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Bridging finance industry is buoyant according to new survey

The bridging finance industry is in promising shape and continues to flourish. That’s the conclusion of Gareth Lewis, commercial director at MT Finance (mtf) after a new survey showed a spike in demand.

The desire for bridging loans increased in the third quarter of 2018, despite the traditional summer slowdown, according to the latest Broker Sentiment Survey conducted by bridging lender mtf.

Demand for bridging finance grew in the third quarter of 2018, with 48 per cent of brokers experiencing a rise in bridging loan volume, up from 38 per cent in the second quarter of 2018. And just 17 per cent of brokers did not experience a rise in bridging loan volume in Q3 2018.

Feedback from brokers points to a strong need for specialist lending but the geographical spread of bridging loan demand narrowed in the third quarter the year, with demand in the North West, South West and Scotland dropping from the previous quarter.

The South East saw the biggest demand for bridging loans in the UK at 48 per cent, up from 30 per cent in Q2. The second highest area of demand was London, at 41 per cent.

For the third consecutive quarter, funding development projects was the most popular reason for taking out a bridging loan at 31 per cent. Business purposes was the second most popular reason at 21 per cent, up from 16 per cent in the second quarter of 2018.

However, 66 per cent of brokers said the bridging loan process is longer than it was 12 months ago, while the majority, some 48 per cent, suggesting three to four weeks was the average length to complete a bridging loan. Meanwhile, some 21 per cent indicated that bridging loan cases generally took two to three weeks to complete. Of 113 brokers polled, 61 per cent blamed solicitors as the main reason for delays, followed by the valuer at 16 per cent.

And Lewis said: “The bridging finance industry is in promising shape and demand continues to grow, particularly from property investors looking to fund development projects in London and the South East.

“However, speed has always been a vital element in bridging finance and it is essential we don’t lose sight of this. It is important that all parties involved- the lender, lawyer, valuer and the broker, move swiftly to complete to the borrower’s schedule.

“It is important we stay true to the fundamentals of bridging: providing borrowers with fast access to the capital they need in a responsible and sustainable way and not fall in to the more traditional computer banking model.”

Source: Bridging Directory

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Bridging can offer the solution to HMO compliance

The new Houses of Multiple Occupation (HMO) rules came into effect last week, which means any landlords whose HMO properties are not up to scratch in terms of the minimum room sizes and amenities could face serious penalties.

The new rules came into play on October 1 and there is no grace period, and the consequences for non-compliance can be severe: up to a £30,000 fine, a rent repayment order, a banning order and even a criminal record.

For those who simply need to get a licence because, under the new rules, their property is now defined as an HMO, the process is fairly simple.

But for those landlords who need to make structural alterations or improvements to safety standards to comply with the new minimum room sizes in HMOs, compliance is not so straightforward.

There are only a handful of lenders that lend on HMOs and the ones that do will be more used dealing with experienced professional landlords so will expect the property to have the correct licensing and already meet the new minimum bedroom size guidelines before they will consider lending. This is obviously no good for landlords who need an injection of cash in order to fund changes to their properties to ensure they comply with the new rules.

This is where bridging loans can offer a solution.

We have already seen many people entering the HMO market, looking to purchase a large detached property in order to convert it into single living accommodation units with shared facilities and communal areas.

In these situations, a bridging loan is able to bridge the value of the funds needed to improve the property and make it suitable for owner occupation. We typically lend on a term of six months, obviously ensuring the client has an exit strategy in place – in this case, it will generally be a buy to let or commercial mortgage.

In most cases, the value if the property will not generally be enhanced, but the rental value will go up as the property becomes a fully licenced HMO with potential for multiple rental incomes.

And while we expect to see this trend continue, there could now be a spike in HMO lending as landlords scramble to ensure their properties, already defined and licenced as HMOs – meet the new regulations.

Source: Mortgage Introducer

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No deal Brexit could push up bridging rates

If there is a no deal Brexit bridging rates could become more expensive, Trevor Williams, professor at Derby University and independent economic consultant has predicted.

He also forecast that prices could drop by between 10-12% without government policy changes.

Williams said: “Bridging loans could become more expensive – as the risk is greater they [lenders] are likely to want better returns for it.”

He predicted a tougher environment for investors.

He added: “Most people trying to sell could see a sharp drop in prices offered; below what they were expecting.

“If they had financial commitments on the basis of those properties being sold they are going to be caught short.

“For those who don’t have overdraft facilities already in place they may have a cause to use them because they can’t sell their properties.

“If you haven’t got an overdraft facility you may need to from your established lender, or go to a bridger to cover in the short-term.

“There may be more claims for those with insurance against rent.”

Source: Mortgage Introducer