The entire mortgage market has seen unprecedented disruption since the covid pandemic hit the UK, but the bridging sector is going through its own particular set of challenges.

Many brokers are helping their clients make alternative arrangements as their planned exit routes no longer stack up amid conditions no one could have predicted six months ago.

Volatile property prices, low transaction numbers, tighter criteria, development delays as a result of the lockdown and lost income due to furloughing or redundancy can all result in borrowers finding it impossible to refinance onto deals with mainstream lenders – at least in the short term.

Specialist brokers say that now more than ever it is crucial to remain in close contact with clients to work out a new strategy where circumstances have changed, such as extending the term on the bridging loan or seeking additional security in order to refinance.

Money Group director Martin Stewart says he avoids bridging wherever possible because of these potential difficulties. He says: “In many respects bridging lenders are already the lender of last resort. Many borrowers have found that bridging themselves out of a situation is the only viable solution they have. This is fine and works well when the market is healthy, but difficulties arise when there is a liquidity issue, a concern about risk or systemic problems such as an inability to physically value an asset. Unfortunately the covid-19 crisis has created a perfect storm where all three problems appear at the same time.

“So there could be issues within the development sector who have bridged a purchase with the assumption that secondary lending would remove the bridging finance at some point during the development, but now that replacement funder may no longer have an appetite for the deal, or if they do, it is at a lower loan-to-value than previously suggested.

“There may also be consumers that have bridged a purchase on the assumption they could be selling another property or asset only to find that this is no longer the case.

“They may have to extend bridging terms further until such time the market normalises.”

Vantage Finance managing director Lucy Barrett says she has yet to encounter any desperate cases. She says: “We have had a couple where we were on the cusp of exiting them and we have to go for extensions. But so far, we have managed to get everyone covered.

“Where things start to get really difficult is if people have already extended once before, their loan-to-value has crept upwards and the conditions for their planned exit are still not materialising.”

Impact Specialist Finance managing director Dale Jannels says most bridging lenders and brokers have taken a cautious approach in ensuring a viable exit route at the outset so he does not foresee major difficulties.

But he says advisers should be keeping in close contact with clients to make sure sure their exit routes still stack up.

“If not they should be working out a strategy with them, which might include putting a charge on another property to extend that bridge.”

Jannels adds: “I’m dealing with a case at the moment where a client was on a two-year deal, so for two years they did not have to pay anything because the interest was rolled up, but now that they are into year three, they are paying a seriously large amount of money per month. They had a very good exit route and it is still a very good strategy. They have exchanged on the land, but it is taking longer than expected to complete, so the downside is [some exits] are taking longer than normal and the clients are paying for it as a result.”

Brightstar chief executive Rob Jupp says that LTVs tend to be low in the bridging sector which means that falls in property prices should have limited impact on lenders. But he says: “Many loans also have additional security in the form of personal guarantees. Borrowers are far more vulnerable to this, with loss of profit being the most widespread challenge. That said, most bridging lenders that we contract with have embraced a fair and positive forbearance strategy to support their clients.”