Bridging borrowers look to longer-term loans
Over the last few months property investors have been opting for longer-term bridging loans because of Brexit uncertainty, brokers and lenders alike have observed.
James Bloom, managing director of short-term lending at Masthaven Bank, said borrowers have been opting for longer-term bridging deals for more certainty by looking for 18-month non-regulated loans for both bridging and development.
He said: “Unfortunately because of the market exits take longer and if you exit the sale it’ll take longer to sell the property, so it’s inevitable the average length of the loan will increase in the market and you need products to match that. It’s a natural trend.”
James Hedges, a broker at Voltaire Financial, agreed and said that clients have been opting to take a longer-term bridge of around 18 to 24 months rather than the typical six to 12 months to give them a little bit more flexibility.
He added: “Clients typically are after a 12-month bridge because at the end of the loan they know they’ll be selling but with Brexit, they’ve been unsure whether it will be the right time to sell in 12 months’ time and don’t know where they’ll be, so they’re opting for longer-term bridges.”
Hedges pointed to the example of a deal on an office building where the client wanted a bridge to sell in six months’ time. However he opted for a longer-term bridge for more certainty because he was worried about the market collapsing, while he was also anxious his tenants could leave the office building and he’d struggle to replace them.
Hedges said: “But I think he’ll be fine because its well-located and everyone’s desperate for office space.
“There’s been a few deals where you typically get the shortest deal possible for the client because they typically just want some cash and then to sell the property, but clients are now looking for more certainty.”
Payam Azadi, director of brokerage Niche Advice, has seen the same trend but doesn’t think borrowers should be going for long-term bridging loans ideally.
He said that if a client wants a 70% loan-to-value bridge a lot of the costs gets added to the loan and if they’re servicing it and choose a 24-month term after the interest is paid they actually end up with a 50% LTV deal.
Azadi added: “We’re seeing clients look for longer terms but this could impact on how they service the loan.
“A longer-term only really works if a client is prepared to service a loan. Most clients I’ve come across don’t want to service it. And the exit strategy will impact on what people want too.
“When a borrower takes out a bridge and after six months can’t sell it, they shouldn’t look at keeping it for another six months. They should look to flip it into a buy-to-let or if they want to keep it, a longer-term bridge might be useful.
“But as a set rule bridging is supposed to be a short-term solution and there’s innovative ways you can look to meet the client’s needs without necessarily sitting on an 18-month bridge.”