Marc Callaghan, Head of Specialist Lending, Precise looks at the main reasons customers look to use bridging finance and discusses two recent cases to illustrate the ways that it could be utilised.
Bridging finance could form part of a financial solution in many situations where a short-term loan is needed. With a 12-month average term, the majority of cases could complete in only 58 days3.
In 2023, the top 3 reasons for bridging were:
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Chain break
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Investment purchase
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Refurbishment
Properties in need of renovation works are the most in demand properties1. With an average asking price which is 8% lower than the national average house price, properties in need of refurbishment are being snapped up by investors looking to flip to rent or sell on and also first-time buyers who aren’t afraid of getting their hands dirty in order to step onto and up the property ladder.
Investors looking to refurbish properties for rental purposes may need short-term finance to help acquire the property with the assurance of moving onto a long-term deal once the works have been completed and the property is ready for tenants.
Precise recently helped with a refurbishment case from Will Townsend, broker, Mortgage Force whose client, an experienced landlord, had bought a property in need of renovation.
The planned works included:
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Full electrical rewire.
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Change of gas systems including new boiler.
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New kitchen.
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New bathroom.
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New flooring throughout.
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Full landscaping of gardens.
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Full redecoration.
Using Precise’s Tier 1 Light Refurbishment product, the customer was able to purchase the property and then complete all needed works within 6 weeks. The exit to the bridge was a buy to let (BTL) remortgage which added the property to the customer’s portfolio of 11 rentals.
The Precise bridging range provides two products in one application. This means a single process with one application form, one solicitor, and one set of documents, but it’s underwritten twice, providing a bridging loan based on current market value, and a term mortgage loan to exit onto post-works, based on the increase valuation and rental income. This gives surety of rate and an exit - often one of the biggest concerns around bridging. With bridging, customers could also benefit from ‘rolled up interest’, where interest is charged at the end of each month but instead of requiring immediate payment, it is added to the loan amount.
It probably won’t come as a surprise to many that chain breaks came in as the main reason for using bridging finance3. There are several reasons why chain breaks happen, ranging, from a buyer failing to secure a mortgage to legal issues holding up a sale. Not only are chain breaks extremely stressful but they could be substantially costly too. Research shows that 20% of all property sales fell through in Q2 2024 and although this figure has fallen from Q1 2024, it still poses a challenge for 1 in 5 property sales in the UK2.
Another example is where bridging has enabled a customer who had found a refurbishment property that they wanted to be their new home. The property was in need of extensive renovation before it could be occupied, therefore the customer needed to carry on living in their current home while works took place. After a discussion around the various options, the broker felt that bridging finance was the ideal solution. The money for the purchase and renovation of the new property came from the bridging finance, using their existing property as security. Renovation of the new property took 3 months to complete and, in this time, their existing property was listed for sale.
The sale was then agreed on their existing property which covered the bridging loan and the current mortgage they had. This meant the customer was able to be ‘mortgage-free’ which was a life changing position for them.
If you have a customer whose requirements may not be suited to a traditional mortgage product, a short-term solution such as bridging could be the answer. To find out more, speak to our specialist bridging team. They have the expertise and knowledge to help guide you and your customer to the right product suited to their financial requirements.
3 https://www.bridgingtrends.com/bridging-trends-2023/
Not all products and or services featured in this communication are regulated by the Financial Conduct Authority and the Prudential Regulation Authority.