Property Investors Using Bridging Finance To Renovate Properties

Property Investors Using Bridging Finance To Renovate Properties

£640 Million (GBP) Bridging Finance Used By

Property Investors In Just 12 Months

There is a fresh warning being issued to property investors that the current UK financial system is not set up to help them develop or renovate property because mortgage lenders are not prepared to take the risk.

Property investors are finding it virtually impossible to secure a mortgage from mainstream mortgage lenders for a property that requires renovation or refurbishment, especially if the property was previously used for commercial purposes, e.g it was previously an office or a flat and requires alterations to allow the change of use from commercial to residential, or it is a property that does not have an existing bathroom or kitchen.

As has already been reported by Spotlight over recent months, there are promising signs that the UK’s economic recovery is building in strength, thanks to the implementation of the Government’s financial initiatives such as the Funding for Lending scheme, designed to encourage business and the Help-To-Buy scheme, which was launched at the start of the year in an effort to help more first time buyers to get onto the property ladder. The second phase of the Help-To-Buy scheme began taking applications on the 1st October, 3 months before the Government begin underwriting the mortgage loans, and the move is supposed to encourage more people to buy property, boosting the economy, increasing property prices and putting the UK in a strong financial position.

This Government initiatives may not be all good news for UK private rented sector landlords and property investors as they are exempt from applying, however, Buy-To-Let mortgage finance is now more available than at any time since the financial crisis hit the property market and the UK economy back in 2008, so there is reason for hope.

However, many cash strapped property investors are being forced to take out more and more short-term bridging loans in order to cover the costs associated with renovating and refurbishment of newly acquired properties to bring them up to a habitable rental standard, because they cannot get enough mortgage finance to cover the cost of the works. This is due to the strict lending criteria imposed by mortgage lenders and property projects that require work are considered to be unworthy of securing finance upon.

UK PRS landlords accessed around £640 Million (GBP) of bridging loan finance between September 2012 and September 2013.

Duncan Kreeger of West One Loans said “Landlords don’t just need mortgages. To expand portfolios, landlords are increasingly converting properties from other uses or from a dilapidated state. That’s vital for a growing rental market and it’s a huge economic opportunity. But this type of lending is not supported by most mortgage lenders. There’s a serious gap in the financial system because traditional mortgages were not devised with this sort of lending in mind and since the financial crisis, the criteria demanding for granting a loan has been tightened significantly. As a result, it is practically impossible to secure a mortgage from a mainstream high street mortgage lender on a property that was previously an office or a flat or that does not have a bathroom. Therefore, increasing numbers of UK landlords are opting for short-term bridging loans to finance the works required to turn unconventional spaces into properties that are suitable for letting”.

In July and August 2013, bridging loans for buy-to-let purposes totalled £194 Million (GBP), a record high for a two-month period.

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