BRIDGING FINANCE

Panellists: Charlie Gregory, BDM for the London and southern regions at Hope Capital; Mark Marlow, head of sales at Colenko; Sundeep Patel, director of bridging at UTB; Chris Whitney, head of specialist lending at Enness Private Clients; and Imogen Williams, regional sales manager for the South West at MFS

1. Rebridging is not always a bad thing

A recurring theme during the bridging panel is rebridging, with Chris indicating the misconceptions around this: “We are seeing a lot of rebridging loans, but I think it's a bit of a myth that it is automatically a bad thing or something's gone wrong. Rebridging isn’t necessarily a negative thing; I think, in the majority of cases, there's a more positive story behind it.”

He notes rebridging is another avenue to a successful project, pointing out that where an opportunity has changed—quite often for the better—a more profitable route is being uncovered.

Imogen agrees that rebridging is not simply an indicator of a troubled project: “We don't necessarily view it as a bad thing, as long as there's a solid explanation and, again, it comes back to a solid exit; things happen, the market changes, sometimes people can't exit. Often what you see now is a shift from people trying to exit via refinance to changing their exit to sale.”

However, Mark points out that a rebridging loan is not the right solution for all cases: “You've got instances where the borrowers have got schemes that have been mismanaged and they've run into difficulties, and putting them onto another bridging loan is probably not the right thing to do.”

2. Communication and brokers’ due diligence are key to avoid early administration and foreclosures

The latest EY UK Bridging Finance Market report reveals that 33% of bridging firms have seen a rise in foreclosures this year compared to 4% last year. This is a trend that both Sundeep and Chris are witnessing.

“I am seeing lenders call in administrators very quickly now,” says Chris. “I think some finance providers are using it as a tool to make sure the client does something. Borrowers don’t necessarily want to pay for another valuation, set of legals, or arrangement fee, and they’re always more optimistic than lenders—so they think if they can kick the can down the road for another three months, they’ll solve this and pay back the loan. However, I think lenders have become wise to that, which is why they’re taking action sooner.”

Meanwhile, Imogen, Charlie and Sundeep explain that lenders often take such action because the borrower does not inform them when problems arise. “It always depends on how willing the client is to work with the lender—if they bury their head in the sand, or promise things and then don’t deliver, lenders have no option,” explains Imogen. This is why the panellists advise clients to maintain an open and constant line of communication with their funding provider as well as their broker, and notify them of any issues that may affect their ability to pay back their bridging loan. “It all relies on the client being very communicative toward the lender and how they’re going to solve the issue—this can go a long way and, if the broker gets involved, all the better,” she adds.

Mark emphasises the need for brokers to carry out their due diligence both when arranging the facility for the client and throughout the term. “If you're in that regular dialogue, you should be getting to a position where you know exactly what's going to happen with that bridging loan coming into the term. It's not just about the products or the headline rate—it's what's going to happen with our customer journey after.”

As for lenders, Charlie advises firms to keep an open mind when dealing with problematic deals to avoid unnecessary action or turning down cases. “When something does go wrong, it's quite easy to remember that deal and then tar any future enquiry that is similar to it with the same brush. So it's also important, from our perspective, to look at the bigger picture that every borrower is different—they might have the same adverse [circumstances], but the property might be different. It’s trying to not let the old battle scars define your appetite moving forward.”

3. Bridging has become more mainstream—and this is set to stay

According to Chris, bridging finance has become a more sought-after product, and sometimes even a borrower’s first choice above other types of finance. “Bridging used to be something that clients were forced to use when they had no choice. We're now in the position where clients are coming to us specifically wanting to use a bridging provider, preferring not to use some other types of lenders. They got accustomed to the speed and efficiency [of a bridging loan]. Plus, the pricing in bridging finance, with moves in SONIA and base rates, means it isn't actually that much more expensive any longer.”

The panellists have seen bridging facilities obtained for a variety of uses, particularly development finance exits. “A lot of clients are also using bridging for cashflow purposes, which historically has always been available. We’ve seen a rise in demand for that,” adds Sundeep.

4. The importance of varied funding lines, and doing your homework on this

During the panel discussion, Imogen and Mark highlight why it is integral for a lender to have a diverse pool of funding from multiple investors in order to be flexible. “The key is to have a mixture of both institutional funding lines—which are very good for access to a lot of capital—and more flexible funds that let you make certain allowances that you can’t with institutional sources,” comments Imogen.

Some industry experts have argued that the reliance on institutional funding lines is affecting bridging lenders’ nimbleness and agility. However, Chris offers a slightly different perspective. He does not believe that institutional funding is the issue, but rather lenders securing the same institutional funding lines—resulting in very similar propositions across multiple finance providers and thus restricting product options for brokers and their clients.

The panel also emphasise the need for brokers to inform themselves and their client on how a lender is funded, as that can directly impact the success of a bridging deal. “How lenders are funded also will give a broker an indication of how robust the finance provider is to deal with any changes throughout the term of the loan. Sometimes things happen in the legals or valuations but, if your lender has access to multiple or robust funding lines that are flexible, then if the deal changes mid-term, it may not be the be-all and end-all, which is important in this market because things seem to change at a very rapid pace,” says Imogen.

Sundeep agrees, adding that there is a greater onus on brokers to provide this background information on a lender to their customers, particularly as they are becoming more informed. “Clients are becoming more savvy and they're understanding what bridging is, so as the market develops and innovates, brokers need to make sure their clients are updated on that.”