The property market hasn’t really stopped, has it? With talk of house prices remaining stagnant going into 2013, many property investors are looking at other options and ways in which to create revenue and develop their existing portfolio.
This is often easier said than it is done, with mortgage lenders tightening their belts struggling to deal with the hangover of toxic debts. This leaves potential high earning developments left in the pipework due to a lack of funding, even if you have a reputable credit score and equity in your other properties.
Bridging loans have emerged as a way to develop and create existing portfolios and they are especially useful in property that has fallen into a state of disrepair. It will be almost impossible to gain funding from a traditional financial institution if the property in its current state is virtually inhabitable, even in an affluent area. Bridging finance allows you to use equity in your existing properties and use it on developments that need a lot of work.
A bridging loan was traditionally used as a stop gap if the buyer of your ‘for sale’ house dropped out, but you still wanted to go ahead with moving into a new home. This offered the seller the opportunity to wait for the correct price, instead of selling at a lower market value. Having a mortgage and a bridging loan repayment is expensive, and users of the loan had to ensure that they could afford to make the repayments and that their house could be sold.
However, due to the reluctance of traditional financial institutions to lend, the bridging loan market is rapidly expanding and competition in the industry is high, offering competitive rates and terms on your loan.
Remember that bridging finance is short term and if you do make the loan, you may have two repayments to keep up with. It is important to consider your exit strategy; are you putting other sources of finance in place? Are you reselling the home within a certain period?
How does it affect property market?
The property market is fluctuating to the conditions in the mortgage industry. Due to the rapid nature of the loans, they are often accepted and the money is in your account within a week. Bridging finance is great for purchasing properties at auction. If you own property with equity within it, or have some money to put towards the deposit of the property, usually the loan can be based on the property you have bought.
A large development such as turning a dormant building into residential flats is also an attractive prospect that can be financed in this way. Waves of urban improvements have taken place in recent years, such as renovating council buildings into city centre apartments. By borrowing capital to buy the plot and redevelop in a speedy fashion, the project can be completed and the loan can be paid back once the apartments have been sold.
Going forward, the industry seems to be picking up pace. There are over 140 bridging lenders in the UK offering competitive rates and access to capital that can no longer be guaranteed by traditional lending institutions. High demand for property but low supply of capital has seen landlords increasingly buy more property to let, and this trend looks to continue in 2013.
Jonathan is currently writing on behalf of Balmoral Bridging, a bridging loan lender who specialises in business related finance between £100,000 and £1 million.