Mark Posniak,

The ‘credit crunch’ sparked by the US sub-prime crisis is giving way to a slowing of economic growth and a more conservative lending environment.

The outcome of many banks having to accommodate large sub-prime liabilities is the much discussed tightening of wholesale banking markets. Accordingly, other lenders from across the industry are realising that relatively accessible funding for their activities can no longer be taken for granted.

This tightening is impacting all areas of lending, including bridging.

Looking forward, brokers will find that the only bridging lenders who will be able to continue to offer competitive products to them and their clients, will be those who either have or can obtain secure lines of funding.

Cheval’s strength enabled it to recently procure an additional £25m of funding from Icelandic bank Landsbanki, which complements the already comprehensive financial backing that we have in place.  We have steadily built a reputation for sensible, prudent lending on the back of innovative and price-leading products, so we do not anticipate funding challenges.

The adequacy of lenders’ funding is of importance to brokers, who clearly do not what to find themselves in a position whereby, after initial acceptance and processing by a bridging lender, an application falls through because the lender has run short of finance.

Over the coming months brokers would do well to build relationships with those bridgers who they are confident have secure and adequate funding lines.  Doing so will help minimise the risk of disappointing clients.

Although the supply-side may well be testing for some bridgers, on the demand side, I do not expect there to be much shortage of potential bridging business for brokers.

Bridging has traditionally done relatively well when times are tough. In an environment where credit is harder to get and takes longer to secure, bridging finance performs an ever-more important role in providing short-term solutions, while that ever-more-elusive long-term mortgage is finalised.

I anticipate that the need for short-term finance will, if anything, rise.
 
To give one example, repossessions are predicted to increase significantly during 2008, and the Royal Institution of Chartered Surveyors is estimating that the number of homes coming up for auction will rise to 45,000 by year end.

Traditionally, many investors buying at auction have used bridging finance because they are required to complete within a few weeks of a successful bid. If they fail to meet the auctioneer’s deadline, they lose the property and their deposit. A conventional mortgage is usually unworkable because, unlike bridging, it cannot provide finance within a very short time frame.

Bridging is also popular with investors who acquire property at auctions, because bridging companies will normally base their loan-to-value on the market value of a property, rather than its discounted purchase price. This allows the investor to leverage his available capital over more transactions.

As all brokers should know, once an investor has acquired a property using bridging finance, they usually redeem the bridging loan with a remortgage as soon as practical, in order to minimise the bridging costs. This equates to two procuration incomes for what is essentially one purchase!

There are other instances where bridging is likely to be the best solution for a client: during testing times: for quick cash to take advantage of property bargains; for equity release from an existing portfolio to meet a range of financial demands; and to overcome a broken chain.

Intermediaries with an eye to meeting their clients’ needs for short-term finance are likely to do well during 2008 – irrespective of the economic backdrop.