The unregulated bridging finance sector has traditionally catered to three primary needs: developer exit strategies, refurbishment projects, and standard bridging loans.
Each serves a distinct purpose:
● Developer Exit Strategies: These loans assist developers in refinancing unsold stock, providing additional time to market properties without the pressure of impending loan maturities.
● Refurbishment Projects: Often considered mini-developments, these involve the renovation of individual properties to enhance value, either for resale or to retain as rental assets.
● Standard Bridging Loans: These offer borrowers the necessary time to resolve issues such as property sales delays or securing long-term financing solutions.
Over the past 18 months, the bridging market has experienced significant shifts. The EY UK Bridging Market Survey 2024 indicates that 67% of bridging firms anticipate market growth, reflecting a positive outlook despite recent challenges.
DEVELOPER EXIT STRATEGIES
The past year and a half saw a surge in developer exit loans, primarily due to a slowdown in new-build sales. However, with an uptick in the sales rate within the new-build market, the reliance on such exit strategies is expected to decline. Developers are now more confident in selling their stock within standard timeframes, reducing the necessity for interim refinancing solutions.
REFURBISHMENT PROJECTS
Renewed confidence in the property market has heightened interest in refurbishment projects. Investors are increasingly engaging in “tart and turn” strategies – quick renovations aimed at enhancing property appeal for resale. Additionally, the “refurb, rent, and refinance” model is gaining traction, where properties are upgraded, leased out, and subsequently refinanced based on improved valuations. These approaches not only add value but also align with the market’s demand for quality rental accommodations.
STANDARD BRIDGING LOANS
The demand for standard bridging loans remains robust, as borrowers seek flexibility to navigate various financial scenarios. Whether addressing chain breaks in property transactions or awaiting longer-term financing approvals, these loans provide essential short-term solutions.
IMPLICATIONS FOR MORTGAGE BROKERS
For mortgage brokers, these evolving dynamics present both challenges and opportunities. The anticipated decline in developer exit loans necessitates a strategic pivot towards refurbishment financing and standard bridging solutions. Brokers should be prepared to guide clients through the nuances of refurbishment projects, including cost assessments, potential returns, and suitable financing options.
Furthermore, staying informed about market trends and lender offerings is crucial. The EY survey highlights that 80% of lenders are considering investing in technology over the next 12 months, aiming to streamline operations and enhance service delivery.
In conclusion, the unregulated bridging market is poised for growth, with refurbishment projects and standard bridging loans taking centre stage. Mortgage brokers play a pivotal role in navigating this landscape, ensuring clients capitalise on emerging opportunities while effectively managing associated risks.
