Over the last twelve months, we have seen a growing number of investors and developers utilise bridging finance to finance their property investments.

The finance market is well-equipped to deal with complex situations and has developed many specialist products to help find the perfect solution for any individual requiring flexibility.

Growing in popularity due to the relaxation of planning laws is the conversion of commercial properties to residential properties. As a solution to the increasing demand for housing and the closure of many businesses due to the pandemic, these conversions are providing great investment opportunities for developers. The deregulation has resulted in a far simpler and more cost-effective planning approval process, leading to many investors and developers cashing in on this new method of creating housing.

Not only are developers benefiting, but towns and cities are experiencing much-needed regeneration after the devastating effect of the pandemic on the UK economy.

The COVID lockdowns led to many businesses being forced to trade online, creating a situation where shops and other business premises were left vacant. The most affected have most definitely been the hospitality industry as well as retail and small businesses. With a huge proportion of the population being forced to work from home, the need for work premises has been greatly reduced. Business structures have changed, with many employers allowing their staff to continue to work from home on a full-time or part-time basis, thereby negating the need for workspace.

The conversion of commercial to residential is somewhat reviving the high street and attracting people back to cities and towns, particularly the young looking to get their foot onto the property market and enjoy the benefits of living in a city.

The advantage of commercial property is that it is often situated in prime locations with excellent access to bars, restaurants, transport links, job opportunities, and other attractive amenities. Many commercial buildings are on the market at extremely competitive prices; therefore, securing a good deal for a developer can lead to a very lucrative investment with the potential to generate significant capital growth.

When it comes to funding, developers and investors are turning to bridging finance. In direct reaction, many lenders are now offering specialised bridging loans in order to meet this new demand.

The most important factor for developers and investors to consider is to make sure they have properly been advised and had prior approval before they commit to the project. Once this has been done, bridging finance can then be utilised to secure the required funds to ensure the project reaches full completion.

A bridging loan is short-term finance that can be arranged quite quickly, often within days, so that buyers can take advantage of access to funds in a timely fashion.

The latest data released by Bridging Trends shows that the third quarter of this year has seen the highest volume of bridging lending since 2018, reaching over £190 million.

This is a massive jump from the previous figure of £146 million recorded in the second quarter of 2021 and a 65% increase when compared to last year (£115.52 million).

It is thought that the reason for this increase can be mainly attributed to the strong property market seen before the stamp duty holiday was tapered and ultimately stopped.

The most popular use of bridging finance for the second consecutive quarter was for the purchase of property, with 28% of total contributor transactions (up from 24%), followed by a lower figure of 13% for chain break (down from 20% in the previous quarter).

There was also a surge in demand for auction finance, from 4% in Q2 to 11% in Q3.

First-charge bridging loan finance, which accounted for 90% of the total market volume, remains unchanged.

There was, however, a drop in regulated bridging loan transactions for the fifth consecutive time, with figures falling from 41.6% in quarter 2 to 37.7% in quarter 3.

The data released also showed an increase in average LTV from 54.9% in Q2 to 60.2% in Q3, this being the highest since the launch of Bridging Tends in 2015. This rise indicates that borrowers are taking advantage of liquidity opportunities and the low rates available to them.

Co-founder of Adapt Finance, Stephen Burns, commented: “The most exciting part to read is ‘returns to’ when referring to activity levels.”

“It shows the industry was affected by the disruption the coronavirus pandemic put the country through, but more so, how it has pulled back quickly, and we are now firing on all cylinders!”

Managing director at Impact Specialist Finance, Dale Jannels, added: “These figures show that bridging finance is now a better-understood product for many brokers, and they have much more confidence in recommending this solution to their customers.”

“The stamp duty holiday allows bridging finance to be more widely accepted by the mainstream industry as a need to meet speed demands, but investors with the intention to renovate have also been at the forefront of recent requests.”

Director at LDN Finance, Chris Oatway, stated his surprise that the LTV was as low as 60% on average, stating that they had seen an increased demand for higher leverage deals at 70%–75% LTV.

