James Bloom, managing director of short term lending at Masthaven, explains why securing the exit property is vital
My favourite bridge in London is the Albert Bridge. Connecting Chelsea to Battersea, it’s a rare hybrid- part suspension bridge, part beam bridge, part cable bridge- and an excellent example of Victorian high architecture.
Thanks too its pastel colours and night-time illuminations, I’d wager there isn’t a more impressive bridge in the whole capital, and I’m very fond of a stroll over it…. the problem with nice bridges, though, is that at some point, you have to come off them.
It is a truism that bridging finance is defined by short timeframes. Compared to mortgages, bridging loans are practically gone in the blink of an eye – typically 12 months, sometimes longer, but not all that often.
What this means is that, in bridging, the exit strategy – walking off the bridge onto new horizons – comes into sharp focus.
It’s crucial therefore that brokers work closely with their customers in order to develop a sound exit strategy – a proper plan for how the borrower will repay a loan when its term comes to an end, with a strong security (anything from a property to a business) tied against it.
As you’ll no doubt be aware, a well- thought-out exit strategy is good for all parties involved: it means the borrower exits the bridge with peace-of-mind and without incurring extra costs, the broker takes pride in a job well done and the lender knows it has assessed diligently and lent responsibly.
But quite often, I’m puzzled as to why some lenders approve bridging finance when the security is the new home the borrower plans to move into.
In my view, and in my experience, this is treading on very thin ice. Think about it: it’s an extreme example, but in a worst case scenario, if a borrower moves into their new property but then things go belly up, the lender would be in the unenviable position of having to evict, which is not what anyone wants.
That’s why the best exit strategies, at heart, allow the lender to take security over the exit property, increasing the chances of the case closing successfully. After all, no-one wants to get stuck on a bridge.