Are bridging loans needed for complex cases in 2020?

Let’s start with the obvious: 2020 has been an unprecedentedly disruptive year. Even firms with the best-laid plans have found themselves having to overcome a myriad of obstacles, from social distancing requirements, national lockdowns, economic uncertainty, and so on.

Related topics:  Blogs
Tiba Raja | Market Financial Solutions
8th December 2020
Tiba Raja MFS
"With the stamp duty holiday not due to expire until April 2021, it seems likely that bridging loans will remain in high demand over the coming months."

However, as many of us in the specialist finance industry understand, disruption often begets opportunity. An inability to continue ordinary business operations allows companies and individuals to demonstrate their adaptability in the face of adversity.

And in 2020, this has certainly been true for the property industry, especially its lending sector. During the first nationwide lockdown this summer, mainstream lenders retreated from the market en-masse in a bid to minimise risk exposure. Suddenly, buyers had to deal with increasingly long application review periods and a heightened chance of their cases being denied; even more so if their circumstances were remotely complicated.

For those who were already in the process of purchasing a property, this added difficulty had the potential to derail transactions entirely. However, while many mainstream high-street lenders were proving intransigent, the UK’s alternative lending sector proved vital for financing transactions under lockdown.

These alternate lending firms were able to utilise their in-house credit lines and more flexible approach to assessing applications to keep the UK’s property industry afloat. Even after the first lockdown ended and traditional lenders returned to the market, Covid-19 uncertainty still meant that application review times were elongated – and that chances of rejection were high.

As a result, alternative financing solutions like bridging loans have enjoyed heightened popularity from brokers and borrowers since the pandemic began. Through offering tailored loans designed to accommodate each client’s individual situation, these firms could take on complex cases which mainstream lenders may reject outright.

There are two cases Market Finance Solutions (MFS) was recently involved in that illustrate this point.

Commercially residential

Earlier this year, MFS was approached by a prospective client seeking a bridging loan, which was to be used to convert the client’s property, a former gymnasium, into a development of luxury apartments.

This loan, totalling £200,000 at a 60% loan-to-value (LTV), required a fast, reliable lender with experience lending to a limited company. Of particular importance was that the fact that the client had not yet received the planning permission needed to purchase a residential property connected to their commercial plot – a transaction necessary to begin the conversion process.

It is unlikely that a mainstream lender would consider approving a loan for a project that was yet to receive all the necessary licensing and permissions. However, MFS took an objective, holistic view of the application and the securities on offer, deeming it worthy of approval.

The client’s limited company had a strong track record of property redevelopment, and we were sure the resulting properties from this conversion would be in high demand. As such, our underwriters were confident that this loan would be repaid, and MFS deployed the requested capital within days of the application being received.

Bridging for landlords

One UK asset that has gradually increased in attractiveness throughout 2020 is buy-to-let (BTL) property. With stocks, shares, and bonds all experiencing volatility due to Covid-caused uncertainty, the ability of British real estate to hold its value during tumultuous times has not gone unnoticed by investors.

One such investor was a British expat who was rejected for a mortgage at the final stage of a BTL investment. With the transaction close to falling through, they contacted MFS and applied for a £1,750,000 loan at 61% loan-to-value (LTV) so they could complete on their transaction.

Also needing to borrow the money as a limited company, MFS was able to approve their request within four hours of the application being received. However, MFS underwriters quickly revealed that two of the shareholders of the client’s limited company were below the minimum age threshold to receive our bridging loans.

A traditional, mainstream lender would – at this stage – likely have halted the loan and re-appraised the application in its entirety. MFS, however, with our experienced and innovative underwriting staff, were able to quickly provide an alternate legal solution via working with both parties’ legal teams.

In both these situations, the flexibility and expertise demonstrated by MFS meant that buyers were able to complete on their transactions without unnecessary complications or delays. So, for complex cases, bridging loans can offer financing solutions that are able to be tailored for each individual application – no matter the complexity involved.

The bridging benefits

Across the UK’s financial sector, I believe Covid-19 has bolstered the reputation and appreciation of alternative financing. And, with the stamp duty holiday not due to expire until April 2021, it seems likely that bridging loans will remain in high demand over the coming months.

Indeed, a recent bridging trends report revealed that between Q2 and Q3 this year there was a 46% jump in the number of bridging loans deployed. Looking ahead, with Covid-19 still far from over and its economic ramifications only beginning, I expect many more brokers, buyers and investors to considering financing options beyond the high street in the future; especially when dealing with complex cases.

More like this
Latest from Property Reporter
Latest from Protection Reporter
CLOSE
Subscribe
to our newsletter

Join a community of over 30,000 intermediaries and keep up-to-date with industry news and upcoming events via our newsletter.