Private banks versus bridging lenders

Private banks versus bridging lenders


In the growing world of bridging finance, borrowers are faced with a wide array of tailor-made products and services to suit every need; yet some look to private banking services to suit other specialist requirements.

Bridging lenders are a vital financial resource as they offer access to funding at a time where mainstream banks are less willing to lend. Loans and services offered tend to be more flexible, allowing for off-the-wall securities and varying repayment schedules.

Similarly, private banks pride themselves on offering streamlined and tailored services to the individuals they represent. Often they will offer services unique to their clients that cannot be found on the high-street or amongst specialist lenders.

As with the bridging industry, private bankers also thrive on forming personal relationships with clients, a factor that, particularly with HNW individuals, can make a crucial difference in securing business.

We spoke to several industry experts to unpick the differences between the two services, find out what bridging lenders are doing to distance themselves from the high-street names and why the bridging industry is now in a position to compete.    

Kit Thompson, Director and Head of Bridging and Commercial at packaging firm, Brightstar Financial, told us that specialist lenders have taken advantage of a reduction in what mainstream banks are willing to lend.

He said that it is “the lack of liquidity from main-stream lenders, post credit-crunch, which has paved the way for other more ‘niche’ lenders to flourish. There is no better example of this than the world of bridging finance – a market which some estimate to be worth close to £1 billion.”

Kit observed: “We’ve seen an influx of new lenders and this has meant more competition, leading to the cheapest bridging rates ever, with first charge bridging available from 0.75 per cent per month (just 9 per cent PA).

Yasin Patel, Director at specialist lender Mayfair Bridging, has also seen some evidence of the expansion of the bridging industry, but told us that he did not think that it is due to an influx of new lenders.

He said: “We have seen a number of new lenders enter the market recently but this is nothing new. Every year there are always new lenders entering and existing lenders leaving the market.”

He believes that tempting rates alone are not what is attracting borrowers to the bridging market, instead suggesting, “it’s more about understanding the client’s needs and tailoring products to suit.”

Packager Hugh Wade-Jones, Director at Enness Private Clients, outlined the fundamental advantage of using a bridging lender.

He said: “Generally I would only advise a client use a pure bridging lender over a private bank for bridging finance for cases where complete non-status lending was required or lending on a property outside what the private banks deem to be prime residential (generally within M25 and Surrey or in some more strict cases very postcode specific). I had a case declined by a private bank in Covent Garden as it didn’t deem the location ‘prime London’!”

He went on to say that “private banks offer fantastic rates but will only lend on a full status basis to those who fit their wealth management profile, which is not a vast amount.

“Add into that geographic sensitivity and the fact that many will only lend to bridge chain purchases, and not to developers or distressed owners, and it seems that standard bridgers offer a far more holistic lending approach.”

Our experts pointed out that private banks tend to lend differently from bridging lenders.

Hugh told us that Enness use private banks for 80 per cent of its HNW clients’ bridging transactions, adding that “generally private banks’ bridging rates are in the region of 3-4 per cent over the cost of funds, which is dramatically cheaper than a standard bridging lender.”

“If mainstream banks suddenly started relaxing lending policy, and were more willing to offer flexible underwriting leading to more conventional mortgage approvals, then I’m sure many bridging lenders will be hard-hit and some may not survive.”

Kit outlined that because mainstream banks have far more resources available to them they are able to offer a far larger range of products and ultimately are unlikely to lose much business from bridging lenders.

He added: “Whilst it may provide a funding solution in the short-term, there is still the need for longer term finance to be in place and unless the intended exit for the bridge is sale of property, most bridging lenders will not allow a bridging loan to complete without evidence of a suitable exit route being in place.”

Yasin, however, concluded that the niche services that bridging lenders offer are of great importance to many borrowers:

“Most bridging loans are unique, not just for the property type but usually the client is too. We have lent to clients from the UAE who were buying in the UK and would usually not have been touched by a private bank. Part of our funding now comes from the British Virgin Islands so we can be even more flexible in our deals.”

Benefitting a specialist market, it seems that bridging lenders’ real advantage over private banks is the flexibility and tailored experience they can offer many borrowers, thus fulfilling a vital funding need both now and in the foreseeable future.

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