A survey commissioned by B&C revealed that 36 per cent of brokers believe the biggest problem in bridging is its negative perception, with lenders tightening their criteria and lack of product ranges coming in as the second and third biggest fears.

One reader, Anthony Roy - who has previously worked for and with many of the best brokers, packagers, networks, bridging lenders, and is even a property investor himself - believes now is still a tough time for the industry. B&C found out what his bridging fears are...

Some of the biggest problems today include a lack of funding from traditional channels, fraud, and sometimes over- protection in terms of regulation.

Lack of funding from traditional channels due to the credit crunch means that traditional lenders do not currently need brokers as most cannot afford to look after their direct business. This will change in the future, and with fewer brokers the good times will come back. 

However, technology savvy companies will really make the most gains from this as the internet has somewhat disrupted the broker market. Brokers simply need to adapt or deal with niche areas, but not all business will become electronic in the near future. 

Bridging lenders also have to set their criteria to match the exit of the bridge, i.e. if the exit lender’s LTV is 65 per cent, then the bridging lender must consider how much equity is left in the property, so that the client can exit the deal.

Another issue is fraud. Most bridging lenders do not have a bottomless pit of money to lend and because bridging loans are a short term solution, should a fraudster - or a few unscrupulous brokers/packagers/clients - pass on unclean business that has no way of being redeemed, then a pot of £10,000,000 can be lost in just 20 loans. 

Bridging lenders have to also pay investors and, in this market, if investors do not get their money, they simply pull the plug. The European crisis has also not helped; I have seen a few Greek-related banks, with good business models and good profits, go out of business because their funding arms have been withdrawn due to herd mentality of putting everyone in the same pot. 

For our market to get back to the good times, fraud has to be virtually eradicated. The best lenders have already, or are in the process of, putting in measures to virtually wipe out 99.99999 per cent of fraud. With more bridging lenders entering the market, leading to falling returns, just 1 or 2 per cent of fraud cases can stop funding. Technology can help, but having the best people and best procedures in place can virtually eradicate fraud. Some lenders let themselves down by only having one of these in place.

Regulation also raises issues. Most regulation is good, but occasionally regulators can over regulate, like the Dodd Frank Act in America which is stopping many new businesses from being created, and can sometimes cripple the financial markets that they are trying to protect. Recently I have been told that the FSA has suggested that deducting the interest up front is bad for the client.  I can see part of this argument, and again a few rogue bridging lenders have probably made this difficult for the good bridging lenders. To me however, deducting the money up front helps all parties, because:

i. Bridging lenders get their interest paid, which means investors get paid;

ii. The client shows that they can afford this mortgage;

iii. The exit process should be easier because the client has paid all of their interest; 

iv. The client exiting a bridging loan is in my opinion better because when they exit, they can get a loan from 3 to 6 per cent instead of 15 to 30 per cent and not losing everything they have worked hard for. 

If the FSA is reading this article then please look at this, as this helps everyone including the market and keeps the funds flowing and more money available to lend out to more clients. Not deducting the interest will lead to more bad debt which is very bad for the client and ties up funds in the market. 

We need to keep bridging as the short term measure it was created for, otherwise bad debt leads to losses for everyone and less to lend. Three to 6 per cent is also easier to fund and pay for, than 15-30 per cent i.e. three per cent of £1 million loan = £30,000 pa. 30 per cent of a 1,000,000 loan = £300,000 pa and in my opinion helps treat more customer more fairly as more clients will be able to exit and there will be less bad debt for the lenders and investors and more money to lend.