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Bridging Loan Applications on the Rise

Property News

2021 saw a huge surge in bridging loan applications, triggered primarily by the stamp duty holiday between July 2020 and June 2021. Bridging Trends reported a 65% increase in gross lending and general public sentiment towards bridging products improved. As Alice Williams, Director of Property comments:

“Bridging finance is now a better understood product…The Stamp Duty holiday saw bridging finance become more widely accepted by the mainstream industry as a way to meet speed demands, but investors with the intention to renovate have also been at the forefront of recent requests”

Purchase of investment property was the most popular use of the bridging loan in 2021, accounting for 28% of transactions in Q2. This was closely followed by bridging used for auction purchase, heavy refurbishment and re-financing an existing project.

Our property team explain the various scenarios where we are seeing bridging finance applied to meet speed demands.

Auction Purchase

Investors looking to snap up a property at auction should consider Auction Finance, a type of bridging finance designed to complete a transaction quickly. Completion is typically within 14 or 28 days, in line with the Auction House’s requirements.

We can provide an AIP (Agreement in Principle) within 24 hours. This pre-qualifies a purchaser and gives comfort of source of funds to the vendor. The auction house will usually request 10% of the purchase price, plus the auction fees, at the time your bid is successful.

Investment Purchase

Property demand continues to outstrip supply and competition in the market is fierce. Vendors very often go with the purchaser who can move the quickest. A Bridging Loan enables the investor to compete with cash buyers with funds delivered in as little as one week.

BTL Mortgage Delays

UK Finance reported an 83% increase in BTL mortgage lending in 2021. The sheer volume of BTL mortgage applications means valuers are struggling to keep up with demand. Valuations for applications made in December 21 are likely to take place in Jan 22. For investors who need to complete within six weeks, a Bridge to Term Product is an ideal solution.

Many lenders now offer a quick BTL bridging solution. The bridging facility can be refinanced to their longer-term BTL mortgage product at a later date.

Buy, Refurbish, Refinance

Landlords seeking to build a large property portfolio quickly often use the BRR method. A property is purchased at low (or below) market value, refurbished to add value and refinanced to a longer term BTL product.

Properties that offer strong investment opportunity tend not to stay on the market for long. This is where a Refurbishment Bridge can assist in enabling a landlord to move quickly. There are two types of refurbishment bridge available, ‘light’ or ‘heavy’ refurbishment. The nature and scale of the project will determine which solution is better suited to your needs.

A refurbishment bridging loan typically offers 75% of purchase price and covers up to 100% of the works.

Development Delays

A Development Exit Bridge is a type of bridging loan used to repay the outstanding development loan on a property development.

There are two types of development exit options available to developers. The most commonly used is a post-practical completion exit bridge. In this scenario, the project is complete but, more time is required to execute the desired exit route e.g., rent or sale.

Additionally, a pre-practical completion bridge can be used when a build hasn’t reached completion. For example, if the developer has encountered labour shortages of delays with materials.

Development Exit Funding typically lends up to 75% of gross development value for a term of up to 12 months. Development exit funding can be secured within as little as two weeks.

Need more information on bridging finance options?

Watch our videos on Developer Exit Bridging or Achieving 100% Bridging Finance

Set up a Pilot Fish Resources account to download our free Bridging Loan Guides and to access our Bridging Loan Calculator

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