Sam Bailey

Five ways to mitigate risk on a bridging loan

Over the years, the bridging industry has developed a reputation for being a risky market to enter.

This is why we decided to set out the five main steps to mitigate the risks involved.

1. Borrower background 

This may seem a rather obvious place to start, but it is important to look into borrowers’ backgrounds in enough detail. We begin with all our potential borrowers completing a detailed application form to give us an insight into their current circumstances and previous experience. This is followed up by various searches using systems such as Experian and Companies House in order to verify the information supplied. 

2. Valuation

We currently use an approved panel of valuers when instructing valuations and this allows us to use a local valuer wherever the subject property is located and who will not be influenced into providing unrealistic values as all reports go through quality control before they are provided back to us. Using this panel also enables us to provide potential borrowers with various quotes from several local valuers who have been through a strict vetting process. 

3. Location

Location, location, location. This is always a key part when reviewing a potential loan. It is important that the property or site is located in a suitable area so that, when it comes to achieving sales in the future, you have one less issue to worry about. We will personally attend the property at the initial stages of the deal to get a feel for the area and ensure it is suitable for lending purposes, as well as following the opinion from the valuer. 

4. Local market activity

When reviewing a potential deal, this is another area we will consider in detail before looking to proceed. Although the valuation will provide us with information on the local area and recent sales activity, we will also undertake an initial comparable search using the expected values for each scheme. 

5. Legal due diligence 

The final stage of the process is when we instruct our solicitors to carry out the necessary legal requirements to move the deal towards completion, while  carrying out further checks on both the borrower and property. 

By following all these stages, we can minimise the risks and increase the likelihood of a positive experience for both ourselves and the borrowers. 

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