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In periods of economic volatility, there are winners and losers. As base rates continue to rise – along with inflation – many residential and commercial mortgage holders start to feel the pinch when it comes to covering their mortgage payments. In some cases, they will need to cut their losses and cease their business ventures or sell a primary residence, trophy property or real estate investment to reduce their outgoings and downsize. While this is challenging for those affected by rising costs, it will represent incredible opportunities for others.
Despite sweeping statements in the press, economic volatility doesn’t mean everyone will suffer financial challenges. Some individuals and businesses need to tighten their belts, while others will find plenty of opportunities to make fantastic investments.
High-net-worth individuals, developers, landlords and other investors, in particular, will have strategies in place to capture below-market-value opportunities as squeezed mortgage holders look to sell both commercial and residential property. These strategies will play out in the next 6-12 months. Bridging finance is the ultimate opportunity creator in the current market and can finance these opportunities. You can use these loans to buy undervalued real estate assets at the right time, allowing you to snap up bargain investments. The approach will be to purchase low-value real estate as it comes up for sale and hold it as an investment until it starts to appreciate when markets correct.
The liquidity offered by bridging finance is perfect for this strategy – you need capital to make these purchases as and when they hit the market, especially as you will need to compete with other investors who want to do the same. Using bridging finance means you don’t have to use your own capital to do this: you’ll have quick and easy access to debt that will allow you to buy undervalued real estate assets as and when they hit the market.
Property is one of the easiest asset classes to raise debt against, and as a result, it is where most investors will focus when it comes to creating liquidity. However, conventional mortgages and property finance can be cumbersome to arrange and often take longer to complete than you want when you’re trying to buy under-valued real estate when speed is everything. You can draw down bridging loans in 1-2 weeks, which means you have almost immediate liquidity and the same advantages as a cash buyer. Sellers needing to dispose of a property need to make that happen as quickly as possible, and as a buyer with liquidity and none of the constraints of a mortgage, bridging finance will only work in your favour.
Using bridging finance also means you will retain as much of your capital as possible to cover your own expenses and keep your options open to capture other high ROI opportunities. The best way to generate liquidity is to leverage existing assets without selling them. This allows you to purchase additional appreciating assets without selling what’s already in your business or residential portfolio. Unregulated bridging (vs regulated bridging finance) is commonly used by investors, with 56.1% of all UK bridging loans carried out in Q1 2022 being unregulated deals. This underlines how useful bridging is for investment purposes.
Bridging finance is one of the most flexible forms of finance available on the market, which means that different individuals will use it for various purposes:
If you’re a developer, you can use bridging finance as a short-term funding tool to finance your build or development. One of the main benefits here is the flexibility of bridging finance: you can use bridging finance to purchase the land or property you will develop or to fund different stages of the build. Many developers use bridging finance to kick-start a project until you can secure a longer-term property development loan. In the current economy, bridging finance can also be a way to quickly finance a takeover that a competing developer can’t continue.
Many people pause plans to buy property in rising interest rate environments, especially as inflation increases. This means there is more demand for rental property and buy-to-let investments are an excellent hedge against inflation, making them interesting assets for investors. At the same time, many landlords want to dispose of property if they can’t keep up with their current mortgage payments or if they want to streamline their property portfolio.
Landlords can use bridging loans to buy under-valued property quickly, break property chains or release equity from a portfolio to renovate or develop property that will be rented at a higher rate, reflecting its new value. If you are a professional or first-time landlord, bridging finance can be an excellent way to buy property quickly. You can expand your portfolio easily or buy a property that represents higher ROI before selling another property in your portfolio.
Bridging finance is just as useful for individuals as it is for professional landlords and developers. You can use these loans to quickly create liquidity to seize opportunities, buy below-market-value residential or commercial property, break property chains, or complete sales quickly without a mortgage. You can also release equity tied up in a property to generate liquidity for investments, high ROI projects or buy more real estate.
Bridging finance is one of the most flexible types of lending, and you’ll find there are plenty of benefits, which include:
Bridging lenders set their own interest rates – they aren’t influenced by base rate increases the same way mainstream lenders are. This can be useful because lenders will fix the interest rate from the get-go, which won’t change during the loan, even if the base rate changes during your loan term.
When an undervalued property comes onto the market, liquidity and speed is everything. We can complete bridging loan transactions quickly for you, which is part of why they are so useful for investors and sophisticated borrowers – they represent a route to almost immediate liquidity. The average bridging deal is completed in just 56 days – much faster than a mortgage completion. That said, it’s usual for us to complete bridging deals in as little as two weeks, especially for landlords, developers and wealthy individuals.
Most bridging lenders are open to Enness brokering a one-of-a-kind financing solution. Increasing numbers of lenders don’t have any specific lending criteria and are very wide in the scope of what they can deliver in terms of financing and use of the loan.
Bridging finance isn’t a UK-only product. Increasing numbers of lenders can provide bridging loans for international property purchases and equity release secured against non-UK property. You can use international equity release to create liquidity for onward purchases, buy other assets or make investments, and add value to your existing portfolio by renovating or improving property.
We regularly work with wealthy individuals, investors and property developers to broker high-value bridging finance for them quickly. If you want to know more about bridging finance or understand how we can help – including what bridging costs and how we can structure deals for you – get in touch.