There has been a bridging loan boom in Autumn as a consequence of downsizing and shifts in the buy-to-let market following the Budget.
Brokers have reported seeing the number of bridging loans being taken out increasing in November as rates for the products have also fallen.
Bridging loans are short-term secured loans which are taken out by property owners who need cash to cover a shortfall.
They are often used, for example, by homeowners who are purchasing another property but haven’t yet sold their current home. The funds can be used to literally ‘bridge’ the gap while they wait to sell their property and it can be paid off once the funds become available.
Adam Stiles, managing director at Helix Financial Partners speaking to the Newspage agency explained a number of his clients were using them due to the ongoing cost-of-living crisis. He said: “They use bridging when they have found the perfect home but haven’t yet sold their own home and don’t want to lose the onward purchase.”
And, according to other brokers, it’s not just rising living costs which are increasing the demand for bridging finance in the last month. Many are also hoping interest rates will fall in Spring.
Mark Dyason, owner at Edinburgh Mortgage Advice speaking via the Newspage agency, said: “There has been a groundswell of demand for bridging among downsizers who want to move before they sell.
“These people want to move at a pace that suits them and look to sell in the Spring when expected rate cuts will drive confidence and increase demand and the prices they can achieve for their existing property.”
Professional landlords diversifying
But it’s also professional landlords driving the boom. A number of amateur landlords decided to sell following the Autumn Budget due to additional taxes being applied to buy-to-let and second homes.
These properties are being bought by professional property investors, and they are using bridging loans to do this.
Graham Cox, director at Bridging Hub was also speaking via Newspage. He said: “We’re seeing a lot of demand for bridging loans at present. November has been exceptionally busy as many amateur landlords, following the Budget, exit the market.
“On top of steeply-rising mortgage rates, and a less generous tax regime, the increase in the buy-to-let stamp duty surcharge from 3% to 5% was the last straw for many.
“This is presenting huge opportunities for professional landlords, who are snapping up below market value rental properties from distressed sellers. Commercial to residential conversions under Permitted Development are also becoming increasingly popular.”
Many are also using their bridging finance to diversify into Houses in Multiple Occupation (HMO). These are properties which are divided into smaller dwellings with shared facilities, such as student accommodation.
Harps Garcha, Director at Brooklyns Financial via Newspage, said: “Seasoned investors are actively scouting for deals under market value where they can add value, often using bridging loans for their speed and flexibility, especially when properties require work.
“Many investors are now focusing on higher-yield projects, such as residential conversions to HMOs and commercial-to-residential developments under Permitted Development.”
