Bridging finance and mortgages

Are you seeing more bridging enquiries? Is this across residential and buy-to-let? "We are seeing a lot of volume right now. We are currently live on over £50m worth of gross loans in the bridging space, with a further £120m in development finance, a type of bridging finance. This is almost exclusively in the investment space across both residential and commercial properties with a view that almost all will turn into long term buy-to-let/commercial mortgage properties. A lot of these purchases involve renovation work and many clients are availing themselves of the custom facilities we've designed within the title split sector (taking Multi Unit Freehold Blocks and converting to Multi Unit Leasehold Blocks). We are adding around £10m a week in new committed bridging loan enquiries. The market is hot right now with many investors seeking to take advantage of the high end prices on properties." • When would you recommend bridging? If not, why not?  "Bridging has two specific use cases. First if you need speed, if buying at auction for example, as you can have funds deployed in weeks instead of months compared with standard mortgage transactions. Secondly, if the property needs renovation. You can only take a BTL mortgage if the property is immediately lettable, so if you need to refurbish the property you need to use cash or make use of bridging in the first instance, before either selling or refinancing onto a term mortgage. Ultimately, though, bridging is more expensive with blended rates of circa 12% a year including interest and fees so if there is not at least a 20% profit margin to be had on the property investment it's not going to be worth utilising the funding and investors would be better off looking at turnkey BTL properties where they can use the cheaper mortgages. • Do you think this will grow in popularity? Certainly the market for renovation is in demand and plenty of people can see an opportunity in buying run-down properties with a view of sprucing them up to make a quick profit. I also expect the foreclosure market to heat up as inflation and rates increase, which means those investors that have built up a war chest of deposits will be able to pick up properties on the cheap that do have fundamentally good returns using the leverage opportunities that come with bridging finance." • Do you think pricing is reasonable currently and where do you expect it to go? "While rate increases are applied almost immediately in the long term lending space, in bridging it's still very much a race to the bottom. There are lots of providers (over 150) all competing for the same clients and therefore to win business they are reducing rates and often increasing gearing to capture market share.

We are not seeing a rise in bridging requests, however, the demand for such a solution usually increases when chain breaks occur and in a slowing property market. As interest rates increase and the relative disparity between mortgage rates and bridging costs narrow, the more straightforward bridging solution will become more appealing if the requirement is there. At this stage, we have not seen an increase in the cost of bridging however if savings rates increase then the increased cost to lenders could lead to higher lending rates.