October 25, 2021
What Are the Benefits of Bridging Finance?
In recent years, bridging finance has grown to be one of the most effective solutions for property investors who want to move quickly or take advantage of a property investment opportunity.
During the pandemic, there has been a sustained demand from property buyers looking to acquire property, thereby fueling a continued requirement for property investors to create quality housing to supply the market. To assist in the acquisition and refurbishment of these properties, bridging finance in London and throughout the UK can prove to be an attractive and flexible option for many investors. Bridging finance brokers such as Tiger Financial can assist in sourcing market leading funding options from a wide range of lenders, from mainstream banks to high net worth and family office specialist lenders.
Data from the Association of Short-Term Lenders (ASTL) show that property transactions dropped to a total of £2.88bn in 2020 compared to £3.99bn in 2019. By contrast, though, applications for bridging loans grew by more than 11%. The upward trend in bridging finance applications increased by 25.7% in Q3 and expanded further in Q4 by 39.1% in comparison with the same period in 2020.
This data indicates that the property market is showing significant signs of recovery. Investors have responded positively as the vaccine rollout progresses and restrictions are removed, and the market is now expecting further growth. It’s estimated that the property bridging loan market will be worth around £14–15bn by 2025.
One of the main benefits of using bridging finance is its flexibility, which is especially valuable to creative property investors who wish to reposition or refurbish an asset that would not otherwise be suitable for regular mortgage lending.
Bridging finance can also be used to unlock equity in other portfolio assets to enable further acquisitions, thereby allowing an investor to expand their portfolio. For others, a bridging loan can be used to refinance an expired mortgage or to stave off repossession or bankruptcy, thereby giving the borrower time to make alternative arrangements.
With the flexibility that bridging finance offers, investors can react quickly to opportunities in the market, such as when buying at auction. Bridging options deliver short-term solutions, with the typical loan ranging from 6-12 months, but can be as long as 24 months in certain circumstances. As bridging products can vary significantly, though, it’s important to find a broker that takes the time to understand the needs, requirements and investing strategies of their clients so the best funding outcome can be achieved.
Some Myths About Bridging Finance
Bridging finance in London and throughout the UK is a flexible and useful addition to the funding armoury of all property investors. However, there is the perception that bridging is only used to bridge the gap when buying a property, pending sale of another.
This is not the case. A bridging loan is often used as the only source of funding when acquiring property to refurbish then sell, when buying at auction, when funds are urgently required, or when repositioning an asset, i.e., changing the planning or the title.
Some first-time users of bridging finance compare bridging loan rates to mortgage rates. However, this is inaccurate. Bridging loans are more expensive than mortgages because they are different products, used for different purposes, and are usually more complex or higher risk. They are also used when mortgages are simply not available.
As it happens, the bridging loan market is extremely competitive, with hundreds of lenders in the market, so there has never been a better or cheaper time to use bridging finance. And indeed, when Early Repayment Charges (ERC’s) are taken into account, a bridging loan may, in fact, be cheaper than a mortgage.
Bridging finance also has a reputation for being the resort of desperate borrowers looking for a quick fix in difficult situations. However, many investors in recent years have begun to use bridging finance to support their long-term strategies. Being able to access flexible funding quickly can play a crucial role in investors’ success.
Many also claim that bridging finance is complicated. There’s some truth in this, but if you are genuinely considering this path and opt for a specialist, experienced broker, such as Tiger Financial, they will fully explain the process, the terms involved and the implications with a view to ensuring that you understand exactly what you are committing to. The critical factor is to make certain that your broker is a specialist in the field.
How to Use Bridging Finance
Bridging finance can be used as part of your strategic plans to provide leverage for investments for your portfolio. For example, a landlord could utilise a bridging loan to grow their business or property portfolio while tenant demand is increasing.
Investors need to be able to capitalise on opportunities such as this as they arise. Acting quickly to changes in the market is the key to beating the competition. And at a time when lenders are increasingly seeking to make interests rates more affordable, bridging finance is often the best way to capitalise on such situations.
Land or property owners can also use bridging finance to refurbish a property. You could take out a short-term loan over a period of six months, say, to carry out light refurbishment, the definition of which tends to be non-structural work such as redecoration of a few rooms in a house.
Bridging can also be used for heavy refurbishment to add value to an asset. You could, for instance, convert a property to create an HMO, change the use of a commercial property to residential property, or convert high street units to offices.
Bridging loans may be regulated or unregulated. Bridging finance that is regulated by the FCA is usually for private use as opposed to business use, and the loan is secured against a property that the borrower currently lives in or intends to move into. A regulated bridging loan is typically used for purposes such as purchasing a new home before the old one has sold; to fund a divorce settlement; to buy a property at auction; and so on.
Unregulated bridging is used for business purposes, for HMO conversions, to refurbish a single dwelling, to convert a commercial property to residential, or for planning gain, for instance.
Bridging finance is not an appropriate solution for every scenario, but equally, nor should it be dismissed by anyone who is looking to maximise their available opportunities.
It’s a highly effective solution that can be used as part of an overall strategy due to its many uses and flexibility. In short, it’s a great addition to your list of options, especially with confidence in the property market being strong at present.
However, understanding the pros and cons as well as the terms and conditions of any financing solution you’re proposing to use is vitally important. This ensures you are well-informed and avoid getting caught off guard by pitfalls that could arise from a lack of knowledge.
Your Partner in Achieving Financial Goals
To succeed as an investor, you need a reliable partner who understands your goals and can support and advise you on the best routes to take to grow your portfolio.
At Tiger Financial, we are expert bridging finance brokers and make sure that your goals are also our goals. We are pleased to share our hard-won connections, market knowledge and advice to find the right funding to help you achieve your overall aims.
Speak to us today to find out more about what we could do for you.