The bridging finance market continues to grow. Research from the UK suggests that the bridging finance market represents as much as 15% of property lending in total. Figures on the size of the Australian market are difficult to calculate, but conservative estimates put the quantum of bridging finance relative to the total mortgage market at about 1%.
It seems the Australian marketplace may be set to follow the UK lead. Lenders are improving their offerings through product innovation and borrowers are becoming more educated as to the options available to them. Mortgage brokers who have a thorough understanding of the nuances of bridging finance are set to benefit from the expansion in this specialised area of finance.
Bridging finance secured against real estate can be arranged in as little 24 hours. However, in order to achieve this, lenders generally require certain conditions be met. It is often the case that brokers confuse the documentary requirements of lo-doc mortgage loans with those of bridging finance loans. In contrast to a lo-doc loan, bridging finance lenders typically require more detailed information to allow them to assess a deal more quickly.
A recent example from a Sydney lender specialising in bridging and short term finance provides an illustration of the power of bridging finance. It also outlines some of the requirements of the lender in order to provide funds when they were needed urgently.
A broker contacted the lender on Wednesday afternoon. He was unsure whether he would be able to place the deal, as the LVR on the security property was high (already close to 80%). Knowing this, he had collected as much information from the borrower as possible, and was able to provide this to the lender when the application was submitted.
The borrower needed $ 85,000 quickly to finalise the purchase of a business. The previous owner had run into trouble and had creditors demanding payment. The borrower had already received approval from a bank for finance to complete the purchase, but these funds would not be available for 2-3 weeks. Additionally, the borrower operated another small but profitable business, for which he was able to provide a letter from his accountant verifying income.
With a post-loan LVR of over 90%, many bridging finance lenders would have knocked back the application immediately. However, because the borrower (and his broker) were able to provide sufficient information regarding the exit strategy, the Lender was able to lend. Cleared funds were in the borrowers account on Friday afternoon, less than 48 hours after initial contact with the lender. The loan was eventually paid out 3 weeks later.
The borrower realised a handsome gain from his ability to act quickly, and the broker set a deal that might otherwise never have been done thanks to his work gathering detailed information to support the application.
This is just one example of how, with a little bit of knowledge, finance brokers can access funding solutions for their clients that previously have been difficult or impossible to source. As with all lending, brokers who understand the process lenders go through to approve a deal will be better equipped to set more deals more often.
Tips for brokers:
- Understand your Lenders requirements – especially those relating to required supporting documents.
- Provide as much detail on the loan as possible.
- If you think it might be a ‘tricky’ application, ask the borrower to provide as much information as possible that may assist the lender in approving the loan. This includes detail of alternative income sources or additional security items such as vehicles, businesses or property.
- Remember, bridging finance is generally a customised product. Lenders will do anything they can (within reason) to accommodate reasonable requests.
- Remember, it’s a team effort. A little work done to help the lender will result in more deals getting over the line.
