Bridging Finance – The Market
First appearing as specialised mortgages in the 1960s offering restricted borrowing for people bridging short-funding gaps when moving home, they have evolved over the years into effective, widely available, commercial solutions for developers and property investors looking to release vital equity in their projects. Today, the bridging finance market is mature, with more lenders, and more competition coming on stream which in turn is bringing the monthly rates down and encouraging new product ideas and innovation. Where we would have previously seen interest rates at 1%-1.5% a month these are now coming down to 0.7% and even as low as 0.5% a month. Yet with all the options now available they can still sometimes appear at first glance very similar.
Let’s take a closer look.
It’s true to say that one size doesn’t fit all! What isn’t true though is that ‘If Bridging finance is being used there must be a problem.’ Moreover, it is being used strategically, in increasingly smart ways to access specialist lending, for example, relating to different types of security, credit, and drawdown scenarios that can help first-time developers onto the experience ladder. The key to success is really about understanding a developers’ or investors’ needs and what they’re trying to achieve – “What type of bridging finance needs to be applied, what it can be used for and the varied benefits it provides.” It is also true to say that the use of bridging finance has moved far beyond the classic one of providing breathing space, though this still has a lot of merit, to one of being structured towards project objectives.” The effect of this has seen an explosion of ever-changing options for property developers and investors. Though, ostensibly there are three main types – Development Exit Bridging, Finish, and Exit Bridging, and Re-Bridging – each with their own set of values and nuances.
How do they differ?
Development exit bridging, for example, is used to repay outstanding finance on property developments when they are nearing or have reached practical completion (This includes new-builds, refurbishments, and conversions).
Finish & Exit Bridging is very similar, but the development may have been delayed and the developer or property investor needs to finish the development to then sell or refinance.
Re-Bridging even as recently as 10 years ago was massively frowned upon (in essence it is used to refinance an existing bridging loan that couldn’t exit by the end of the term). Though still not ideal, in the current market, with so many bridging firms jostling for market share, some are prepared to take on the increased risk…provided there is a good reason why the exit strategy failed.
One of the benefits that appeals is the flexibility of bridging finance – particularly in uncertain times – and one which will become increasingly key in the coming months as ‘89% of builders have had to delay jobs due to a lack of materials and skills,’ according to the latest State of Trade Survey from the Federation of Master Builders (FBM)
Bridging finance enables you to react quickly to opportunities in the market or situations that may develop with existing projects.
Here are some examples:
Development Exit Bridging
- You have experienced construction delays and need more time to sell
- Your lender is applying pressure to clear an existing loan as it nears the end of its term
Finish and Exit Bridging
- You have experienced delays and need more time to complete the build
- Your existing lender wants to charge a large fee to extend your facility
- You have a sale lined up which fell through and more time is required to source another buyer
- You have put a planning application in, but final approval has been delayed.
Highlighting the current trend for innovation in bridging products, we have a lender on our panel that is offering 80% LTV, stretching up to 85% by referral. Contact us to discuss this new product on 01775 713777 or firstname.lastname@example.org