Bridging finance is an option for 'wait and see' borrowers as rates begin to fall

    Tom Cantor - Head of Bridging Finance

In her hit single Big Yellow Taxi, Canadian singer-songwriter Joni Mitchell wrote: "Don't it always seem to go, that you don't know what you've got 'til it's gone."

Of course, Mitchell's seminal 70s classic is a song about the environment and how our notion of progress can end up being "a blight on paradise", as she once put it.

But those words spring to mind when I consider the millions of UK borrowers whose fixed rate mortgage terms come to an end over the next year or two.

The last time these people refinanced, rates were at record lows, had been for more than a decade and were seemingly going nowhere. 

In that low-rate world, people could upgrade to a property with an extra bedroom or one with a big garden out back without too much sacrifice or discomfort.

 But just like the world Mitchell sings about in Big Yellow Taxi, that low-rate world is gone - perhaps for good - and many of us are only now realising how good we had it.

The cost of borrowing has soared over the past two years and, as a result, a lot of borrowers are feeling much poorer that they were.

However, there is light at the end of the tunnel. The Bank of England hasn't increased rates since August last year and, in fact, talk is now turning to rate cuts, rather than increases.

The big question on everyone's lips is when. You'll need a crystal ball for that one, but many commentators still believe we may see tow rate cuts in 2024, although these predictions change almost daily.

However, in reality, it doesn't matter when rates begin to fall; the mere talk of them falling is enough to influence behaviour - and it gives borrowers lots to think about.

Do they lock into a two-year fixed rate? A five-year fix, perhaps? Or maybe a tracker would be a more sensible option?

These are they types of questions that will form the backbone of conversations between brokers and their clients at present.

There is another option which could also prove useful for both owner-occupiers and landlords when rates begin to fall: bridging finance. 

While bridging finance is more expensive than a traditional mortgage, it is also much more flexible. 

Terms are up to a maximum of 12-24 months, meaning borrowers are not tied in for the long term. This is one of the bridging's key attractions: it allows for manoeuvrability.

Therefore, it may be a perfectly valid solution for what I like to call "wait and see" borrowers. These are homeowners or landlords who are convinced rates will fall soon - and quickly - and who don't want to be locked into paying a higher rate for the next two to five years.

For these people, it may be worth paying the higher cost of interest that comes with a bridging loan for 12 months if it means they are able to lock in at a lower rate in the future.

Admittedly, this is not a mass market option; but for the right person, it could be a valuable solution that could save them thousands - or even tens of thousands - of pounds over the life of their loan.

I know some brokers feel uneasy about recommending bridging loans, mainly down to the fact they are unfamiliar with them. That's understandable, and the likelihood is that bridging won't be an appropriate option for most borrowers. 

But it's worth keeping in mind for the small section of your client bank for whom a bridging loan may be the perfect short-term solution.