There is an undersupply of houses to meet current and expected future demand. Bridging loans could be the key to providing funds to build new homes and to renovate older homes.
Small developers find it difficult to raise funds
The government, in its February 2017 white paper on housing, said that lack of funding for smaller housing developers was a barrier to building new houses. A recent study by De Montfort found that just 20% of development finance lenders will provide funds for projects under £10m. Smaller developers can have difficulty obtaining finance for building new , so many small developers are turning to bridging finance as a solution as bridging lenders are not restricted to high-value loans.
The advantages of bridging loans
Bridging loans are available for as little as £25,000 to over £10m. As well as financing new build developments, they can be used to refurbish older properties to make them available to rent or sell. It is estimated that bridging finance organisations are lending £3.5bn a year for property developments and this figure is expected to rise in the near future.
The average bridging loan is under £1m. As they are short term loans, they can be quickly arranged to raise capital for building projects. They also have the advantage of not charging exit fees for early repayment. Small developers working on small-scale projects that want to sell on properties quickly, find bridging loans particularly useful as they can be paid back as soon as properties begin to sell.
Developers purchasing derelict or semi-derelict property find that when they apply for a mortgage to purchase the property, they sometimes are refused on the grounds that the property is not fit to live in. Bridging loans can be used to finance the building work, then once the property is habitable, a standard or buy-to-let mortgage can be used for more long term finance.
There is an undersupply in the housing market, and both small and large developers are either building new homes or renovating existing homes to supply the high demand for tenants needing rented accommodation, as well as homebuyers.
As house prices rise, first-time homebuyers take longer to save for a deposit on their first home. Rising inflation means that the amount that people can regularly save decreases, and this also increases the time taken to save for a deposit. The result is that people are renting for longer, and this increases the demand for privately rented accommodation. Bridging loans are vital for many landlords buying or converting properties for rent.
The role of the bridging finance broker
Bridging finance brokers have an important role in helping developers find the best deals to fund their projects.
If you are a small or large property developer, talk to Ascot Mortgages to discover how bridging finance can help finance your next property project. We have access to a wide range of lenders, so can match your finance requirements with the right deal.