Bridging Loan News Update

Why Bridging Lenders can't meet demand for Short Term Loans

The current difficulty that mortgage borrowers are experiencing in obtaining new or replacement mortgages has inevitably had an impact on the bridging loan market. This is because for most borrowers, the bridging repayment method is usually via a re-mortgage.

Although demand for bridging loans have arguably increased during the credit crisis, for many, actually getting a loan is much more difficult as customer expectations and required loan to values do not reflect the current realities of the financial market place. It's just been reported that in 2008 the number of mortgage completions were at 1974 levels!

The factors that have affected lenders ability to offer finance and customers ability to accept any offer include:-

• Loan to Values offered by bridging loan companies tend to track just below those in the mortgage market. This is to ensure repayment is possible.
• Fees and interest for the expected life of the loan tend to be deducted up-front. Therefore any customer applying at or near to a lenders maximum loan to value would actually receive less cash than expected or needed.
• Valuers are very cautious with valuations these days, potential customers almost always think their property is worth more than the valuer. This means that bridging lenders may not be able to offer the required amount!
• For investors purchasing property at what is perceived to be "below market value", we believe that for those purchasers, valuers valuations are increasingly sliding toward the actual purchase price. This appears to be the case even for auction purchases.
• Bridging lenders focus on how a loan will be repaid and unless they are totally convinced, an offer may not be forthcoming or a lower loan offered in cash terms. The key factor here is loan to value, the higher the percentage, the higher the risk! One of the major non-status players has reduced their maximum loan to just £250k to manage that risk.

One piece of good news on the bridging loan front is that there are still lenders out there who will lend against full open market value.

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