I’ve had a couple of conversations with brokers recently where, once we really got into what the refinance was going to look like later on, you could see just how exposed the borrowers had become.

In both situations, the bridges themselves had completed and, at the time, the deals probably felt like they had solved the immediate problem. The property had been secured, the capital had been raised and the pressure had eased, at least in the short term.

But once we started looking properly at the wider borrowing structure and what a term lender was realistically going to be comfortable with later, the refinance route became far less straightforward.

Solving a problem or pushing it back?

One case involved second charges sitting behind investment properties, as well as against the borrower’s home. Another involved the borrower potentially  using part of a pension pot to get themselves out of the position they were in later down the line.

Those options would involve really difficult conversations for anyone to have, but it’s vital that they are considered properly when the deals are first being put together.

A bridge can absolutely solve a problem quickly, and in the right circumstances it is often the right solution. But it can also push pressure down the road if the exit has not really been thought through properly from the outset.

Refinancing has changed

The refinance market also looks very different now to how it did a few years ago. Term lenders are looking much more closely at overall exposure, affordability and how properties are performing in practice, particularly once you get into HMOs, semi-commercial property or larger portfolios where there are already several moving parts behind the scenes.

We are also seeing more situations where the refinance becomes tighter because valuations have softened slightly, rental coverage no longer works as comfortably as it once did or there is already too much leverage sitting elsewhere across the portfolio. In some cases, borrowers are finding the refinance proceeds no longer clear the level of exposure they originally expected.

None of those things on their own necessarily stop a refinance, but together they can leave borrowers with far fewer realistic options than they originally anticipated.

Looking forward

More brokers are now having to look beyond whether a bridge can complete and spend more time thinking about what the borrower’s position could realistically look like nine or twelve months later, if the market has not materially improved by that point. And brokers are often trying to balance that against clients understandably wanting certainty and speed in the moment.

If rates broadly stay where they are, does the refinance still work comfortably enough? If the wider portfolio is already stretched, how many realistic options are actually left once everything is taken into account?

When family homes, pensions or other assets have become tied into the strategy along the way, those decisions can start feeling very different for borrowers once the refinance becomes real.

Understanding the exit from the beginning

Perhaps the biggest shift in the market now has been the way that exits are being considered properly, from the very start of a deal. Brokers, underwriters and lenders are having more direct conversations around what the refinance realistically looks like in today’s market, rather than pinning hopes on favourable conditions appearing later, or assuming that the refinance will become easier over time.

Sometimes that means having harder conversations earlier around leverage, wider portfolio exposure and how much contingency genuinely exists if refinance options narrow further during the life of the bridge.

Quite often it is also about making sure there is enough room in the structure if timelines slip, valuations soften further or the refinance simply takes longer than originally expected. But most brokers would still rather work through those issues upfront, rather  than leave borrowers reaching the end of a bridge with very few realistic refinance options left.

At that stage, hoping the market improves is not really an exit strategy.

Andrea Glasgow is sales director, specialist mortgages & bridging finance at HTB