[3 mins read]


If you’re new to bridging finance you’ve probably been warned to err on the side of caution.  As the name suggests, Bridging Loans are designed to help bridge short term illiquidity, or fund properties that can’t be financed through other channels.  Amongst other benefits, they can allow you to purchase a property before selling an existing one, buy a place in need of refurbishment, or facilitate a quick move when speed is top of your agenda.  Interest rates are higher; hence the habitual warning tag, but the potential upsides normally outweigh the increased funding costs.

The market has changed exponentially in recent years, and with the right contacts and expertise, Bridging Loans can pack an effective punch when it comes to expanding your property portfolio.  From upgrading to downsizing, they’re a handy card to hold, reflected by their increasing popularity among property investors.  Like all markets, each lender has their pros and cons, so the key is having an in-depth understanding of the market, and the know-how to select the best lender for your scenario.


Unravelling the bridging market

Since the financial crash, the bridging market has grown at an explosive rate, with around 100 lenders now competing for their share.  To fully understand the bridging market, it’s essential to drill down to the lenders and how they are individually funded, which unbeknown to many, frequently comes back to the big banks.

Tightening credit restrictions from 2008 meant bankers were subject to increased regulatory and compliance requirements, making granular transactions more difficult to execute profitably. At the same time, the banking industry needed some positive PR, as banker bashing became the press’ favourite pastime.  Banks couldn’t be seen to be repossessing homes or frequently putting companies into liquidation, so they needed to find a way to lend without doing so on a piecemeal basis that wasn’t profitable, and left them exposed to press scrutiny.


The rise of wholesale lending

This all made way for a substantial increase in wholesale lending for Bridging Loans, which saw the number of lenders multiply at a rapid rate.  So, how does it work?

One way it starts is with a HNW individual or family lending money to their network for property deals. By building a good reputation, the demand for funding normally outstrips the supply of money, so they turn to a mainstream or challenger bank to provide a wholesale funding line.

Here’s an example.  A family business has £20m to lend, and are happy to offer 70% LTV per transaction. It’s a risky business because if just a couple of loans run past their agreed loan term, or become an NPL (Non-Performing Loan) they can no longer lend to new borrowers. Reputation is key in the bridging industry, so offering terms on a case and failing to complete could be catastrophic for a business reputation, so lenders are keen to raise as much capital as possible to expand their offering.

In this example, the family office could obtain a wholesale funding line of around £50m, more than trebling their lending capacity to £70m. The funding line sits senior to their £20m.  If the bridging lender only lends at 70% LTV, and £70m is deployed, the property value used as security would be £100m, so the bank is at 50% LTV and feels sufficiently de-risked.

The bank also only has exposure to one borrower. If it all goes wrong, the bridging lender has to pick up the pieces, not the bank sitting in the background, so it’s a no-brainer for the bank and a win-win for both lenders.  What’s more appealing for the bank; to lend £50m once, or to lend £500k to 100 different borrowers?


Scratching beneath the surface

Whilst the benefit to you as the borrower is more choice when it comes to bridging finance, it makes it all the more important to understand how your lender is funded, as delays and reversed approvals can be extremely costly.  Essentially, you could still be borrowing from a mainstream bank, who underwrites the loan for the lender, without knowing it.  It’s an important nuance to understand as problems can arise with changed pricing, reduced leverage of declined applications when you’re already a long way along through the process.

The difference is, the good bridging lenders will still have enough of their own money to execute on deals where the funding line is not available, or have multiple funding lines where risk appetite is diversified. The thin equity lenders are essentially mainstream lenders under a different guise and will give you little deviation from their standard criteria.  So, dig deep yourself or work with an expert with the experience and knowledge to navigate the market.


Shopping the bridging market

Here’s a breakdown of the types of lenders you could explore to secure bridging finance:


Mainstream lenders & private banks

Good for: Cheap rates.

Bad for: Being slow and risk adverse.  The lander’s lawyer may not be used to dealing with Bridging Loans regularly, resulting in delays. Private banks may need assets under management.


Challenger banks

Good for: Still cheap rates but normally better leverage than the mainstream lenders.

Bad for: Being slow. Lawyers may not be familiar with Bridging Loans, resulting in delays.


Specialist lenders

Good for: Ability to transact quickly. Normally working with lawyers who are experts in bridging finance.  Flexibility (if they still have their own pot of money or thick equity).

Bad for: Some are wholesale funded with little autonomy, which could slow things down.


Individuals/family offices (not funded by wholesale)

Good for: Full flexibility and delivering on hard money loans.  The quickest option, and rarely reverse lending decisions.

Bad for: Normally more expensive rates but if speed is your priority, you can’t get quicker than this.


As always, our advice is to shop around to find the best property finance solution for you, and if you don’t have the time or ability to do this yourself, consult an expert.

If you’re not sure how a Bridging Loan could help you, have a read of our earlier blog, 10 things you need to know about Bridging Loans for some great examples.


 If you would like to talk to us further about bridging finance, please give us a call on 0207 846 0184 or email info@propertyfinancegroup.com





November 2019