be remedied with time, and if the cost of short term finance is justified, bridging finance is not only now a mainstream, acceptable solution, it is commercially the right one.
There remains however a significant percentage of advisers who are not familiar with or who misunderstand or harbour negative misconceptions about bridging finance. Improvements within the industry driven by increased institutional interest has helped create a more professional and transparent sector. Bridging finance has emerged as a credible and necessary financial product. As a broker or adviser today it is imperative to understand the bridging finance market.
A case in point. At mtf we recently provided a bridging finance loan required to purchase a commercial property trading as a restaurant in Central London. The applicant intended to purchase the 999 year lease with a newly formed limited company. The restaurant trading at the premises had a strong trading history, the asset was located in a prime part of Central London, the applicant had a sound business plan which demonstrated both commercial acumen and personal attachment, and the loan required equated to an LTV of circa 50% of vacant possession value. To our surprise the applicant had been rebuffed by one of the major banks on a technical point. With a now impatient vendor pressing for an exchange and completion the applicant’s broker did not propose an alternative financial solution. The applicant took matters into their own hands, found, and contacted us directly. They were not prepared to lose the opportunity. We were able to provide the finance required to complete within a matter of days in a fit for purpose fashion. An opportunity almost lost, was saved by a bridging finance loan.
Whilst liquidity may show signs of improving there remains little evidence that any increase in funding will be made available in a more pragmatic or commercial fashion in the immediate term. To be in a position to assist clients in today’s market brokers thus need to be fully up to speed with all of their options including bridging finance. Whilst relationship banking may have stalled, relationship bridging is alive and well at mtf.
Whether you have a client who is looking for auction finance, short term finance, a non-status bridging loan, or a second charge bridging loan MT Finance are hear to listen to all bridging finance enquiries. Contact us today to speak directly to a Director about any bridging loan enquiry.