Bridging the innovation gap
Kit Thompson is director of bridging and development finance at Brightstar
Bridging finance has continued to evolve into a flexible and accessible finance solution which is increasingly meeting the needs of professional property developers. More and more of these individuals need a choice of competitive loan options in order to finance a wide range of projects from relatively straightforward refurbishments to more complex conversions and extensions. It is therefore absolutely crucial that the bridging finance sector as a whole keeps up with the changing requirements of its diversifying and expanding clientele.
A recent example of continued innovation in the bridging sector is United Trust Bank’s new residential property improvement products. The products are designed for experienced property improvers, offering them high loan-to-values at low rates. This should be music to their ears following the stamp hike which imposed higher purchase costs and lower profit margins.
The unfunded improvement loan at 0.75% per month allows a loan-to-value of 70% of the initial market value with interest rolled-up on top. Factoring interest in, that equates to loan-to-values in excess of 75%. This product also allows for light refurbishments and extensions which fall under permitted development rights.
The funded improvement loan at 0.95% per month allows a loan-to-value of 65% of the initial market value, again rolling interest on top. It also funds 100% of the improvement costs in staged payments. The key here is that staged payments do not rely on interim valuations, thus giving the client added cash flow. This product can cater for more extensive works that fall under planning permission such as large extensions and conversions into multi-units, and both loans start from £250k, work to 70% GDVs and have no exit fees.
There has been a lot of discussion around whether the definition and the purpose of bridging loans is changing. Bridging finance, which is the most flexible form of raising capital, is commonly used for those needing to raise finance for a business or for properties that are unsuitable for mortgage purposes such as development, renovation and unmortgageable properties.
It is clear that the sector is a maturing industry and I strongly believe that it will continue to undergo considerable change. Therefore, it is these types of flexible, innovative and competitive loans that will appeal to a large pool of experienced property improvers and it is likely that even more will emerge in response to the increasing demand and diversity of the market.
In addition, the extended period of low interest rates in the UK has encouraged a significant number of investors with capital to look for options other than the more traditional investment choices. Many are encouraged by higher returns in the property market and, as a result, we have seen an increasing number of lenders entering the market. The bridging sector which offers quicker, short-term solutions for investors still has, in my opinion, further to grow. Therefore, as its reputation continues to gather momentum, I believe it will increasingly be considered as a solution for a much broader range of finance needs.
Today’s bridging finance community is clearly experiencing a new era of innovation and it is important that the industry keeps this at the top of its agenda. In addition, increasing client expectation, rapidly shifting business models, new entrants to the market and a host of other financial and economic shifts ultimately means that both product and service innovation is no longer a ‘nice to have’; it has become a ‘must-have’ for ongoing success.
In an environment where client needs are wide ranging, it is important that those in the industry continue to offer advanced products and services in order to help accelerate innovation and deliver improvements in the quality of service because, to me, innovation fundamentally means providing a solution for an un-met need in the market.