A growing number of landlords and investors are using bridging finance in order to upgrade their assets and maximise the value of their properties during an unpredictable lockdown and covid-19 pandemic.
Whilst landlords are typically renting out their flats and homes to students, professionals and businesses, they are faced with the challenge of uncertainty – with some tenants unable to meet their rent due to affordability and some new tenants reluctant to on-board because of the unpredictability in their jobs.
Nonetheless, landlords and investors are realising that they can use bridging loans if they want to make renovations and boost the value of their property – whether it is redesigning the kitchen, adding conservatories, upgrading bathrooms or adding home offices.
“Bridging finance is quick – it is not uncommon for loans to be completed in 2 weeks”
Thus, creating a higher value property for the future, whether they plan to sell or continue renting it out to tenants. Either way, they make the most of the covid-19 situation and benefit from making renovations whilst having tenants out of the house.
Bridging finance provider MT Finance refers to an example on their website where “we were recently contacted by a client who required a £97,000 bridging loan to upgrade her block of flats. She wanted to move quickly to take advantage of the current market.
In just over a week, we provided a £97,000 second charge short-term loan, based on an open market value of 58% LTV. Once the client’s refurbishment works are complete, she plans to rent out the units at an increased rental income, making a significant profit on her portfolio.”
The nature of bridging finance is that it is quick to be approved, with the average loan taking 50 days, but it is not uncommon for funds to be completed and transferred in 2 to 4 weeks. This means that funding for home renovations or purchases is often much quicker and more streamlined than using a BTL mortgage or typical bank mortgage.
Bridging finance has grown dramatically over the last decade, from being worth around £1 billion in 2011 to over £8 billion in 2020. The industry has grown off the back of the financial crisis in 2008 where borrowing from high street banks became increasingly harder.
With bridging and other sister products like development and mezzanine finance, applicants can apply as individuals, sole traders or limited companies – with no minimum credit score, income or accounts. Typically the value of the asset or property is taken largely into consideration – and today there are over 50 bridging lenders in the UK and over 1,000 brokers.
These types of ‘specialist’ finance as they are often known, as commonly used to bridge the gap between the purchase and sale of something or complete on a deal with short notice. Investors and borrowers enjoy the ability of avoiding typically bank loans and the length application and strictness of your average mortgage. Often used for property development or investment opportunities, there is also demand for using bridging finance for purchasing and refinancing assets such as petrol garages, hotels and farmland.
In this case, landlords are also realising the short term benefits, with the option to repay their loan over 3 to 24 months via refinancing or through the sale of their asset.
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Daniel Peacock.