By Marios Theophanous, Credit Manager.
Bridging finance continues its rise as a truly effective funding option. Industry bodies have reported a record year in 2017 and the indicators show that this is set to continue this year, still playing a vital role in helping to fund property renovation and change of use. With the supply of rental property still in high demand, short-term finance has an ever-increasing role to play in easing the housing crisis and supplying businesses with much-needed funding to expand their premises.
The demand for bridging finance doesn’t seem to have been dampened by several legislative changes to the buy-to-let market: more stringent affordability tests, tax relief and stamp duty rules were all introduced last year, but the demand for bridging has remained strong.
Even the PRA rules, which mean that landlords with four or more buy-to-lets need to submit details of their existing mortgaged properties, haven’t dampened demand. Now that the new rules have had time to settle in, we’ve seen a steady stream of enquiries from portfolio landlords for blocks of flats for student accommodation and HMOs for young professionals. This is particularly important in major cities where rental accommodation is at a premium, as house purchase is still a pipedream for many, despite the stamp duty relief for first-time buyers in the Autumn Budget.
The purchase price of a property is a key factor in determining yield for a landlord and, depending on the amount of renovation needed, can help keep the costs down. As long as the property is rented out at the market rate for that area, higher yields could result.
Auctions remain a good way for investors to acquire property at a competitive price, often below market value, and 2017 was another positive year for auction sales. Landlords and developers are snapping up residential rental and commercial units, particularly when work is needed on the property for either refurbishment or change of use. At an auction, completion needs to happen quickly, often within 28 days, so bridging finance is the ideal way of making this happen.
It’s vital that developers get a fast turnaround, so they can start work on the property as soon as the funding is in place, allowing them to shorten the time it takes to get the property on the rental market. To exit the bridge, some of our clients refinance to a longer-term loan with a more traditional lender or sell the property at a profit.
In short, the bridging finance sector is in great shape, and despite legislative changes and Brexit uncertainty, it’s proved to be resilient to such factors. There is a range of lenders servicing a variety of funding types and loan sizes, with more alternative products on offer than we’ve seen for many years. Short-term finance offers a real alternative to mainstream funding sources and bridging remains one of the best ways to act quickly when opportunities arise. It looks set to remain just as popular in 2018.