The rise of bridging finance for refurbishment work
In the second quarter of 2017, the main reason for borrowers requiring bridging finance was for refurbishments. In the second half of 2017, the primary reason for bridging loans were mortgage delays, but a large proportion of loans were used for refurbishment.
Many people are self-building property and find that bridging loans are flexible way to finance construction. Landlords use bridging loans for building work that adds value to their properties or upgrades them so that they can charge higher rents.
Bridging finance funds can be accessed quickly. They are short-term loans, with interest only charged during the loan period. Many refurbishment projects will add value to the property.
High loan-to-value loans can be raised compared to a mortgage, especially if the borrower has a history with the lender who knows that the borrower has experience in building development.
There are risks involved in refurbishment projects. Work can take longer to complete than planned, or there can be unexpected construction issues that increase the cost of the project. If the project cost rises too much, the developer could run out of funds. Many borrowers rely on the sale of the property after refurbishment to repay the loan. This is fine if the sale of the property completed before the loan period ends, otherwise, extra interest and fees may be charged if the loan is repaid late.
If the borrower does proper due diligence on the project, risks can be minimised. Bridging finance for refurbishment purposes will probably continue to grow in 2018.