“Regulated transactions accounting for over a third of the market stand out when you consider the limited number of bridging lenders who are able to transact regulated business and show there’s opportunity there for more lenders to enter this market,” he added.

Head of specialist lending at Enness Global, Chris Whitney, said: “With the news that contributor gross bridging loans are over £190 million, it makes me wonder how big this market really is in its entirety.

LTVs are up, with borrowers possibly taking advantage of increasingly cheaper money in the light of reports that mortgage rates, in general, are heading upward imminently.

However, with continuing competition and even more new entrants in the short-term lending space, it will be interesting to see how that pans out with so many lenders looking to increase market share in a seemingly very liquid environment.”

“At 60% LTV, I think we are still seeing prudent levels of borrowing by people and responsible lending from the funders.”

He also added that he wasn’t at all shocked by the increase in processing times, stating that it would be a direct result of increased volumes, valuers being stretched, and lenders finding it difficult to recruit good underwriting.

“With the highest use of funds being for investment purchases, I think it really shows how much confidence people have in UK real estate.”

The latest figures from ASTL indicate strong quarterly performance for the bridging sector in Q2 this year; up an impressive 23.2%, total completions for the three-month period came out at £1.1 billion.

The high number of completions during this period meant that bridging loan books increased to more than £4.7bn, up from £4.4bn in the first quarter.

Commenting on the figures, ASTL CEO Vic Jannels said the increase in completions was reflective of a significant reduction in completions during the first quarter of the year, with the market having subsequently corrected itself.

Despite the higher number of completions and growth in overall market value, bridging finance applications were down in Q2 compared to Q1. Total application volumes were down 1.7% to reach a total of £7.36 billion.

Compared to the same period last year, total bridging applications at the end of June were up approximately 27% from 2020.

The outlook is therefore seen as generally positive for the sector, with around 90% of lenders saying they expect their businesses to grow over the remainder of the year.

Bridging loan default value down

ASTL’s figures also suggest that the total value of bridging loans in default is still on the decline since the start of the year. Compared to Q1, the value of bridging loans in default was down 7.6% in Q2.

Consequently, repossessions were also down over the past three months compared to the start of the year, indicating that the gradual return to normality after 18 months spent in lockdown could be having a positive effect.

ASTL also reported that the average bridging loan LTV currently stands at fewer than 60%, a fractional increase on the figure reported in Q1.

“The falling value of loans in default and the number of repossessions reflect the quality of lending and show that the market is continuing to grow sustainably and enhance its ever-improving reputation,” commented Vic.

“In this growing market, ASTL lenders continue to represent a benchmark of quality and customer focus, providing brokers with a source of flexible short-term finance that they can trust.”

FC Barcelona have rarely been out of the headlines over the past few months, primarily due to the sensational departure of Lionel Messi after a lifetime spent with the club.

The president of FC Barcelona, Joan Laporta, has spoken of the “very worrying” financial situation the club is currently in. Having revealed that Barcelona is now approximately €1.35bn (£1.15bn) in debt, he blamed what he referred to as a “terrible inheritance” on his predecessor, Josep Bartomeu.

He also highlighted Lionel Messi’s departure as a key factor in the “dramatic” situation Barcelona now faces, resulting in a Goldman Sachs bridging loan valued at €595 million being taken out to save the company from outright bankruptcy.

Laporta remains adamant that Bartomeu should be held accountable for the financial meltdown currently taking place behind the scenes.

His comments came at a recent press conference when he cited excessive salaries as one of the reasons behind the club’s unsustainable financial position.

“Our salaries represent 103 per cent of the club’s total income. That’s 20–25 per cent more than our competitors,” he said.

“The first thing we had to do when we arrived was to ask for a loan of €80 million because otherwise, we could not pay the salaries. The previous regime was full of lies.”

He also went on to blame his predecessor for leaving him with huge stadium repair and maintenance bills to cover, along with failing to be truthful about promised wage cuts.

