Bridging Finance

When bridging finance can help property refurbishment

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The residential and commercial property markets have been the surprise performers during the Covid pandemic. There has been a huge surge in sales because of the Stamp Duty exemptions and other Government support.

High street lenders, in some cases, would not have been able provide finance in the short timescales needed by buyers to beat the deadline, which makes bridging finance an attractive alternative. The current pace of the UK market also supports investors’ ability to exit their bridging loan quickly by selling their property.

We’ve seen applications for bridging finance increase in the last year and posted record lending in June. We believe this is, in part, because of property investors moving quickly to beat the stamp duty deadline. Many customers only need this type of finance for a matter of months to support a short-term requirement to buy, renovate quickly and either sell or remortgage to longer-term finance.

In addition, the cost of bridging finance has reduced considerably over the past few years, as a result of more competition, and because institutional funders recognise bridging as more of a mainstream product than it had been in the past. Previously, it was mainly used to repair chain breaks in a property sale, by allowing a second property to be bought before the existing home is sold. However, at the start of this year, EY identified that the most common use for taking out bridging finance was for property refurbishment.

The short-term lending industry has gone through a huge transformation, particularly over the past ten years, and bridging finance has become the first port of call in many cases for investors looking to buy residential property at auction, for example, or from a private seller or on the open market, before ‘flipping’ and re-selling. Bridging loans are useful in the buy-to-let market for investors who want to refurbish a property after purchase and before letting it, as the value can be increased in excess of the refurbishment cost.

Although the average age of our commercial bridging loan customers has increased slightly in the past five years, it fell from 49 in 2020 to 46, according to this year’s figures. This could suggest an increased interest in bridging from younger entrepreneurs looking for short-term finance to meet their property ambitions as we emerge from lockdown. We believe that, as high street lenders continue to tighten their criteria, more borrowers, particularly buy-to-let investors, will turn to bridging to fund their projects.