Reports have predicted that there will be an increase of more than 30% of investors expected to use bridging finance for their property funding in 2014.
Here at Fossey Taylor, we have certainly noticed that a larger number of our clients are using bridging/private finance much more now than traditional buy to let mortgage products. Historically, investors would buy using a mortgage, but now things have changed considerably.
There are a number of reasons for this increase, the main one being the timescales involved. When we have offered on a property, we aim to exchange within a week. This is mainly to ensure that the deal is secure and that another buyer cannot offer a higher amount. Using a bridging product is considerably faster than a mortgage.
A high number of our clients refinance as part of their strategy to build their portfolio more aggressively and bridging overcomes a number of challenges.
When a lender looks at a refinance, they will look at purchase price and also monies spent on refurbishment. If you have secured a mortgage before refurbishment, the lender may question the uplift in value as the property had been deemed habitable at that stage. However, bridging often suggests that the property was not habitable and therefore you are more likely to obtain a more realistic value.
In the past, bridging was more expensive, but to be honest, with fees and rates as they are at the moment if you compare them with early redemption penalties on a mortgage, they are quite competitive. Overall, the costs are only slightly higher. There are also a few lenders who are willing to refinance before 6 months after purchase, this also reduces the cost of bridging against using a mortgage.