“We also found that we had to do some urgent repairs to the Camp Nou because otherwise, it posed a risk to the attending fans. We also found out that the club had already received 50 per cent of the TV rights fees in advance.”

“We found the wage policy in the form of an inverted pyramid: veterans on long contracts and youngsters on short deals. There were no wage cuts.

“We have found that disproportionate payments have been made to intermediaries, not even agents.”

Speaking on behalf of Sky Sports News, Kaveh Solhekol warned that FC Barcelona is currently in a “terrible” financial situation, with no obvious way out for the time being.

“Barcelona has a negative net worth of €451 million; it is a terrible inheritance. What has been happening is very worrying,” he said.

“Bartomeu’s (open) letter is an effort to justify management that is unjustifiable. It is an exercise in desperation. They are responsible for everything until March 7. They will not escape their doing.”

Speaking on the future of the club, Laporta spoke confidently about Barcelona’s ability to resolve its financial troubles while confirming its receipt of a bridging loan worth “€550 million with an interest rate of 1.1 percent to restructure the club.”

“The situation is dramatic, but we have good news,” said Laporta.

“The strategic plan based on our credibility and experience and on the assets that Barcelona has makes this situation temporary. I think that in a couple of years, the club’s economy will be healthy.”

“We are not scared at all. We are highly motivated and positive, and morale is high. It’s a big challenge, but we are capable of overcoming it.”

“I’d like to call on all Barcelona fans and the entire club to be united. With football and unity, I’m convinced this era will be full of success.”

A bridging loan is essentially a short-term commercial loan secured against an appropriate property or asset. It is designed to be repaid within a matter of months; bridging finance can be uniquely cost-effective over the short term.

Another major point of appeal with bridging finance is the speed with which it can be arranged; typical loan completion times are no longer than two weeks, though it is often possible to access the funds required within just a few days.

This can make bridging loans an immensely useful and versatile product for smaller businesses that routinely encounter unexpected outgoings and cash flow shortages.

How does a bridging loan work?

Bridging finance works in almost exactly the same way as a typical secured loan; the funds are issued against an asset of value, typically the applicant’s home or a business premises, and are repayable by the borrower along with the agreed rate of interest.

What differentiates bridging finance from a typical secured loan is the short-term nature of the facility. Bridging finance is designed to be repaid within a few months in the form of a single lump-sum payment on an agreed date.

There are typically no monthly instalments for the duration of the loan, and the balance in its entirety is repaid in a single payment.

What can I use bridging finance for?

Bridging loans are also advantageous in that they can be used for any legal purpose whatsoever. If you have an asset of value your lender is willing to accept, the funds raised can be invested or allocated in any way you like.

Just a few of the most popular uses for bridging finance are as follows:

• Purchasing properties at auction at rock-bottom prices.
• Buying non-standard properties to refurbish or repurpose.
• Covering urgent outgoings or unexpected cash flow shortages.
• Investing in equipment and machinery for business purposes.
• Relocating to new premises or property expansions.
• Paying tax bills to avoid possible penalties.

In all of the above instances, bridging finance can be more convenient and cost-effective than any conventional loan. again, under the strict condition that the funds are repaid in a timely manner as agreed.

Who can qualify for bridging finance?

As with all loans, lending criteria vary significantly from one lender to the next.

As a general rule of thumb, you can expect the following verification checks as part of the application process:

• Proof of identity and residency.
• Evidence of a viable exit strategy (repayment plan).
• Formal valuation of your property.
• Proof of income and expenditure.
• Verification of current financial position.
• Full credit history check.

In spite of the above, it is worth remembering that many lenders issue bridging finance primarily on the basis of security. If the value of the property used to secure the loan vastly exceeds the total loan value, other verifications (like credit history checks) may not be necessary.

If you have any questions or concerns regarding your eligibility for bridging finance, ensure they are raised with your broker before applying. This will help ensure you target the right lenders with your application in order to secure an unbeatable deal.

