Increasingly, the UK’s biggest banks are becoming more reluctant to do business with a growing number of applicants. Mortgage underwriting processes are becoming more complex, and self-employed applicants are facing excessive scrutiny, meaning those unable to access large deposits need not apply.
Little wonder, therefore, that so many are taking their business elsewhere and seeking the support of specialist lenders away from the High Street.
Bridging finance is a booming sub-sector of the industry. While high-street lenders continue to tighten the screws, bridging loan specialists are relaxing their lending criteria, increasing maximum loan-to-value ratios, and even welcoming applicants with poor credit.
The fact that bridging loans can take days to arrange (as opposed to months with a conventional mortgage) is another major point of appeal for many applicants, and many mortgage lenders are now taking much longer to process applications than pre-pandemic.
Flexibility, affordability, and accessibility
Bridging finance has the capacity to effectively reverse almost every complication associated with sourcing traditional high-street loans. Typically secured against the applicant’s property, bridging loans can be offered at a monthly rate of interest of less than 0.5%.
When repaid over the course of months rather than years, bridging finance can potentially be more cost-effective than a traditional mortgage or secured loan.
The speed and simplicity of bridging finance are likely to appeal to those looking to beat the looming stamp duty suspension deadline, potentially fuelling another major spike in activity.
It is highly likely that we will start to see even more people using bridging loans to buy the properties they want quickly and take advantage of the stamp duty holiday. This demand will increase while mainstream lenders are unable to meet the needs of borrowers in the timeframes they require, particularly for higher-value properties where the savings could be up to £15,000.
Other industry watchers have noted a significant increase in the number of applicants using bridging finance to secure properties, subsequently switching to longer-term mortgages to repay the balance more gradually.
However, emphasis was placed once again on the importance of factoring all borrowing costs into the equation when arranging bridging finance.
Often, bridging loans come with an arrangement fee of up to 2%, which on a £500,000 loan would be £10,000 of the £15,000 stamp duty savings.
There would also be survey and legal costs to arrange the bridge, which are in addition to the costs that would be needed for the loan term.