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Bridge that gap

The range of non-standard or niche mortgage products available to strengthen the IFA&#39s position would not be complete without short-term or bridging finance.

The feature of secured short-term funding most often overlooked is that the whole attitude and approach to lending by short-term principals is quite different from conventional long-term mortgage underwriting.

Once mortgage brokers have fully grasped the essential differences and how to employ them to best effect, the positive impact on their incomes is quickly felt.

The common misconception is that “bridging loans” are only for people who need to buy their next home before the present one is sold. In fact, today, bridging loan can also mean transit camp, repair centre, breathing space or financial first aid post.

Almost any situation where the security of a first mortgage can be offered but an ordinary mortgage is just not available – either because of problems with the property or the applicant&#39s status – could well be suitable for bridging until the root of the problem has been sorted out.

To any broker looking for a new market, small to medium-sized builders offer an ideal business opportunity through bridging finance. Such clients buy unmodernised houses to refurbish and sell in a short space of time, both to make profits and to keep their workforce.

For builder clients, there is a variety of finance packages on the market, inclu ding one that assumes that the builder can negotiate access to a house in need of refurbishment or repairs from the time of exc- hange of contracts.

Provided that the builder can carry out the required works before legal completion of the purchase, then the loan will be based on the improved value and not the (lower) purchase price.

Another area of opportunity neglected by many brokers is that the use of short-term finance can be an invaluable interim stage where clients have impaired credit history.

The “bridge” provides a means of debt consolidation and, importantly the breathing space needed to establish a clean six-month track record for clients who might not immediately qualify for a long-term remortgage.

What is often overlooked is that bridging finance is a means to an end and not the end itself. Every bridging loan requires an eventual “take-out”, whether this is by remortgage or sale of the property.

Either way, it provides the broker with another opportunity to write mortgage business, quite apart from the introductory fees paid by the bridging lender.

Bridging finance also benefits from the twin advantages of being both quick and “nonstatus”. Short-term lenders invariably concentrate on the value of the property and will generally lend around 70 per cent of the value.

Income, or the lack of it, is of secondary importance in the short term and many short-term loans have come into being because a self-employed applicant needed time to prove income.

The alert broker will always be on the lookout for situations that do not immediately meet the conventional criteria of long-term lenders but which, through the short-term market, present a business opportunity that need not be wasted.

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