A surge in bridging and specialist finance is expected when coronavirus settles, NE Connected is told.
Bridging is a form of non-bank finance which has gained momentum in recent years as an alternative to getting mortgages from your local high street bank, who have become increasingly restrictive since the 2008 credit crunch.
Bridging finance is often used by property developers and investors who are looking to complete on a property quickly, either purchased at an auction or looking to beat another person to the deal. Rather than go through the lengthy application form of a mortgage and face potential rejection, bridging is seen as a quick funding solution and can offer more flexible terms for people with different credit status and financial backgrounds.
However, as the country still faces lockdown measures under coronavirus and mortgage lenders have agreed to withstand any existing offers for a further 3 months, the market suggests that banks are going to be increasingly restrictive with who they lend to post coronavirus.
Dan Kettle of Octagon Capital explained: “Bridging finance offers a viable source of funding for people who have been turned down by their banks or looking to escape property chains. Banks have stated quite clearly that their criteria will be very strict following covid-19 – and this will undoubtedly give way to bridging finance and people looking to move home or buy a property under a tight deadline.”
“Beyond this, we may see developers and businesses looking to get construction projects under way that had been halted due to the lockdown measures, powering an increase in people looking for mezzanine finance and development finance too.”
Over the last 2 months of the coronavirus lockdown, around 60 of the bridging lenders that exist in the UK have been unable to offer funding, unless the project had already started beforehand. Companies were restricted in getting information about properties without being able to do site visits or carry out property auctions. In addition, many faced uncertainty following the extent of lockdown or the economic ramifications.
Kettle continues: “For those lenders that have annual funding targets and a desire to stay in business, they should be very proactively looking to fund in Q4 of 2020 – hence we should not only see a spike in demand for bridging, but also a surge in supply of funding from lenders too. We also have a number of housebuilders getting back to work and looking to generate income. So all signs are pointing towards an increase in more property funding, deals and developments too.”