Distressed properties and coronavirus sees increase in bridging finance
The emergence of distressed properties and issues surrounding coronavirus has seen an increase in demand for bridging finance, the UK Property Hub is told.
Bridging has grown in the last decade as a source of non-bank finance and a way to complete on a property within a short timeframe. There are currently around 50 active bridging lenders and hundreds of brokers serving the industry which is valued at £7 billion.
Distressed properties continue to be on the market for property investors and homeowners, whether it has been left due to previous repossession or has issues that make it undesirable to the everyday buyer, such as subsidence or being located in a less valuable area.
Whilst a mortgage bank or provider may not lend on this property, this is where a bridging finance company might take a view.
Customers applying for bridging loans may come with different financial and credit backgrounds and lenders are more flexible than high street banks and willing to look at consider the future value and growth of the property itself.
Under different circumstances during the coronavirus pandemic, a number of home buyers, developers and investors have missed out on a much-needed mortgage but for many banks, lending has been halted until further notice or now faces much stricter eligibility.
For many, bridging finance will effectively ‘fill the gap’ and provide a way to complete on a property, without the need of a traditional mortgage and completion times are usually within 4 weeks or sometimes, much less.
Dan Higgins of Octagon Capital commented:
“Bridging finance plays an important role in the property market, helping people to get the equivalent of a mortgage, when mortgages are not available or deemed inaccessible.”
“Coronavirus has thrown a curve ball at almost everyone in the property industry, but for people still needing to complete, bridging finance can provide a solution.”
“Of course, a lot of lenders and institutions are not lending and a lot of bridging companies are the same. But with asset-backed lending, there is always a business case if the property is potentially valuable and the market is likely to recover at some point.”
“Importantly, it is worth knowing that bridging can be an expensive source of finance and there is always the risk of repossession. You should always do your research and get advice before applying.”
