Working together on an exit is in everyone’s interests.
The importance of the exit in bridging finance cannot be overstated. It is fundamental to the success of an application and needs to be monitored for viability purposes throughout the course of the project – especially in the current economic climate.
We have written in the past about the need for contingencies but it’s worth reiterating the message that brokers must ensure their clients possess several exit strategies for their bridging loan cases. The deteriorating economic climate and decelerating property market have rendered 'plan A' less reliable, making it crucial to establish 'plan B' and even 'plan C.'
Latest figures from the Association of Short-Term Lenders (ASTL) show that the value of bridging loans in default in the final quarter of 2022 were up 16.6% year-on-year. This demonstrates how the market has changed over the past 12-18 months and why lenders are casting an even more critical eye over applications than before.
Bridging lenders need to be assured that brokers' clients comprehend market realities and have proactively considered their alternatives exits; borrowers with a demonstrated awareness of market conditions and contingency plans are more likely to have their applications approved in 2023. For example, at London Credit, as always but especially now we ask for a backup plan in advance in case the primary exit strategy fails.
Of course, some clients may have had a bridging loan approved during a more favourable market period and did not see the necessity for a contingency at the time. However, as the development nears completion, the viability of the existing exit strategy needs to be reassessed.
At London Credit, we take ongoing dialogue very seriously. From our perspective, we don’t want any surprises, therefore we need to know as soon as possible if there could be any prospective spanners in the works when it comes to exiting the bridging loan.
This ongoing communication should exist between all parties. From the outset, brokers need to assess the viability of the existing exit strategy with the client. They should make use of their business development manager (BDM) to work together to identify potential exit strategy issues early on and facilitate solutions, bearing in mind the fact that all exits are generally taking longer to realise that they did 18 months ago.
Likewise, for more recent cases involving multiple planned exits, the BDM should remain informed about the client's progress on each path. Sustaining open communication with the BDM throughout the process benefits clients and fosters more robust, long-lasting relationships for brokers.
From our perspective as the lender, we work with the broker to find a solution if the exit strategy and other plans are failing. To that end, we engage with the broker three months prior to the redemption of the loan to see how their exit is progressing, identify any issues and discuss any possible solutions prior to the redemption date.
This may result in the borrower taking an exit route which wouldn’t have been their first choice, but in today’s market, with everything taking longer and arrears on the rise, brokers and their clients need to be pragmatic, especially when the best laid plans go awry. In these instances, all parties need to work together in order to find an exit which gets the job done, so the borrower can move on to the next phase or project.
At London Credit, we have an experienced team who have seen many different scenarios play out and so can advise and help brokers and their clients. We don’t wait until a week before the loan is due to be repaid to see how things are progressing because we know that’s too late if an alternative needs to be sought. We believe in maintaining a constant dialogue with the broker; that’s why our book remains in good health and why brokers and their clients use us time and time again.
Elena Panayiotou is Loan Officer at London Credit