Popular culture has played a major role in encouraging more people than ever before to try their hand at ‘flipping’ homes and commercial properties. Interest in the “fixer-upper” properties is at an all-time high, as younger demographics in particular set their sights on building their dream homes for cheap or turning a comparatively quick profit.

However, experts continue to stress that the risks associated with purchasing fixer-upper properties must not be underestimated. More specifically, potential buyers are being advised to follow five essential guidelines before committing to the purchase of a property for renovation.

Arrange a comprehensive survey

It is always advisable to organise a more intensive building survey than would normally be conducted. This will ensure that you gain detailed insights into the renovations, repairs, and improvements necessary to restore the property to an appropriate standard. In addition, a detailed building survey could provide you with useful information as a basis for negotiating a more competitive price.

Consider financial products in advance

Do not make the mistake of waiting until the last minute to consider the funding options available. This is because properties that are considered uninhabitable may exclude you from most conventional high-street mortgages. Specialist property loans for fixer-upper properties are available, but they often call for independent broker support to access them. Fully research the options available ahead of time in order to ensure you understand what is on offer, how much you will be expected to offer as a down payment, and so on.

Factor the price of the property against the repairs required

This may also call for specialist help, as it may be difficult to accurately calculate the total costs of the renovations required without an experienced surveyor or contractor. It is essential to come up with an accurate total figure for the renovations and improvements you intend to carry out in order to determine whether the property is worth purchasing at its current price.

Anticipate the prospect of exceeding your budget

Research suggests that close to half of all fixer-upper property projects result in their buyers exceeding their budgets. You should therefore ensure you have some kind of backup plan available in the event that you run short on money at the worst possible time. This could be something as simple as putting off less urgent renovations until a later date or considering a mortgage extension if available.

Consult with an independent broker you can trust

Lastly, involving a reputable independent broker at the earliest possible stage is highly recommended. Along with helping you find the most competitive loan to fund the project, a broker can provide you with the independent advice and support you need to make a safe and informed decision.

Bottom Line: The bridging sector saw a combined fall in lending of £278 million last year, but evidence suggests the market is bouncing back from the impact of three consecutive lockdowns.

Collective bridging transaction completions were down by £278 million last year.

The average LTV on bridging loan issues decreased to 50%.

Bridging loan interest rates fell to historic lows during the fourth quarter.

Regulated and unregulated loans occupied an equal share of the market.

The most common application for bridging finance in Q4 was chain breaking.

The economic fallout attributed to the first two national lockdowns had a major impact on the bridging finance sector last year. As a result, total transactions for 2020 were down by approximately 38% from the previous year, to £455 million compared to £732.7 million in 2019.

Decreases in bridging finance activity were particularly prominent during the first six months of 2020, when the UK’s real estate market was temporarily shut down in its entirety. In the first quarter, bridging loans valued at a total of just under £113 million were issued. By the end of Q2, this had plummeted to just £79.4 million as lockdown restrictions took effect.

However, reassuring signs of improvement were noted during the closing six months of the year. Total bridging finance activity in Q3 came out at £115.52 million, increasing further to £137.22 million in the fourth quarter.

The latest figures released by Bridging Trends highlight a series of key findings for 2020. Bucking the trend of previous years, there was almost no difference in the share of the market occupied by regulated and unregulated transactions in 2020. Regulated transactions accounted for 36% of the market in 2018 and 39% in 2019, last year climbing to an impressive 49.4%.

Average monthly interest rates also fell to record lows during Q4, averaging just 0.72%. This is more than a full percentage point lower than the 0.85% peak recorded in Q2, which was followed by a fall to 0.78% in the third quarter.

Evidence suggests that bridging finance specialists are continuing to distance themselves from high LTV products, with the average LTV on a bridging loan last year coming out at 50.7%, significantly lower than the 52.9% and 54.6% of 2019 and 2018, respectively. The lowest average LTV of all was recorded in Q2 at the height of lockdown, 48.8%.

