Short-term property finance, from alternative lenders like Signature Private Finance, is becoming the first choice for an increasing number of developers who recognise its effectiveness in meeting their funding needs, regardless of the projects under consideration.
The Government is facing calls to quickly address the shortage of housing supply and although the focus for Housing England is on large ‘buy-to-rent’ schemes, the important role short-term finance plays in bringing more homes to the market more quickly, ensures a bright future for lenders like us.
Bridging fills the gaps and more
The value of bridging finance is finally beginning to get the appreciation it deserves. Once used only to bridge the gap between private house sales, developers and property professionals are able to use it effectively to react quickly to buy properties quickly, with the minimum of fuss.
Often only needed for months, rather than years or decades, bridging loans have many advantages in any number of property purchase scenarios, but considering the loan applications we receive, three stand out as the main situations when bridging works very well:
Adding Value – using funds to supplement the amount required by a developer to purchase a property that they do not expect to keep very long, or one they intend to re-finance with a mortgage, often a buy-to-let, so they can quickly take advantage of any increased value.
Time Constraint – when all criteria are met, bridging finance can be available in weeks or even days, not the months a mortgage will typically take to arrange. The quick process allows developers to react quickly and snap up a bargain or close a deal where a fast turnaround attracts a discount.
No Mortgage – bridging can be used to buy most properties, regardless of whether the property is habitable when purchased. Additional funds can be agreed for refurbishment, before a mortgage can be agreed with a long-term lender, with these funds used to repay the bridging loan.
It is quite common for all these reasons appear on a single application, with a developer spotting a bargain at auction that needs refurbishing, before it can be re-mortgaged or sold on for a profit.
And, given the increasing number of ‘amateur’ landlords that continue to leave the buy-to-let market, we expect 2019 to be a year of opportunity for our property professional clients.
Bridging on the move
We are happy to report industry figures highlight the strength of the bridging sector, with Q3 2018 demonstrating a strong performance, which is mirrored by the work of the lending team here at Signature Private Finance.
Total gross lending in the sector in Q3 was reported as £213.35m, with a 7.78 per cent increase on Q2 showing more developers recognise that good value opportunities are still available.
Adding value to purchases ensured the highest number of loans at 35 per cent, were for refurbishment or development of properties.
The surprising figure in the report was the average completion time, cited as 46 days, which is a relatively long turnaround from our perspective.
We are working harder than most to drag this average down, prepared to complete deals with even relatively complicated criteria within 10 days, when borrowers and their legal advisers have the same appetite and ambition as Signature Private Finance.
The average term length was reported as 11 months, but this is the figure that can be a cause for concern, as it can cause developers a few headaches if they miscalculate the period for which they need the loan.
The problems can arise for any number of reasons, but typically it will be unforeseen circumstances in the development of a property, or planning issues that can push completion beyond the repayment date.
Blended for a better result
Attracted by the very low rates offered for 3 or 6-month bridging loans, like our own 0.45% per month for 3-months, some developers will try to save a small amount on the loan repayments by hitting their deadlines and hoping everything falls into place on time, as planned.
Refurbishment and conversion projects rarely run to plan, or indeed timescales, which can push the re-finance or sale date beyond the date for loans to be repaid. This could put a borrower in default and the penalties incurred will be far larger than any saving made on a slightly lower rate.
Our team members have personal experience of every aspect of property development and understand the issues that can arise and delay a project – it’s why for many we recommend a blended-rate solution that ticks so many boxes for the modern developer or landlord.
No borrower wants a loan for longer than required, which is why a blended rate product combining rates for 3 and 6-months or longer, gives the developer a cost-effective solution, with enough time for the unexpected to be overcome and the project completed on time.
We are constantly refining and improving our products to meet the changing needs of property professionals in the UK. So, if you would like a Signature on your next deal, please get in touch and speak to Katie today on 0121 746 3130.