A quick review of the last quarters bridging business that we have seen indicated a shift back to more unregulated bridging deals, out numbering regulated deals by a 55% (non-reg) to 45% (reg) ratio over the past 3 months of trading. I think this can be explained by some cooling of the housing market and house prices, which have at best been static and in some parts of the Country, and at worst seen slight drops over recent months. We have seen a larger number of smaller sized deals come across our new business desk, with deal volumes being higher, but average loan sizes falling.
Most lenders agree that if they only had £1 million to lend, they would much rather spread their risk by lending on 10 x £100k deals, rather than one single £1m loan. Better still 20 x £50k loans. Whilst we have still seen a number of £1 million plus bridging deals, but so far this year the real ‘jumbo’ bridging transactions (£3m plus) have been few and far between. Uncertainty at the top-end of the market, especially in London and the S. East has seen extended sales periods on high-end property and lenders have certainly moved away from the ‘lumpy’ single asset properties they were seeking to lend against in previous years.
The number of deals involving some kind of refurbishment works with either change of use and/or an uplift in property value has risen drastically, showing there are still excellent opportunities out there for the savvy property investor. Whether it be a quick purchase, light refurb and flip for a quick sale or more extensive heavy refurb works, such as loft conversions, extensions and basements digs, we have seen a marked increase in demand for this type of short-term lending, with clients looking for both acquisition funds and help in financing the works as well.
Thankfully, a number of lenders offer such schemes and the demand is certainly there from both borrowers and lenders to meet the demand. There has also been a massive increase in development enquiries for ground-up new build funding, which again ranges from single unit builds, conversions under PDR from offices to flats, or multi-unit housing schemes. Again, lenders have reacted and there is now fierce competition amongst both bridging lenders offering development loans and ‘true’ development lenders. The sub £1m market is largely catered for by the bridging lenders who also lend for ground-up new build, with payments staged against funds spent and an uplift in value being confirmed by the RICS surveyor.
For the £1m plus development loans, what I would deem as ‘true’ development lenders come in to play with cheaper margins and lending based on ‘cost to complete’ and QS sign-off, rather than RICS surveyor confirming an increase in valuation. There is an influx of new lenders in to this arena, plus existing bridging and development lenders reducing rates to win the most vanilla deals for experienced developers, with a proven track record being key to obtaining the best deals available.
With so many lenders in the bridging and development space now, all awash with cash to lend, competition is fierce and we continue to see new entrants looking to carve out a space for themselves in what is rapidly becoming a very crowded and almost over-populated lending space. There is way more cash out there to be lent than quality deals and lenders are prepared to slash rates and fees to win the vanilla deals. With this in mind, I find it strange when I see deals come across our new business desk where clients have taken bridging finance with what I would consider to be a secondary or tertiary tier bridging lender. Sometimes even bridging from private funders at higher than average market rates, when with the right advice, the same client could have achieved funding at half the rate they took.
Even today I saw a deal where the borrower had gone to a private bridging lender, not part of the ASTL or AOBP, or what we would consider to be not in the main-stream bridging arena. The client profile was good, the security was good, the exit was solid. Yet they took funding at 1.5% per month. This was a deal that could easily be funded at 0.75% per month and over 12 months, the client was paying double in interest than they needed to. The market is largely now priced at sub 1% per month, with rates ranging from 0.44% pm up to 1% pm.
Occasionally commercial bridging deals will be written at rates of circa 1.15% per month. When I see a client with a prime property, clean credit, decent net worth and a sound exit route borrowing at rates in excess of 1.25% per month, I have to ask myself why? Sadly, there are still a number of brokers out there who select a lender based on relationship and not what is best for the client. We see this day in and day out. The importance of specialist advise has never been more important to ensure borrowers achieve the best outcome possible, whether it be for regulated or non-regulated deals. We are all aware clients will sometimes opt for a marginally higher rate for certainty of funds being available on time or because a certain has more relaxed underwriting criteria and asks for far less information upfront, but when I see prime deals funded at rates that are not fairly priced, I fear that there are still brokers out there who do not have the borrower’s best interests at heart and are basing their recommendation on factors other than what is best for the client. Seeking out the right specialist broker could literally save a borrower thousands over the term of the bridging loan. For larger loans, this saving could run in to tens, if not hundreds of thousands of pounds in interest charges.