Bridging finance is an area of lending that is fast shaking off a legacy reputation. Historically, considered a product of last resort as rates on short-term loans were high and often accompanied by significant fees. But the landscape has changed, with an influx of lenders setting new standards and leading to more competitive pricing and product innovation.
According to the Association of Short Term Lenders, which collates lending data from more than 30 bridging lenders, bridging completions were £2.88bn last year and outstanding bridging loan books were worth nearly £4.5bn. Furthermore, applications for bridging loans were up by more than 11% in 2020 compared to 2019.
So, what is driving the growth in the popularity of bridging finance?
BRIDGING TO THE RESCUE
Bridging can be a useful tool when other avenues have failed, providing a vital lifeline to save transactions and enable clients to move quickly to make the most of new opportunities.
Chain breaks are common currently, often due to changes with lender criteria or in personal circumstances such as furlough and job losses. Losing a buyer at any time is stressful, but particularly in the current environment when so many transactions are rushing to beat the Stamp Duty Land Tax (SDLT) deadline.
In the Budget the government announced that it will extend the temporary increase in the residential SDLT Nil Rate Band to £500,000 until 30 June. And from 1 July, the Nil Rate Band will reduce to £250,000 until 30 September. So, there will be two further deadlines this year for buyers to hit and likely a surge to get transactions across the line. In circumstances where borrowers encounter a chain break, bridging finance may be able to save the onward property transaction.
In addition, a mortgage product that is applied for now is unlikely to complete before the end of June, but the average completion time of a bridging loan is usually much quicker than a standard mortgage, so in the right circumstances, bridging can assist your clients looking to beat the deadline.
NO LONGER A LAST RESORT
However, it is not just stamp duty that is driving demand for bridging – that is a very small part of it. Bridging is no longer a last resort, nowadays most used by savvy investors and business owners who recognise the benefits of fast access to flexible finance as a means of leveraging capital. More clients are discovering the benefits of buying at auction, carrying out a refurbishment and converting large properties to HMOs and multi-units.
Unlike longer term mortgages, the interest on bridging finance is rarely serviced monthly and usually paid upon exit of the loan. This means it can be used to manage cash flow, which makes it an even more useful tool.
Where finance is only needed for a very short time it can even provide a more cost-efficient option. A bridging loan can be in place for as little as three months and rates are often under 0.50% a month. This means that investors commonly use bridging to leverage capital in a way that creates wealth. For example, with refurbishment projects where the cost of the bridge is far less than the increased capital value of the property this results in a net gain for the borrower.
EXIT STRATEGIES ARE KEY
Bridging is an increasingly important tool for any advisor when structuring the optimum finance package for a client, providing a fast and flexible route to financing their objectives.
However, it is still important to choose a lender wisely and the market can appear complex for advisors more used to working in other areas of lending. For advisors who are new to bridging, or want to access additional expertise and lending options, working with a specialist debt advisor can provide peace of mind and make it even easier to deliver innovative bridging solutions to your clients.
The key for any bridging loan is to be clear about the exit strategy. This could be by refinancing onto a longer-term product, the sale of the property, or a combination of both. At Sirius Property Finance, we adhere to some very strong guidelines when advising clients on Bridging loans. For example, we will never recommend a bridging loan to a client if we do not have a clear idea of how they will exit it. It is important to have a robust exit strategy and even a back-up strategy should the first exit plan fail.
Furthermore, due to the crowded and complex nature of the market, we avoid referring a client to a bridging lender with whom we do not already have a strong relationship. This being a key area where we add value to a client’s transaction.
BRIDGING IS NO LONGER A DIRTY WORD
Bridging is no longer a dirty word, but as with all types of real estate debt, its suitability needs to be expertly assessed and a facility only entered into with a clear strategy defined. If you choose to work with Sirius to help your clients to access bridging finance, you can rest assured they will experience the highest standards available in this growing market.
Kimberley Gates, Head of Strategic Partnerships, Sirius Property Finance
As a founder and Managing Director of Sirius Property Finance, Nicholas has spearheaded the growth of the specialist debt advisory service which was launched by The Brightstar Financial Group in 2016.
The Brightstar Financial Group, which includes the Brightstar Financial and Sirius Property Finance brands, was launched in 2011 and has won more than 100 national awards.
Nicholas will continue his role as Managing Director of Sirius Property Finance.
Rob Jupp, Group CEO, at The Brightstar Financial Group, says: “Nick has worked tirelessly to build the Sirius business and it’s only right that he joins Clare, Brad, Will and myself at the top table with our external investors and shareholders. This is an exciting time for The Brightstar Financial Group. In our tenth year, we are engaging in our largest ever investment in technology and using our strong foundations to build for the future.”
