Voltaire Financial | Property Finance

Short-term property finance comes of age

10/02/2015 | by Andrew Hosford

Andrew Hosford - Head of Bridging, Voltaire BridgingWith less than a hundred days until the General Election the politicians have begun their campaigning in earnest and it has been suggested by some that, because of a possible change of government, this could be the reason for a surge in activity levels in the property market. As the saying goes: "uncertainty creates opportunity". While this may be true, there must surely be more to the rapid start to the year than educated gambling?

Whatever the cause, in the first few weeks of 2015 there has certainly been an upsurge in the levels of interest expressed in short-term finance for real estate transactions as developers, investors and entrepreneurs look to get deals done quickly. This follows on from a very active 2014 which saw the short-term bridging market responsible for over £2billion of lending in the UK.

It's a very impressive figure particularly given that a lot of property professionals would still class bridging as a bit of a dirty word, full of expensive monthly interest rates and secondary asset classes. However, we are seeing short-term finance being used in a variety of creative ways to assist many property professionals who need to find solutions to tricky situations.

What we see at Voltaire Bridging

Voltaire Bridging's typical type of deal has been where a purchaser needs to move quickly to secure a property, or requires short-term finance to purchase a site while they secure planning permission to then develop a site. While such transactions still make up a large part of our work we are seeing a rise in development take-out finance, where the client has built a property, maybe using funds from a development lender, who requires their money back at the end of the term. This often means the borrower would have to sell quickly, and possibly for a price that is under what they believe could truly be achieved. By using short-term finance we have seen purchasers able to buy 6-12 months additional time, allowing them to sell at the best price and maximise development profit.

Commercial finance

We are also seeing a number of cases, particularly with commercial assets, where there are tenants on short leases that do not fit a high street bank's lending criteria. In a recent case a property was let to three tenants on leases that end in early 2017. The landlord originally purchased it with his own cash just over a year ago and was able to buy the building very well at around £1m under its true market value. He had planned to work up a planning application to convert it into a mixed-use residential and retail scheme, increasing the value of the property in the process. However, wanting to release some equity from the property to enable him to be able to invest in other projects, he found that the short leases prevent him from securing a facility with a traditional lender. However a three-year short-term facility was secured that enabled him to release the equity he needed, with the current income from the tenancies more than covering the cost of the facility.

This type of equity release deal, where there is a clear and realistic plan, is something that the bridging lenders are becoming more and more comfortable with. It allows the borrower to become liquid, or more liquid, and, as they have effectively become cash buyers, capitalise on other investment opportunities.

Short-term bridging growth

The growth in interest in short-term bridging finance and the way it can be used has led to lenders releasing new products to the market in addition to seeing their funding lines grow and become more efficient. This, along with general competition between lenders, has created an exciting marketplace where savvy developers and investors, being carefully advised, will be able to take full advantage of 2015.

Regardless of what happens with the election, the short-term bridging market looks set to grow and develop further and so lending volumes will no doubt eclipse those of 2014 as the key lenders widen their lending criteria. Full on development lending appears to be the next step for bridging lenders, pushing on from the heavy refurbishment products that a number already offer. This will surely be a positive step.

To conclude

Ignoring the negative opinions from some property professionals about the bridging and short-term market, the increasing flexibility in products offered, combined with competitive pricing means that it is becoming a more and more important source of debt for the property market. Perhaps 2015 will be the year that the bridging finance sector finally eradicates its image of expensive, last ditch finance and emerges as a major part of the property lending market.


© 2015 Voltaire Bridging - "Defining Different"

Voltaire Bridging - a member of the Assocation of Bridging Professionals.