As you look to expand your toolkit, particularly for clients who encounter unique or time-sensitive financing challenges, bridging finance stands out as a robust option for high street advisors.
Bridging is a short-term option that addresses gaps in liquidity, facilitating transactions that might otherwise be delayed or be unattainable through high-street lending, such as:
- Real estate purchases
- Property renovations
- Business capital
With bridging finance rates ranging between 0.5% to 1.5% per month, understanding each lender’s unique terms and flexibility is essential for advisors aiming to deliver maximum value.
This guide gives you complex client scenarios, lender criteria, and provides tactical insights for high street advisors looking to add bridging finance to their everyday toolkit of product options.
Before making a recommendation to your client it’s good to know what to expect when exploring bridging products, as they work very differently from a high street product.
When Is Bridging Finance a Good Idea?
Here are three common bridging scenarios that the Specialist Finance Centre encounters regularly when working with advisors:
1. Portfolio Expansion for a High-Net-Worth Property Investor
Scenario: A high-net-worth client with a substantial property portfolio intends to acquire a large commercial building for redevelopment.
The property, valued at £3 million, requires extensive structural improvements, and the client needs to act quickly to secure it at auction. They plan to exit through a long-term commercial mortgage once renovations are complete.
Solution: The advisor secures a bridging loan at 0.87% per month with a 24-month term secured against the client’s Existing Portfolio and New Property, covering 70% LTV which includes a portion of the refurbishment costs.
The loan structure includes a roll-up interest feature to avoid monthly interest payments, providing the client with the cash flow needed for redevelopment.
Advanced evaluation: Flexibility on refurbishment loans and high LTV terms allow the client to finance both acquisition and development costs efficiently.
With a two-year term, the client has ample time to complete the project and refinance through a long-term loan, providing a seamless transition without cash flow disruptions.
2. Equity Release for Business Expansion via Bridging Finance
Scenario: A business owner with substantial equity in a residential property worth £2 million.
The client needs urgent capital for a new business acquisition but cannot qualify for conventional business loans within the required timeframe.
Solution: The advisor arranges a second charge bridging loan at 0.75% per month, leveraging the client’s residential property equity.
The loan is secured over 12 months and allows for interest roll-up, giving the client full access to the capital needed for their business expansion.
Advanced evaluation: By leveraging the client’s property equity via a second charge bridge, this provided immediate liquidity without disturbing the client’s existing primary mortgage.
This approach enabled the client to act quickly on the business opportunity while minimising monthly payment obligations and preserving cash flow for operational needs.
3. Chain-Break Bridging Loan for High-End Residential Purchase
Scenario: A couple aiming to upsize to a property worth £1.2 million is in a chain-break situation, with their current home not selling as quickly as anticipated.
The new property is in high demand and delaying the purchase might result in losing the property completely. As the existing property is unencumbered, we are able to use the equity as a deposit.
Solution: The advisor coordinates a bridging loan covering 80% of the new property’s value at 0.63% per month.
The bridging lender’s ability to complete transactions within a matter of weeks ensures the clients can proceed with the purchase, bridging the gap until their original home sells.
Advanced evaluation: Competitive bridging rates and a fast turnaround were essential in this urgent transaction.
By utilising a bridge the advisor enabled their clients to secure their dream property without the pressure of waiting for a buyer for the existing home.
How to Optimise Bridging Finance Solutions?
For advisors looking to optimise their recommendations, here are critical technical aspects to keep in mind and evaluate:
Precision in Exit Strategy Planning
For any bridging loan, a clear and viable exit strategy is paramount.
Advisors should ensure that clients have a robust plan in place, whether refinancing, selling, or using an expected cash inflow. Working closely with lenders who prioritise exit clarity during underwriting, can prevent complications at the end of the loan term.
Tax Implications and Financial Structuring
Depending on the loan purpose, clients may encounter unique tax considerations.
For instance, clients using bridging finance for property refurbishments may benefit from advice on capital gains tax planning if the property value increases significantly. Advisors can consider collaborating with tax professionals to assess how bridge finance could impact the client’s tax liabilities.
Interest Roll-Up vs. Monthly Payments
Some lenders offer interest roll-up options that defer payments until the end of the loan term.
This can be beneficial for clients with cash flow constraints. You should carefully weigh the client’s cash flow needs and advise on the appropriate payment structure based on the client’s financial flexibility and project timeline.
Compliance with Regulatory Standards
Bridging finance, especially when secured against a primary residence, is subject to FCA regulations.
Advisors must ensure that the product aligns with responsible lending guidelines and maintain transparent communication with clients about potential risks, fees, and repayment expectations.
The Specialist Finance Centre can help you make sense of bridging options and package your clients application in the best way to increase the chances of completion.
Recommendations for Advisors Offering Bridging Finance
Here are four strategies for advisors aiming to integrate bridging finance effectively into their everyday toolkit:
1. Collaborate Directly with Bridging Specialists
By working with a specialised whole of market broker such as SFC you can get product insights and dedicated support.
Our advisor-specific programs help to streamline the application processes and enhance customization options.
2. Stay Updated on Market Trends
The bridging finance market fluctuates with broader economic trends, and rates can shift accordingly.
Advisors should monitor market dynamics, particularly interest rate adjustments, property market conditions, and regulatory updates. Doing so will help you provide timely, relevant advice that enhances client decision-making.
3. Develop Comprehensive Financial Scenarios for Clients
Presenting clients with detailed financial projections, including interest costs, repayment scenarios, and potential exit strategies, enables them to make informed decisions.
Financial scenario modelling can also help demonstrate the value of bridging finance as a tool for generating high returns, particularly for property investors and developers.
4. Educate Clients on Bridging Risks and Rewards
Bridging finance can often be the right product fit but carries higher costs and potential risks if the exit strategy fails.
Advisors should conduct a thorough risk assessment, ensuring clients understand both the benefits and limitations of bridging loans.
Conclusion
Bridging finance can be an indispensable tool for high street financial advisors, allowing them to address complex client needs and navigate fast-paced property acquisitions.
By leveraging tailored solutions from bridging lenders while maintaining regulatory compliance, advisors can expand their everyday toolkit to optimise client outcomes.
Contact us today to see how we can guide you and your client to a successful outcome.
