How is Bridging Finance Being Used in the UK?
Bridging loans are a financial product that have slowly grown in popularity in the UK over the last few years. Lenders now recognise the merit in bridging loans, viewing them as a viable product providing people access to funds, allowing them to capitalise on a timely opportunity across multiple property assets, whether residential, commercial or land. Typically bridging finance is used for speed and flexibility. Although bridging loans are used in a wide range of scenarios, however, there are three principle uses for bridging loans:
- Property Auctions
Auctions only allow for 28 days to complete a sale, and buyers need to complete it quickly; therefore, bridging finance is frequently used to support housing auction purchases.
- Development Exit Plans
For developers approaching the end of their development loan term, the biggest threat is that they don’t allow themselves sufficient time to sell their assets in an orderly manner. A development exit loan provides a valuable 6-12 months to sell the property/properties. The worst-case scenario for a property developer is that they don’t sort out an exit plan.
Lenders will also assess the risk of a developers profile by evaluating the loan to cost (LTC), loan to gross development value (LTGD), return on investment (ROI) and their return on costs.
- Completing On A Property Deal Quickly
The average property deal takes around 12 weeks to complete. Right now, the UK property market is booming, stimulated by the Government’s SDLT incentive, coupled with a Government-backed mortgage scheme to help people with 5% deposits. High levels of activity in the market has slowed down banks internal lending processes and conveyancing functions.
Many hopeful new homeowners seek to get access to capital quicker to capitalise on the Government’s incentives while they can. Bridging funders have effectively stepped in for traditional banks, allowing buyers to act quickly.
More Competition: Higher Loan To Value (LTV)
Lots of lenders are starting to offer bridging finance to cater to their client’s changing needs. Some private bridging funders have increased their lending parameters, offering higher LTV (loan to value) rates, and in some instances are offering up to 75%. This increase has significantly broadened the opportunities available to investors. Largemortgageloans.com has exclusive deals with lenders offering bridging finance to property developers and homeowners, “Bridging finance has seen significant growth over the past few years, particularly in the residential market. We work with several funders that provide funding for exit plan solutions, offering a loan to a value of up 70-75%. Development exit bridging gives property developers time which is fundamental for success. We expect to see the product on a growth trajectory because property developers have maximum flexibility.”
Unregulated vs Regulated Bridging Loans
There are two principal types of bridging loans available to borrowers: regulated and unregulated. Bridging loans for commercial properties are classified as unregulated because businesses are generally considered capable of assessing their own risk, making the requirement for a safety net offered by regulators obsolete. Regulated business loans are secured against a property that is either currently occupied, or will be occupied in the future. The borrower of a regulated business loans are scrutinised more carefully by lenders. Always ensure that you borrow from an FCA regulated brokerage who can secure the appropriate lender for you.
Please note that the Financial Conduct Authority does not regulate certain aspects of bridging loans and/or finance. Your home or property may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.