The common bridging scenarios of 2021


Donna Wells, Director at F4B

To say that 2021 has been a busy year for the bridging finance sector is a massive understatement. From an F4B perspective, we’ve seen huge advances in awareness regarding short-term finance across the intermediary market and a growing understanding of how to utilise this product and the type of property-related transactions which will benefit from it.

This was evident in the specialist lending seminars we hosted across the UK in September which drew full houses and it was great to be able to integrate some physical events back into the mortgage calendar and engage with so many interested brokers on a face-to-face basis. After all, building relationships, understanding individual lending propositions, realising the benefits of working with a trusted packaging partner and identifying specialist lending scenarios remain key for advisers when it comes to growing their specialist business.

As highlighted in recent data from the Association of Short-Term Lenders, it’s clear that bridging is fast becoming a more established and invaluable tool in the advice process. A fact which is being reflected in lending volumes as the sector continued to deliver strong, sustainable growth in Q3 2021, a period which saw applications and loan books both reach higher levels than in Q2.

The figures, compiled by auditors from data provided by members of the Association of Short-Term Lenders, showed that bridging applications reached a record high of £7.72bn in the quarter ending September 2021, an increase of 4.9% on the previous quarter. While the value of completions in Q3 2021 dropped by 6.1% on Q2, completions still totalled £1.0bn in the quarter, meaning that the value of loan books now stands at more than £5bn for the first time. This represents an increase of 6.8% on the previous quarter and a jump of 11.1% on the same quarter last year.

In addition, average loan-to-value ratios continued to hold at 59.8% in the second quarter, while the value of loans in default fell for the third consecutive quarter, a decrease of 4.1% over the first three months of the year and a fall of 3.6% on the same period a year ago.

In terms of the types of cases where short-term finance is proving to be a key differentiator and delivering solutions which matter, let’s highlight some of the more common scenarios we have come across in 2021.

The age old chain break has remained a familiar source throughout the year and this may well have been exacerbated by the stamp duty holiday, the subsequent extension and the additional pressure being placed on purchases leading up to these deadlines.

We’ve also seen an increase in the number of property professionals taking on refurbishments projects rather than purchasing investment properties which are already completed and ready to go. The thought process behind these is often for such properties to be funded via a buy-to-let mortgage, which is certainly not beyond the realms of possibility. However, many lenders operating in the BTL sector need a greater element of certainty and by that I mean, tenants being lined up to take possession imminently.

As is often the case in scenarios like this, more work is required than initially thought, timeframes elapse, work overruns and costs spiral. All of which can often result in lenders pulling the plug post-offer and borrowers having to turn to short-term finance to bridge the gap until the property is deemed suitable for a future BTL exit.

Speaking of exits, there has also been a surge in cases where investors are looking for an exit from development finance. Often the development has completed but with a delay, so the property hasn’t sold by the time the loan has to be paid back. This is something we continue to see, even amongst experienced developers. We also seen several cases where developers have finished a certain number of units and they want to raise capital against those to fund the next site.

Auctions are also featuring heavily in the business mix as physical auctions are now being able to take place with greater frequency, alongside online ones. In a similar vein to the refurbishment scenario we’ve seen many cases where people have gone to auction and bought an investment property thinking that it only needs some new carpets and a lick of paint. Only then to find that it requires a lot more work than anticipated and a BTL mortgage is inaccessible either due to timeframes or lending policy. This could be for a variety of reasons or something as simple as they realise that they don’t like the property or areas.

I hope this gives some idea of the scenarios we are dealing with on a daily basis and to help identify the types of scenarios where short-term finance could provide the ideal solution for your clients.