A bridging loan broker is a broker specialised in helping borrowers access bridging loans, which are short-term secured loans used to ‘bridge’ gaps in cash flows. Bridging loan brokers will assist borrowers to assess the market, find suitable lenders, and make an application.
We’ll examine each of these further.
- Bridging loan brokers know the state of the market and will be able to advise which lenders will offer the most appropriate products given the borrower’s specific circumstances, preferences and constraints. This can be important since many borrowers may not understand what a bridging loan is, be aware of the risks of bridging loans, and have little or no experience with their use.
- Because bridging loan brokers understand the market, they can advise borrowers on how to present their requirements to create an attractive opportunity for lenders. This may help the borrower to obtain a lower interest rate by creating competition between lenders.
- Bridging loan brokers can advise, prior to submission of a loan application, how to mitigate any potential problems that may influence the likelihood of a loan being extended.
In addition to these factors, applying to lenders directly can be a time-consuming task for many consumers. This is especially since, as a niche market with less standardisation than traditional mortgages, there is less publicly available information with which to assess options and draw conclusions. Bridging loan brokers may also have commercial relationships with other professionals such as valuers and solicitors. This will enable the process to run more smoothly and reduce the risk of an unexpected event derailing the timeline. This can be very important since bridging finance is often used when time is limited.
Another reason that bridging loan brokers are commonly used by individuals (i.e. for non-commercial loans) is to avoid dealing directly with lenders. Bridging loan lenders, who mainly work directly with businesses and professional developers, are usually more comfortable dealing with brokers than with the general public. Working through brokers enables the lender to draw on pre-existing relationships and assume awareness of industry standards and norms.
Bridging loan brokers are compensated by a fee for their services. This may be a flat fee, or it could be based on the loan amount – 1-5% is typical. There may also be other costs, such as application or processing fees. However, these additional fees may be refundable if the loan is approved. Reputable brokers will declare their fees up front and ensure you are aware of them prior to the application.
It is important to understand that bridging loans as financial products may or may not be regulated by the Financial Conduct Authority (FCA). Regulated loans are typically those secured upon the main residence of the borrower. They are mortgage products, subject to the relevant regulations around miss-selling and independent advice, and brokers dealing with regulated loans must be FCA authorised.
All other kinds of bridging loan are considered unregulated, including bridge finance on buy-to-let properties. It is worth noting that, while they are not subject to mortgage regulation, unregulated loans may still be subject to other consumer regulations under the FCA and Competition and Markets Authority (CMA).
You can find the UK’s best bridging loan brokers in our bridging loan directory.
