Throughout these first few months of 2021, we have noticed an increase in demand for large bridging loans here at MFS. This consists of many of the loans valued over the million-pound mark. There are many elements that have caused the property market to be the centre of attention over the past 12 months but what has caused this rising interest in high-end bridging finance?
Stamp duty land tax (SDLT) holiday
Since the announcement of the stamp duty holiday, the property market has seen some of the highest activity in years. Buyers and investors alike are flocking to the market to take advantage of the chance to save up to £15,000 on their next property purchase. The initial deadline of the stamp duty holiday was marked as 31st March 2021. This has been extended to the 30th of June.
The holiday has of course caught the eye of many property investors, who’s interest in bricks and mortar have caused property prices to soar. It has opened an opportunity for homeowners to invest in larger, more expensive property. Alternative finance became a way for property investors and landlords to move forward with their deals at a swift pace.
A recent survey by Zoopla has also revealed that UK homeowners have been underestimating their property value. They have been sitting on a hidden, combined total of £237 billion in property equity.
1 in 10 people who discovered that their property was worth more than expected found their equity was £100,000 or more than they initially thought.
Of this number, 40% were situated in the London and South East. This realisation of their true equity has allowed people to consider upgrading their current home.
Rise in house prices
The tax break has caused house prices to surge, rental costs to rise and many homeowners to take on DIY jobs in attempt to increase their property value. The latest data from ONS shows that the average UK house price has increased by 8.6% in the 12 months leading up to February 2021. This is the sharpest increase since October 2014. With so many buyers entering the market, particularly as the stamp duty deadline is looming once again, this rise comes as no surprise.
Source: Office of National statistics
Even at online property auctions (UK) the average spend per property is growing. With property auctions still solely being conducted via the internet, it widens the competition. It also offers a longer bidding period which may be large contribution to the rising sale price.
The average spend-per-property from the latest Allsop auction (£337,304.80) surpassed the UK national average property price (£250,341).
A large selection of these assets was from highly sought-after regions such as the Capital (average property value £496,346).
These make great purchases for property investors who are looking to buy cheaper properties in area’s that hold value, such as London, or are looking to rent out their asset in the likelihood that they will increases in value over time.
If you’re looking for more information on buy-to-let hotspots, then check out our buy-to-let infographic.
With auction houses often offering only 28 days to complete, auction bridging loans can help provide fast finance as funds can be in your account within as little as 3 days.
The increased interest in UK property is benefiting homeowners across the UK. For those looking to take full advantage of the SDLT holiday, however, it is becoming a difficult road. The end of 2020 saw a huge increase in activity when the first stamp duty deadline closed in. As we came into the new year, the property pipeline became clogged with a backlog of buyers. Mortgage delays started to expand. This pushed buyers to their limit and put their deals at risk of collapse. To help meet their investment deadline, property investors started to turn towards alternative finance. The speed and flexibility offered in a bridge loan became a way to complete quickly. It provided the breathing space investors needed to sort out a long-term finance plan.
Construction and development demands
There has been a rise in construction, development, and renovation activity. In this market, individuals or businesses typically need larger loans to complete projects, with the properties then listed for sale or rental. With the stamp duty cut in place, property investors have been able to save thousands of pound during the pandemic. In March 2021, the construction industry saw activity rise at the fastest pace in six years. Plus, the Construction Product Association is predicting 13% growth for the sector this year.
This increase in activity has been prompted by a relaxation of lockdown rules across Britain. As society opens once again, many projects that had previously been paused during the pandemic can be resumed.
Bridging loans are often used by developers close to the end of a project. In some cases, additional finance is needed to complete the development work. This can be for both a new build and a renovation project.
In other cases, a developer has finished work on one or more properties, but is awaiting the sale of the real estate. Here, the developer might need to repay the original development finance loan they used to fund the works. The developer can use a bridging product called a development exit loan. It is often a more affordable alternative to the original development finance, meaning the developer can repay the original loan as they await the final sale, which in turn will be used to repay the bridging loan.
Find out more about development exit loans and how we can help by reading one of our latest blog’s here.
What is a bridging loan?
A bridging loan is a short term financed solution that helps consumers bridge a payment gap. They range from 3 – 24 months and the loan amount can be anywhere from £100,000 to £10,000,000+.
Clearly, there are many reasons why larger loans are in demand. It might be a bridging loan for a property purchase, a buy to let refurbishment project, or even investing in a commercial asset.
A bridge loan can be used to benefit investors of UK property. Here at MFS, we have been focusing on releasing educational content to help create a greater understanding of how bridging loans work. Introduce bridging finance to new brokers and client may also help relieve pressure from mainstream lenders such as high street banks. With the first deadline of the stamp duty holiday closing in, alternative finance lenders need to be ready to help property investors and brokers meet their urgent deadlines.
To ensure we would be able to help our clients and brokers in the lead up to the stamp duty deadlines, we have:
- Secured additional funding lines that are to help those in need of large loans and development exit loans.
- Increased our loan size to £30 million and our term length to as high as 24 months for specific products.
For more information on how we can help you find the right bridge loan for you, check out our bridging hub here.