Can you avoid bridging finance?

So we’re a quarter of the way through lockdown 2.0, let’s hope that with some good news on the vaccine we can start to see some normality by Christmas.

Even with great progress being made on this, we are still likely to see a few more months of uncertainty around a number of variables; builders, planning, conveyancing, and whether we really will see a drop in property prices.

For these reasons, we are seeing a reluctance from some clients to use bridging finance. I do understand, bridging is expensive and when you have less certainty around your exit plans and timescales, it’s difficult to work the costs into your project. The difficulty has been that we never really had much of an alternative where the property isn’t in a lettable condition, or where the rent is low in its current condition.

The Solution?

One of our lenders has this week launches a new ‘refurb in term’ product to deal with exactly these issues. The highlights of it are:

  • It allows you to complete on a property where you need to carry out a light refurbishment in order to let it out
  • The valuer will see the schedule of works and can take this into account when looking at the value as well as the market rent figures. This is especially important when you need a higher rental figure to make the deal work.
  • This can work for residential as well as semi commercial properties where they are tired and in need of a refurbishment before you can let it out
  • You can use it for existing HMOs where there is a license in place but it needs some refurbishment to attract more rent or different tenants
  • We can use a desktop valuation in the majority of cases, enabling a quick completion where required
  • The lender are offering a 2 year fixed with a 2 year tie in, allowing an opportunity to reassess what you are looking to do at that point. They also have a 5 year fixed with a 2 year tie in, offering you some more flexibility

There are some things to be aware of, as always:

  • The property does need to be habitable in its current condition
  • No heavy refurbishment or planning
  • You will need to show you’ve got 3 months mortgage payments in the bank to cover the refurbishment period
  • They are lending based on its current condition and value, so there’s no room for uplift at this point.

This could be a good option if you are looking for a long term project requiring planning for example, if you are happy to wait two years to start bigger works. It also works well if you are looking at a smaller refurbishment where you don’t think you’ll get enough of an uplift to warrant paying for a bridge. Hopefully you can look to refinance when market conditions are more favourable!

This isn’t an alternative to bridging in all circumstances, but it does offer a solution for certain areas, which we are seeing to be an issue due to the uncertainty.

As always, give me a call if you want to chat though a specific case. Have a good weekend!