When looking to take out a bridging loan, it’s an important decision that often needs to be sorted quickly. Although the cost of bridging finance has reduced massively over the last few years as the number of lenders has increased, especially with the advent of more and more peer to peer lenders entering the bridging loans market, it’s still a more expensive form of borrowing when compared to other financing options.
What is a bridging loan broker?
A bridging loan broker acts as an intermediary between yourself and a bridging loan lender.
Their job is to advise you on the best deal for your circumstances and work with you throughout the process to ensure that your loan completes with minimal fuss.
A broker works for their client, not the lender, and should focus solely on what’s right for their client. Of course, as brokers build up relationships with lenders, the waters can often be muddied. With this in mind, it’s fair to say that a ‘good’ broker will work on their clients’ behalf.
Do I need to use a bridging loan broker?
The answer to this question is usually no. Of course, it’s possible to look online and approach a few lenders, before moving forward with the cheapest option.
Where this is risky, is that there’s a large disparity in the cost of these loans from different lenders.
Some regulated bridging loan lenders will only accept applications through a broker as they insist on the client receiving advice. This is to ensure that the right financial decision is made, and is there to protect the borrower.
What are the advantages and disadvantages of working with a broker?
Below we run through the 6 main benefits of trusting a specialist broker to find the right lender for your needs and manage the process through to completion.
1. We can save you money
A good broker will fight your corner, negotiating to get the rate as low as possible, reducing lender fees where possible and pushing to overcome any negatives the lender may perceive with the application.
With every application being assessed on a case by case basis, there will always be an element of negotiation. When entering this discussion, your only ally in the process is an impartial broker. It pays to have an experienced ally working with you on to get the best deal for you.
2. The market evolves very quickly & lenders work on a case by case basis
As the market evolves so quickly, the best lender today may not be the best tomorrow. This is further compounded by the fact that lenders will lean towards different geographic locations, client circumstances, exit routes, income requirements as well as many other factors.
Every lender varies, right down to how their credit department view applications. They are often guided behind the scenes by their funding source, meaning a lot of lenders can’t be as flexible as they would like you to believe.
3. The risk/reward ratio
The finance industry has always and will always run on the risk to reward principle. This means that a lender who charges the least will have to reduce their risk or could well end up out of pocket.
In the world of bridging loans, they can do this by taking two routes:
- Being extremely picky about the applications that they accept, meaning they decline a lot more clients than they ever lend to. This means that you’re very likely to suffer declined applications, which is not ideal as they have to be disclosed to other lenders going forward. This can be perceived as a weakness in your application.
- The second is asking for huge amounts of information, checking every aspect of the client’s circumstances to ensure everything is okay. This is a similar process to a standard mortgage and although it is nothing to fear, it does take time. Of course, the more time that loan processing takes, the longer it will take to complete.
It’s crucial to have someone in your corner to guide you through lender decisions. For instance, slow bridging loans don’t tend to be in hot demand, but of course lenders also don’t tend to advertise the fact when they can’t complete quickly, shouting loudly about any quick completions they do have.
4. Time is money
Dealing with your application from initial application through to completion in such a short timescale involves a huge amount of work. The process of organising everything to run smoothly, in tandem and repair disconnects between the different parties working on the process (somebody not receiving a document and then failing to flag it up for instance) requires constant attention.
This would normally be a frustration, but when every hour is important, and any delay could mean a deadline is missed, it becomes a far bigger problem.
In most cases, it is simply not practical to take an entire week, or even two out of your life, just to focus on completion of your bridging loan. A broker manages a lot of the legwork for you, leaving you free to focus on the jobs that only you can complete, such as supplying personal information and documents.
5. Reduction of stress
When you’re really backed into a corner and constantly being asked for information, rushing to meet people for surveys and legal work, it is obviously extremely stressful.
This is compounded massively if you’re losing time in your work and personal life by constantly being asked for further details and trying to manage a process that you most likely have little practical experience of.
In this situation, it is useful to have an ally in the process who is there to provide an unbiased answer to any questions and can objectively judge if the application is moving as it should in relation to the deadline you are dealing with.
An experienced broker will know exactly when the deadlines are at risk of getting too close, when people need to be pushed and when they should be left to complete the task they’re working on. This is invaluable in maintaining control of the process. A controlled and closely managed system is clearly far less stressful.
6. Independent advice
A broker is the gateway between you and your goal. We are on your side and our job is to get the best deal for your circumstances. This is true of all parts of the process, not just finding the right lender.
With a bridging loan, there are often elements of negotiation in the deal such as the security offered, maximum loan, changes based on the contents of the survey report and of course, legal issues.
We are able to work with you, fighting your corner to ensure you aren’t overrun in negotiations by people with more experience in the market than you will likely have. When dealing with a complex and important matter such as a bridging finance application, it really pays to have an expert on your side.
Of course, nothing in life is that straightforward, there can be disadvantages to working with a broker. The main ones are:
1. Some charge high fees
In the bridging industry, some brokers charge high fees for their services. This isn’t just an issue with backstreet, unscrupulous brokers, many of the larger brokers do the same thing.
In some cases, brokers will also ask for upfront fees to start work on your application.
Paying these fees is generally a bad idea as there are fee-free brokers (like us), who access the same lenders and provide the same service, without the added costs.
2. A poor broker can add to the difficulty in arranging a loan
Bridging loans can be complex to arrange and a weaker broker may struggle on occasion.
This is only going to make your application more difficult to manage as they may pass on information that isn’t quite correct or may misunderstand the rationale of your application.