23% of the bridging loans issued in 2020 were second-charge loans, presenting a sizeable uptick of 20% from the year before. Q2 in particular saw a major spike in second-charge bridging transactions, an all-time record high of 26.1%.

Primary applications for bridging loans changed little from previous years, with funding investment purchases once again topping the table for the year as a whole, accounting for 22% of all transactions. Interestingly, chain break overtook investment purchases in the fourth quarter, accounting for a full 23% of all bridging loans. Bridging finance for business purposes came out with an annual market share of 11%; heavy refurbishment also accounted for 11% of all transactions last year and 12% of the bridging loans we used for regulated refinance purposes.

On average, bridging loan completions took 50 days in 2020, slightly longer than the 47-day average in 2019.

The average loan term in 2020 was 12 months, the same as in 2019. The average completion time averaged 50 days, up from 47 days in 2019 and 45 days in 2018.

Gareth Lewis, commercial director at MT Finance, comments:

“After the first lockdown, we saw the re-emergence of some larger lenders, and if you combine this with the stamp duty changes, it is no surprise that there was a stimulus on rates and regulated bridging in the latter part of the year.”

“As the vaccine rolls out and we gradually emerge from this lockdown, I believe we will see a new transactional flow from renewed confidence in the economy and businesses re-establishing themselves.”

Dale Jannels, managing director at Impact Specialist Finance, comments:

“The impact of the pandemic on the bridging sector is shown clearly in Q4’s data, but it also alludes to the activity we are now experiencing, some of which, but not all, is related to the Stamp Duty Holiday deadline.”

“It’s clear though that bridging finance is becoming better understood by the wider broker market (not just those in the specialist sector), and there is more confidence about the options it can provide customers, which should mean that 2021 could see a real watershed moment for this type of finance.”

Kevin Blount, head of operations at Clever Lending, comments:

“We certainly had an increase in inquiries during Q2, which led to a spike in new business submitted to lenders in Q4. We are working hard with lenders to find solutions, who in turn are reviewing their criteria and interest rates to fit the current market.”

“The SDLT holiday helped to bring business to the bridging market, which is continuing into 2021.”

Chris Whitney, head of specialist lending at Enness, comments:

“I am actually quite surprised that the fall in lending quantum in 2020 was so large. The market has always ‘felt busy’ and Enness did not see such a big drop in lending volumes.”

“Yes, we did see some big names close their doors as the whole country was forced to work out their strategies in the face of the pandemic on a micro and macro scale, but some still aren’t back as they were. However, I think most of the short-term lending market either carried on throughout or paused only temporarily as working practices were refined and made fit for purpose under the restrictions we faced, as well as the level of uncertainty that still hangs over us.”

“The absence of some big names has reduced supply, coupled with some restricting LTVs, which has had a marked impact on lending levels. I think this is also reflected in the fall in average LTVs over the year.”

“However, as the trend in Q3 and Q4 indicated, I think we will see volumes bounce back quite quickly, and with people re-entering the market, the data is reflecting the stiff competition lenders face for business in terms of lower interest rates.”

“There are some big high-street names who see themselves as ‘business banks’ but I know from first-hand experience that many did not step up to the challenge and support their customers as they should at this time. Borrowers were turned away or faced a huge amount of red tape to navigate on their own, not being able to get the support they needed so badly in a timely manner.”

“I think this is reflected in the increase in second-charge loans and the increase in regulated loans as well. The mainstream high-street lenders made it very hard to increase current loans, and if they did, it was taking much longer than normal. Consequently, I think that is why we see ‘chain breaking’ high on the list for uses of bridge loans. Lots of borrowers use bridge loans as an essential tool on a regular basis, but I think we have seen an increase in new to the sector borrowers, which has contributed to a shift in some of the historic dynamics.”

“I think overall the short-term lending market can be proud of what it managed to achieve in unprecedented times. I know there are an awful lot of people who are very grateful, whose businesses, personal lives, and families are better for what the industry was able to offer them.”

“I am sure 2021 will have its challenges, but I feel our industry is ready to take on whatever is thrown at us.”