Every real estate market has its winners and losers, and as housing shortages continue to prevail, the transitional sector finds itself in an advantageous position.
Whether buyers are looking to restore a broken real estate chain or do a quick renovation, many are using bridging to gain the upper hand.
“It’s safe to say that the bridging market is in a very strong position right now,” says Vic Jannels, chief executive of the Association of Short-Term Lenders (ASTL).
“The latest ASTL loan data for the last three months of last year revealed completions were £1.2m for the quarter, a record high and a 19% increase on the quarter. previous. This has led to a further increase in loan pounds, which now stand at £5.08billion.
The next 12 months promises to be a continuation of the strong growth of the past year
The bridge has historically been associated with professional real estate investors, but the current climate has broadened its appeal, making it essential for brokers to be knowledgeable about the industry.
With no immediate solution to the housing shortage, the lure of transition looks set to continue. So how can brokers and lenders ensure the market stays on an upward trajectory?
“Bridging is working well and has really helped solve a number of key housing issues,” says Matthew Arena, managing director of Brilliant Solutions.
“With property supply being so scarce, the ability of investors to develop or renovate properties and sell them quickly is what drives the sector,” he said.
Brokers often submit the same case to multiple lenders to find the best option. This can overload lenders with cases that go nowhere
“Similarly, the regulated element of the business is growing because the willingness to move is higher than ever and suitable property is so hard to find. This leads to more renovations and a higher tendency to pay for bridging as a chain-breaking solution; because there is greater certainty of sale and higher perceived loss if the opportunity fails,” he explains.
Competition in the bridge market also contributes to its popularity.
“Prices and fees are the lowest they’ve ever been and, used wisely, the savvy buyer continues to apply bridging as a wealth-increasing solution,” says Jason Berry, director of sales and of Crystal Specialist Finance group marketing.
“Bridging is still used primarily for chain breaks where buyers often save an already delayed chain of ownership from collapse. We are also seeing growing demand where the relay is used to create spot buyers,” he explains.
“For example, bridge financing raises funds immediately before a client sells their existing home. These buyers put themselves in a much stronger position than their competitors, improving negotiations over the purchase price and guaranteeing also a certain speed of execution, which is undoubtedly attractive to sellers.
Ensuring the client has an attorney with experience in this area can make the process much smoother.
Bridging lenders offer quick decisions, with applications processed quickly and funds often released within a week, Berry adds.
Ensemble Sales Director Sundeep Patel says sellers are still motivated to sell quickly and the company expects the property market to remain active in 2022.
“We will see more buyers, owners and investors looking to bridge the gap to help them seize opportunities this year by allowing them to act with similar speed to a cash buyer,” says- he.
A notable trend that Together is seeing is that developers are taking longer bridge loans or using bridge financing to exit their development facility, giving more time to complete their projects or bring them to market at the best price.
“Recent reports have revealed that development exit is a top reason customers take out an unregulated bridging loan, and I expect this to continue over the next 12 months,” says Patel.
We are seeing growing demand where bridging is used to create spot buyers
According to him, another area likely to increase the demand for the transition concerns the requirements for energy performance certificates (EPCs).
“Brokers should be aware of upcoming energy efficiency changes for landlords, who will require their rental properties to have a minimum EPC rating of C from 2025,” he says.
“For clients who need funds to bring their properties up to the necessary standards, bridge financing could be the ideal solution. I think we will also see real estate investors using the relay to buy poorly rated properties before completing renovations and refinancing on a buy-to-let mortgage.
Patel believes investors will continue to take advantage of the relaxed permitted development rules, using bridge financing to convert commercial units to residential use.
“There are many opportunities for brokers and their clients,” he says.
Bridge for rent
Vincent Burch Mortgage Services Director of mortgages, Vincent Burch, noticed that certain products performed particularly well. It highlights the bridge to leasing: where the same financial institution provides both the bridge financing and the term mortgage,
“The benefit to the borrower is that they have relative certainty that they will receive the valuation they expect after the work for the term of the mortgage,” he says. “It’s often much easier and cheaper in terms of fees to switch from one term to one term with the same lender. However, I wouldn’t just rely on the Bridge Provider Term Mortgage as the best mortgage for my client, as it’s often not the cheapest mortgage over term and there are better products available. .
When you’re with your clients, focus on the value of the opportunity, not the cost of funding
Another popular option is an 85% loan-to-value bridge.
“There are a few lenders now offering higher loan products and that is really helping a lot of customers. Often the products are 75% LTV with an additional 10% for the cost of labor,” says Burch.
He says investors constantly ask him if lenders will offer a drawdown facility on an asset.
“Often they haven’t found the property yet but when they do they want the quick money and don’t want to start the application process. it resonates and adapts to the real-world requirements of most developers,” Burch says.
Make the sums
The speed at which many transition deals are completed makes it especially important that every care is taken to ensure the numbers add up.
“Brokers should always be aware of the true costs of the transition and take great care in managing client expectations from the start,” Arena says.
“Too often we hear of cases that deteriorate over time, which has a huge impact on the borrower or the projects involved in terms of cost and uncertainty. Get as much information as possible upfront and when you’re with your clients, focus on the value of the opportunity, not the cost of funding,” he advises.
Brokers Need to Be Aware of Upcoming Energy Efficiency Changes for Homeowners
“Projects rarely fail due to bridge financing costs; more because of the uncertainty of value creation. If you can offer a more certain financing cost up front, it will help reduce project risk. »
Patel has specific advice for brokers versus lawyers.
“Ensuring the client has a lawyer with experience in this area can help make the process a lot smoother,” he says.
Another thing that could help the process run more efficiently is submitting fewer applications for each case, Jannels believes.
“We know that one of the reasons why the number of applications is so much higher than the number of completions is that brokers often submit the same file to several lenders to find the best option.
There are many opportunities for brokers and their clients to get an idea
“However, this can overload lenders with cases that go nowhere, creating delays in the system and benefiting no one,” he warns.
“A better approach at this early stage might be to engage the lenders’ business development managers on the terms before submitting an application. This could help free up capacity with underwriters and enable faster case processing,” Jannels adds.
Indeed, ASTL lending figures show applications have increased significantly in the last three months of 2021, by nearly two-thirds to a new record high of £12.7bn, compared to the third quarter of the year. ‘last year.
Nevertheless, Jannels is confident that the market will continue to thrive over the next year.
“Judging by the trends in our data, the next 12 months looks to continue the strong growth of the past year,” he says.
The ability of investors to develop or renovate properties and sell quickly is driving the sector
Jannels also believes the market will continue to see a flight to quality as bridging becomes more aligned with the mainstream market.
“This will allow for the continued evolution and growth of the bridge market,” he says.
“Brokers can help support this evolution by choosing to work with lenders who are members of the ASTL and who are committed to adhering to the industry’s most important standards of transparency and client-centricity by adhering to our rules of membership and our code of conduct. conduct,” he advises.