Reasons for the recent growth in bridging finance
There has been a significant increase in the demand for bridging finance. Since January 2010 there has been an increase of a little over 50 per cent for bridging lending.
The increase has been due to a number of reasons. Due to their flexible underwriting (in that many bridging lenders don’t require income confirmation or credit checks), bridging loans have traditionally been used as a method of raising money for short periods of time or to raise money quickly. They have also been popular when funds are required for renovation, expansion and restoration because many bridging lenders will provide bridging loans secured on property that is in a poor state of repair.
This flexible underwriting has made bridging loans useful when in the past they would not have been required. Since the credit crunch the banks have tightened their lending criteria and consequently are unable to provide finance facilities that previously may have been available. These previous facilities may have been useful to in particular commercial customers who may have been able to secure commercial mortgage facilities quickly or on property that may need a little repair. This tighter underwriting has led to a growth in commercial bridging loans being taken out where the banks can no longer help.
Similarly the growth in the demand for rental properties has seen more people wanting to invest in residential rental properties. To secure the best deals properties often need to be purchased quickly, and quite often they can be in a poor state of repair. When the buy to let mortgage providers are unable to lend due to the condition of the property a bridging loan is often the only option, and can of course be in place quickly. Once the repair work has been carried out and for many lenders at least 6 months has passed since purchasing the property, the rental property can be remortgaged with a commercial or buy to let mortgage in order to repay the bridging loan and sometimes if required raise additional funds to help fund the next project.
Since bridging finance is becoming increasingly popular by landlords looking to acquire and restore property, and there is a high demand for rental property, it is clear to see why this has caused a growth in bridging lending. If is also probably fair to assume that due to finance being unavailable through their traditional sources due to tighter underwriting, some companies and individuals will raise the finance that they require through alternative methods, which may often be bridging finance.