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By Kit Thompson

Is it the rates they offer? Linked to their own cost of funds or the return their investors expect to get back? Is it speed of service? EVERY bridging lender will quote “speed” as something they can offer to differentiate them from rest – but if all bridging lenders are claiming to be able to act quickly, then surely that is a given and not a USP?

The fastest bridging case I have personally worked and completed recently was five working days, although I am aware of them moving from application to completion in less time than this. The longest? Well probably about four months from application to completion, mainly due to an extremely long and overly complex legal process on that particular case. The average we (at Brightstar) see from application to completion is about three weeks, so about 15 working days – but the most likely delay for a case dragging on will be the time it takes for the client’s solicitors to respond to the lender’s solicitor with requisitions.

A lot of this is standard stuff, such as local authority searches, report on title, bankruptcy searches, buildings insurance with the lender’s interest noted on the policy and first charge consent or redemption statements from existing mortgage lender. That is not to say that more complex issues do not arise and sometimes planning obstacles. Section 106 Notices and the like can take weeks to resolve, especially with absent landlords, lost title deeds etc, but then there is always title insurance – some lenders use it, some don’t.

How about fees? It is the norm across the industry for most lenders to charge a two per cent facility fee? The client usually expects to pay for valuation upfront and lender’s legal fees, either upfront, or on completion.

An undertaking for the fees due is usually required from the client’s own solicitor, to say they will settle the lender’s legal costs on completion.

Not every lender charges a two per cent facility fee, but this is certainly more common than not. Lenders charge this whether they are retaining the full two per cent for themselves (i.e. if it is a client applying to them directly, hence it is all profit), or whether they pay away half or even all of the facility fee.

Some lenders charge an exit fee, although this is thankfully a minority of lenders and I am sure this practise will soon die-out completely, as it is simply out-dated and not considered to be fair to clients paying fees both on the way ‘in’ and on the way ‘out’ of a bridging loan.

When we talk about headline rates ‘from’ X per cent and then you consider default or penalty interest rates charged by lenders, when and if the borrower does not repay the loan on time – typically the rate doubles. Three per cent is a default interest rate I see a lot and sometimes even as high as four per cent per month.

What is it that REALLY matters? For every borrower considering a bridging facility – The over-riding factor should be what is the total cost of the borrowing, including all fees and interest from application until the loan is redeemed. Lender A versus Lender B. Which one saves the client the most money?

The term of the loan will be an important factor. A three-month bridging loan with a lender charging 1.5 per cent per month, but with no upfront facility fee, will be better value and cost the client less than the same loan with another lender, who charges a two per cent facility fee (added to the loan and charges interest on this amount), who only charge one per cent per month.

Whether the loan is regulated or not, the total cost of the loan has to be considered and this is what clients need to ask their bridging broker.

Yes, in some instances, there will be cases where total cost, interest rate and fees will be less important and sometimes the client ‘just needs the money as quickly as possible’ – but in the main, like any other form of borrowing, whether it be mortgages, second charge mortgages or bridging finance, the total cost to the client should and will become increasingly THE most important factor when advising your clients.