The term ‘bridging’ is arguably a misnomer – it suggests this type of finance is only available to customers wanting to purchase a new property before selling their old one. Bridging finance offers much more than that. Bridging gives customers short-term liquidity that can be used for almost any legitimate purpose. For customers, it can be a versatile solution to a variety of complex challenges.

For lenders and intermediaries, today’s bridging market is vibrant, competitive and growing. However, there are still misconceptions around bridging finance that deter customers from exploring what could be a valid, useful funding option to meet their needs.

Bridging myths belong in the history books

Bridging finance has been around for more than 50 years. Historically, it was used by borrowers who wanted to buy a new property but had not been able to sell their old one. Firms of solicitors and accountants would match their clients with funds to those who required a short-term “bridging loan”.

Over time, this informal state of affairs morphed into a specialist sector with some lawyers and accountants moving full-time into short-term lending. The market grew and the use cases for bridging finance were expanded beyond property purchases. In the 1990s, the bridging market was not yet regulated and for every legitimate bridging lender or adviser, there was a risk customers might find a bad apple, or lenders a bad borrower leading to risks of poor lending practices and fraud.

In the noughties, new lenders – specialist firms, for example – entered the market, including Masthaven in 2004. Bridging became regulated by the Financial Conduct Authority (FCA). It is now a niche, competitive and, for borrowers that need short-term finance, a vital market, worth around £4 billion in the UK.

Bridging finance has long since shrugged off its legacy as a source of finance for people with few other options. Bridging enables borrowers to access capital for a range of purposes or life events. Bridging is still most associated with borrowers that want to purchase and/or develop their properties. However, it can be equally applicable to borrowers with more complex situations – for example, a customer may want to settle a large divorce bill without needing to sell their property or settle a tax bill or other liability. These loans are secured against property.

Another misconception around bridging is the idea that it is an expensive form of finance. Rates in the past were relatively high, but now the market is very competitive. Some rates start as low as around 6 per cent per annum. They will often be able to repay that loan at any time (often with just a minimum of one month’s minimum interest required), without incurring early repayment charges. I would suggest that most borrowers would not consider this expensive when compared to the opportunity cost of not taking the loan – the alternative might be having their home repossessed, for example.

Bridging customers will often receive a level of service that might not be available to them from high street lenders. At Masthaven, for example, a great deal of time and care is taken to understand the background stories of our customers and why they need short-term finance. It is vital brokers and lenders ensure bridging loans are the right option for each customer. In turn, this provides the customer with comfort and assurance.

This point should also remedy another bridging myth: that bridging loans are all about speed. Yes, if required they sometimes must be completed in a matter of days. But I can probably count on one hand how many times I have seen that happen. The reality is that most customers do not need large sums of money at very short notice.

Bridging loans are specialist. It takes time to understand the needs of the customer, assess whether a bridging loan is the right option for them and – importantly – consider how they are planning to repay it. This is a critical difference between bridging finance and longer-term loans such as mortgages. Bridging lenders test the loan purpose is legitimate and makes sense, that bridging is the best option to meet that purpose, and that the exit strategy – how the customer will repay the loan – has been thoroughly considered and evidenced.

A market moving in a positive direction

Today, covid-19 has placed some pressures on the market, but bridging has remained relatively robust. After all, one thing is for certain: there will always be customers that need short-term liquidity and bridging finance will always be an option for their brokers to consider. And Masthaven will be there to support them.