Prior to the financial crisis, the key British high street banks, including HSBC, NatWest, and Barclays, offered bridging loans to their customers.
Commercial banks would provide bridging loans for account holders seeking a financial option for the short term. Bridging loans were awarded to customers to help those customers finish a financial transaction.
This would usually allow a buyer to keep their position in the process of a sale. Nowadays, however, mainstream lenders do not offer bridging loans.
Bridging loans are still commonly used to complete a property purchase before the other is sold. Repayment is made once the sale of the other property is sold.
Hence the name bridging loan, as this financial product can help ‘bridge the gap’ to complete a sale. These loans can be accessed quickly, allowing people to access the money to suit completion dates quickly.
High street banks would mainly provide loans for completing a purchase, but they would be given in other circumstances that were deemed secure.
Today, this finance option can even help people buy within the auction’s tight timeframe or help people buy with poor credit. It is also much more flexible and can be taken out for over a year; the usual maximum time pre-2008 was half a year.
Find out about the history of bridging loan here
Why The High Street Banks Fell Out of Love With Bridging Loans
Before the financial crash in 2008, bridging loans were relatively unpopular, as in times of economic prosperity, there were other appealing financial options like mortgages and secured loans.
The competitive environment meant they were easy to attain because a lot of products only required self-certification. The choice customers had was vast.
However, when the credit crunch happened, high street banks halted their services with bridging loans. Despite the economic recovery, high street banks have never restarted their bridging loan service.
When times were tough, banks needed to concentrate their resources on what attracted the most business, and bridging loans have never been big players in the lending market. A bank’s business and the money made mostly comprise mortgages, business, personal loans, overdrafts, and insurance.
The mainstream banks’ business decision was made to stop offering bridging loans as they were a minor part of their business.
The Emergence of New Providers
Today, those looking for a bridging loan usually have to look to alternative specialist lenders to access the product. Due to their popularity, many specialist lenders are offering bridging loans.
These lenders offer more flexible options and help with residential and commercial mortgages and buy to let, especially as lending criteria for products such as mortgages are much tighter.
The bridging finance industry has thrived, and customers have far more choice when searching for short term finance.
Countless fledgling lenders, especially challenger banks, have emerged to offer short-term financing such as bridging loans. The growth of the competitive market has decreased interest rates and the cost of a bridging loan significantly. This has led to bridging loans becoming more popular.
There are now more than 40 lenders that provide bridging loans in the UK. They include:
- United Trust Bridging Loans
- Octopus Bridging Loans
- Greenfield Capital
- Funding 365 Bridging Finance
- Masthaven Bank
- Tuscan Capital
The majority of alternative lenders offer both regulated and unregulated loans. Competition is based on company USP. While some lenders can offer up to 15m, some offer benefits such as lower interest rates.
Bridging Finance on The High Street
Despite the fact high street banks no longer offer bridging loans themselves, a few high street lenders are still involved in the bridging finance market. Those who wish to lend through established banks can.
Natwest manages alternative lending platform Esme Loans. These loans are intended for small and medium enterprises (SME’s) and have over fifty million to UK businesses.
Currently, Lloyds Banks provides residential bridging loans. However, they are only available to the very few. Lloyds will only approve these loans to members of the Lloyds Private Bank. Potential borrowers must also have either:
- At least 250k of savings or investments with the bank or the account as collateral
- A Lloyds TSB mortgage with at least a balance of 750k
Bank of Scotland
As a branch of Lloyds, Bank of Scotland provide bridging finance on the same restricted terms and only available to members of their private services.
Residential bridging loans are available at HSBC for customers who have arranged the mortgage for their existing property.