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Bridging loans grow in popularity

More property investors are using bridging loans. The growth is down to two factors – speed and a chronic problem with the supply of traditional forms of finance.

Speed is a pull factor, attracting people to bridging finance. It is currently taking too much time for borrowers to get access to finance from high street lenders. The best bridgers, on the other hand, complete deals quickly. It’s so important to us that we employ an internal valuation-auditor to validate and assess valuations.

That gives our investors more confidence in our valuations – and helps them decide whether they want to fund loans faster. That speed makes bridging finance very attractive to investors in a hurry to do business.

The second factor pushes investors towards bridging lenders, away from banks and building societies. The Bank of England’s latest survey of credit conditions revealed high street banks are being forced to scale back lending because of tight trading on the international money markets.

Even if investors were happy to wait for plodding banks to write their loans, they couldn’t get them.

The situation in the buy-to-let market is particularly bad. As of June this year, there were only four buy-to-let mortgages at 85 per cent LTV available on the high street. In the three months to June, lenders advanced just 900 more loans than they managed in the first quarter. It’s a tiny increase to cater for growing demand – research from Mortgages for Business suggests six out of every 10 landlords planning to expand their portfolios by the end of the year.

So, since the credit-crunch struck buy-to-let landlords have been looking to bridgers for funding. This quarter lending isup 111 per cent on the same time last year and conditions are right for bridging to continue growing – by the end of 2012 the industry is set to lend £1.5bn.

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  • Grey haired broker 11th September 2012 at 12:59 pm

    I am struggling to understand Duncan’s argument.

    He mentions that long term finance is difficult to obtain for property investors especially where
    demand is outstripping supply such as the in the Buy to Let sector. He is absolutely right. He also suggests that high loan to values i.e. 85% are very rare. Again correct. But what has this got to do with Bridging finance.
    The clue is surely is in the name, “bridging”.
    One of the major reasons for the banking crisis was lending long and borrowing short.
    Now it seems that bridging lenders who tend to borrow short are now suggesting that investors should borrow short for long-term purposes.

    How are these investors expected to repay their bridging loan after 12 months?
    Re-finance, if the market is difficult now it could be even more difficult in 12 months time. Or are bridgers counting on a miraculous recovery?
    Sell the property. Why would an investor buy a property to let, pay interest and costs that way outstrip any rental potential and then look to sell in 12 months time. Assuming they can find a buyer, prices may well continue to weaken.

    Bridging should be for short-term purposes where there is a clear way out.

    Looking at the huge increase in bridging as a percentage of overall property lending it is clear that it is beginning to take the place of traditional medium to long term property lending.

    It will all end in tears