Commercial Lending

Bridging loans provide cost-effective solutions

As indicated by falling transaction volumes over the past 12 months, selling a built asset is never easy in today’s market, whether it’s a residential or commercial property. Offers that realise the full value of an asset have, in my experience as a specialist finance loan provider, taken longer than normal to materialise over the past year, especially when a developer is selling multiple units at a time.

Some developers will opt to reduce their prices for a quicker sale – and we understand that, especially when they’re waiting for multiple sales rather than one.

But others, equally understandably, are wary of dropping their prices and want to realise what they believe to be the full value, even if that means waiting longer to find the right buyer. For those developers, companies such as ours can offer development exit bridging loans to give them some breathing space, and we’re seeing more and more developers seeking that kind of facility.

There are a number of reasons a developer might want such a loan. Development finance for the project at hand might have tight terms that require payment within a few months of completion. Active developers might also want to free up equity to fund other schemes while they wait for a sale at the right price. These developments are completed, often to time, and are effectively de-risked – so why shouldn’t developers be able to pull some money out of them?

Whether or not a developer is looking for this type of loan is naturally very dependent on the term they have on their development finance, how complicated the build was, any time or cost overruns, and how much time they have to sell, but nonetheless it is a trend we are seeing across both residential and commercial markets. It is not just our existing clients that are seeking development exit loans; we are seeing a mixture of smaller, new developers alongside larger, more established players looking for this type of flexible finance.

Bridging loans

For the most part, developers simply want more time to find the right buyer, and in most cases they’re seeking a like-for-like refinance of existing loans. They might have a development loan reaching term end, for example, and a bridging loan from a company like ours can give them piece of mind by effectively increasing the term on their finance.

These bridging loans are not necessarily more expensive either: at the lower end of the loan-to-value spectrum we offer rates starting at 0.55% a month, and we do not charge any exit fees. That means that, as well as providing developers with more time, these loans can also sometimes be more cost-effective.

It is something we have been doing for years, but now that more companies are looking for this type of solution in today’s market, we hope to be more flexible than ever. We understand that circumstances change quickly on development projects. That’s why, in some cases, we can offer loans with an 18-month term, which is longer than for a normal bridging loan.

Buy-to-let

We’ve also had cases where investors looking to sell a number of residential properties have moved into one of the units, and the loan then becomes a regulated bridging loan. Essentially, if there are variations along the way or bumps in the road, we’ll be able to accommodate it – and we have a large, dedicated loan team on hand to see to our clients’ needs.

Unlike some other bridging lenders, we also provide a full spectrum of finance products, including development finance, which means we understand developers more than most. Last year, we also launched longer-term second charge mortgages on both residential and buy-to-let securities and we have exciting plans to launch into other areas of lending next year in the hope that it gives our clients surety of not having to jump between different lenders, offering them a one-stop shop for their financing needs.

Development exit bridging loans are a product that we are very much used to offering, and the main variable on our part is the length of the loan term. When a developer is selling multiple units, such as a residential apartment block, then we are very used to working with them to come up with the best strategy.

Development finance

We believe the increased flexibility of companies such as ours is part of the trend that is seeing smaller, specialist lenders stepping in and providing ever-more cost-effective solutions for developers, which helps get more homes and offices built. Even with Brexit and all the concerns people have about the housing market, there is still a shortage of property and there are pretty big targets to hit to meet housing needs, which makes specialists like us more important than ever.

Our development finance starts at 7% a year, and that is getting close to the high street and other established lenders. Specialist lenders like us can also give developers more leverage – and clearly, cash is very important when it comes to development. Having the liquidity to make sure the project gets finished correctly, and on time, is vital. The ability to push the loan-to-value to a higher level than the high street or more traditional development lenders is therefore an increasingly attractive option.

By offering the full spectrum of financing options, we hope we can build long-term relationships with our clients, and give them the confidence that we will be with them no matter the situation. In that way, development exit bridging loans, as well as our upcoming buy-to-let product, feel like a natural extension of what we have always done and will continue to do.

Predicting what will happen to the residential and commercial markets over the next year is difficult, but as long as transactions are taking longer than usual, bridging loans can offer developers the time and support they need to sell their high-quality completed assets at the right price.

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