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BRIDGING - THE BOTTLE-NECKS

By Kit Thompson

The amount of time it takes for a bridging case to complete has increased significantly. The recent Bridging Trends report shows average time to completion increased from 30 to 39 days between Q1 and Q2 2015. Somewhat ironic when most bridging lenders quote ‘speed’ as one of their USPs, but an increasing number of bridging transactions are taking longer to complete than ever. There are a number of reasons for this, but the ‘bottle-necks’ experienced in bridging can mostly be identified as valuation and legal.

A common misconception is there will be fewer checks and less legal work with bridging finance, but this isn’t the case. With an increase in the number of FCA regulated bridging transactions the requirements for evidence of income are not much different to those of mainstream mortgage lenders. Whether residential or buy-to-let, transactions using bridging finance are typically more complex, carry more risk and require more checks, than those funded with mortgages.

Title issues, change of use, refurbishment works etc. are all common place on bridging transactions, which often add to the ‘standard’ legal work faced when taking out a mortgage. The real challenges come when borrowers use a solicitor who perhaps is not familiar with bridging legal work and does not know the process. We see cases time and again when the client’s solicitor has a ‘hissy-fit’ at the amount of information a lender requires, the case goes to the bottom of the pile with inevitable delays. There will of course be exceptions, but generally speaking this is a perceived reason for delays in bridging completions.

A borrower’s solicitor typically acts for both lender and borrower with a mortgage, whereas in bridging it is common for the lender and client to have separate legal representation. There may also be a lawyer for the conveyance process, not to mention the firms above or below in the chain, which all add to delays.

One possible solution, discussed at Association of Bridging Professional meetings, is a national panel of law-firms well versed in dealing with bridging finance that the client can choose to appoint. I stress the word choose; I am not suggesting clients are railroaded into using a suggested lawyer, but a recommended panel could be one way to speed up the completion process.

We’ve all seen the trade press headlines of ‘XYZ lender completes bridging loan in record 48 hours!’ and yes, this is possible. However, these are cases where valuation is already in and all legal work is completed and it’s just a case of checking everything and transferring funds. It can be done, there are several lenders capable of completing bridging transactions within five working days, but it’s not the norm.

Solicitors are not the only reason Bridging Finance are taking longer. So many surveying firms laid staff off during the credit crunch and are now struggling to replace them again quickly enough to meet demand. Although it tends to be a geographical issue, with certain areas less well covered than others, it is a problem that slows the process.

If a lender only has one or two approved surveyor firms on panel they are leaving themselves vulnerable to service issues and delays, which can be exacerbated as some lenders will wait until valuations are in before fully underwriting a case, making an offer and instructing a solicitor. This is usually to safeguard client’s fees, but where speed is crucial for the client it can be better if valuations and legals are instructed day one. Again it boils down to choice for the client.

What is wrong with having two panels of approved surveyors, one with a pre-agreed service level agreement to carry out and return a written report within 72 business hours, at a higher cost, and one that will take 7–10 days, but at a lower cost? Some cases are time sensitive and a client may choose to pay a premium to get funds faster, especially if a large deposit is at stake.

Of course this requires a judgement call from both client and lender, but this is where the individuality usually applied to each bridging loan case should come into play, together with lender assessment of other similar cases.

Flexibility and identifying the right lender for a specific transaction are key; it is not all about rate and cost. The broker plays a crucial role by establishing the client’s priorities and communicating to the lender so they can instruct the solicitor on day one and get the process moving if speed is of the essence.