Specialist lending has become an increasingly popular choice for consumers and businesses alike, with a particular emphasis on flexible bridging finance.
Having weathered the turbulence of the past two years better than most. The bridging sector once again looks set for a successful year to come.
In fact, analysts and providers alike believe that 2022 will bring further record-breaking performance for this one overlooked and underappreciated segment.
“The full effects of the stamp duty holiday appear loud and clear in the latest set of Bridging Trends data. It feels like a watershed moment for the bridging finance market,” said the Impact Specialist Finance managing director Dale Jannels.
Mr Jannels was commenting on the sector’s huge 38% annual growth recorded at the end of last year. Total bridging finance volumes hit a record £626.7bn – up from £455m in the previous year.
“With it still being a sellers’ market in many parts of the UK, I expect regulated bridging to continue to be popular throughout 2022 and this is being mirrored in our business currently,” he continued.
“While the year-end data for 2021 shows a positive and steady recovery in the demand for specialist lending following a challenging 2020. Gross lending figures for the year remained significantly down on pre-pandemic 2019,” added Joshua Elash, founding director at MT Finance.
“As we move into 2022, we expect gross lending figures to fully recover and surpass the 2019 gross figures. More and more investors return to the market with a view to taking early advantage of the anticipated impact inflationary pressures will have on asset prices.”
How Does a Bridging Loan Work?
The appeal of bridging finance lies in the speed, flexibility and affordability of the facility. Particularly where time critical property purchases are concerned. Nothing provides faster or more convenient access to significant sums of money.
Anything from £10,000 to more than £10 million can be arranged within a matter of days. Repayable several months later and charged at a fixed monthly interest rate – typically around 0.5% or less.
Bridging loans are particularly popular among investors looking to buy, renovate and sell on homes and business properties for profit.
In a typical example:
- A property in need of extensive renovations goes under the hammer at auction, with a guide price of £200,000.
- An independent valuation indicates that the true market value of the property is closer to £250,000.
- The bridging loan provider offers an 80% LTV loan for £200,000. Covering the full purchase price of the property with no deposit payable.
- The investor purchases the property, pays the full balance within a few days and commences the renovations.
- When the renovations are complete, the property is sold, and the bridging loan is repaid in full. All profits are retained by the investor.
For time-critical investment opportunities like auction property purchases, speed is of the essence. Competition for affordable properties in key parts of the UK is ferocious. This is why more investors than ever before are setting their sights on nonstandard homes and unmortgageable properties in the UK.
A Flexible Funding Solution for Property Investments
One of the biggest benefits of bridging finance is the freedom to use the funds raised for any legal purpose. Unlike traditional mortgages and property loans, there are no limitations placed on how bridging finance can be allocated.
In addition, bridging loans can be used to fund the purchase of ‘unmortgageable’ properties. Mainstream lenders restrict their mortgages to certain types of properties, severely limiting their appeal to prospective investors.
Examples of unmortgageable properties include the following amongst others:
Derelict and Uninhabitable Homes
Most High Street banks would refuse to mortgage a home that was not considered fit for human habitation at the time of the application. Even if the buyer intended to renovate the property before letting it out or selling it, the application would almost certainly be refused.
Bridging finance can therefore be the ideal option for ‘flipping’ derelict and uninhabitable homes in order to generate significant profits. Along with purchasing homes not fit for habitation, bridging finance can also be used to cover the costs of all subsequent renovations.
Nonstandard Properties
The term ‘nonstandard’ is used in reference to homes made from materials that go beyond the usual stone and brick standards. Examples of which include homes with thatched roofs, prefabricated steel homes and timber homes.
Lenders consider these kinds of properties higher-risk investments, either due to their above-average maintenance requirements or their inconsistent market values. Irrespective of how nonstandard a home may be, specialist bridging loans are available for all types of property purchases at short notice.
Low-Value Homes
It is rare for a conventional mortgage to be issued for the purchase of a property valued at less than £50,000. For many investors, picking up properties at auction for significantly less than this is the norm. Either due to the condition of the property or the extent of the work needed to bring it up to an acceptable standard. Many low-value homes go under the hammer for less than £50,000.
Policies vary from one lender to the next, but many bridging providers will consider applications for as little as £10,000. Consult with an independent broker before applying if you are looking to borrow a relatively small sum of money in the form of a bridging loan.
Conversions and Repurpose
A conventional bank or lender may be hesitant to issue a mortgage against a property the buyer intends to repurpose. A common strategy among investors is to purchase commercial or semi-commercial properties in a questionable condition. Investors then work with the goal of converting them into multiple flats.
These are the kinds of ambitious projects mainstream banks and lenders are typically unwilling to back. Particularly in the case of derelict properties in a poor state of repair. A conventional mortgage from a High Street bank may be out of the question.
For more information on any of the above or to discuss the potential benefits of bridging finance in more detail, call anytime for an obligation-free consultation. Our experts will make sure to provide you with the information that you need to make a decision.