Nicholas Christofi, Managing Director at Sirius Property Finance, says: “We wouldn’t have been able to build the team, and experience the growth, that we have at Sirius, without the support of the wider Brightstar Financial Group. I’m delighted to take a role on the Executive Board and looking forward to helping to lead the Group into its exciting next chapter.”
Sirius Property Finance has strengthened its hospitality and care home team with the recruitment of Emma Vanson as a Senior Associate.
Emma, who has three years’ experience arranging finance for trading businesses, will focus on clients who are purchasing or refinancing their business in the hospitality and care home sectors, but she will be on hand to help with the funding requirements for any trading business. As well as experience as a commercial finance advisor, Emma has also worked in the commercial property department of a large surveyor firm.
Emma Vanson, Senior Associate at Sirius Property Finance, said: “I’m really excited to join the fantastic team at Sirius Property Finance. I love helping clients to achieve the finance they need to grow their business, particularly if they have been told by other brokers that their requirements aren’t possible. So, there’s no better place to work than with the specialist debt advisors at Sirius. In this sector, who you know is as important as what you know and we have a vast array of banking contacts, with whom we have strong working relationships.”
Nicholas Christofi, Co-Founder at Sirius Property Finance, says: “Emma is another excellent addition to our growing team of specialist debt advisors and will help us to extend our services in the hospitality and care home sectors. There remain plenty of opportunities for clients in these markets, but expert guidance and advice is more important than ever, and Sirius is well placed to build on its already-strong reputation.”
At the Brightstar Group not only do we celebrate the achievements of our women but we proactively play our part in accelerating gender equality. With the theme for this year being #choosetochallenge we take a look at what we have achieved in 2020/2021.
In HM Treasury’s most recent review of the Women in Finance Charter, we were one of only 14% signatory organisations (approx. 350 in total) to have met or exceeded our Women in Finance targets.
WOMEN ON EXECUTIVE COMMITTEE
WOMEN IN SENIOR MANAGEMENT
WOMEN IN COMBINED MANAGEMENT
Outiside of these targets we also achived the following:
SALES CAPTAINS & CASE MANAGERS IN BRIGHTSTAR
SHORTLIST FOR ROLES IN 2020/2021
100% featured female candidates
We were also very proud to have a number of our women’s contribution to the real estate finance industry recognised in industry awards in 2020:
FINANCIAL REPORTER WOMEN IN FINANCE AWARDS
Spokesperson of the Year – Clare Jupp – Winner
BRITISH SPECIALIST LENDING AWARDS
Rising Star – Kimberley Gates – Winner
BRITISH SPECIALIST LENDING AWARDS
Gina Blagden – Finalist
BRITISH SPECIALIST LENDING AWARDS
Shelley Keevil – Finalist
BRITISH MORTGAGE AWARDS
Rising Star – Kimberley Gates – Finalist
Have you considered Bridging finance to meet the SDLT holiday deadline? Sirius take a look at how and where Bridging can buy valuable time when experiencing chain breaks or processing delays for a property acquisition.
Many borrowers are looking to benefit from the stamp duty holiday offered by the government, saving up to fifteen thousand pounds. A mortgage product that is applied for now is unlikely to complete before the holiday period ends. However, with the average completion time of a bridging loan usually being much quicker than a standard mortgage, in the right circumstances, bridging can assist your clients looking to beat the deadline.
Chain breaks are common currently, often due to changes with lender criteria or in personal circumstances such as furlough and job losses. Losing a buyer at any time is stressful, but particularly whilst trying to beat the stamp duty deadline. Bridging finance may be able to save the onward property transaction, and up to £15k in stamp duty fees. Your client may be able to use bridging finance to complete on an onward purchase now and then use the sale of existing property as the exit strategy.
Whilst the race is on to beat the stamp duty deadline, the heat is also on for the conveyancing sector. For those who wish to start the purchase process from scratch, the traditional mortgage route could be cumbersome given that many are experiencing severe processing delays. In this scenario, bridging finance can be considered to speed up the process, since the time from application to offer can be achieved in as little as a few days, allowing the client to start the conveyancing process sooner.
AUTHOR: Kimberley Gates
Sirius Property Finance has partnered with Miragon Investments and lender, Hilltop Credit Partners, to secure the completion of a £15m development funding facility on a block of 100 apartments in Cambridgeshire.
The loan will fund the development of a block of 100 one- and two-bedroom apartments, with underground parking and cycle storage in Peterborough, Cambridgeshire. The scheme, which is part of the Riverside Generation Project in Fletton Quay, is a brownfield site by the River Nene, in walking distance of Peterborough station.
The scheme is being developed by the Propiteer Group and Sirius worked in partnership with the introducer, Miragon Investments, and the lender, Hilltop Credit Partners, to secure a quick completion.
Frank Martinez, CEO at Miragon Investments, said: “We are really pleased with the outcome of this case. It was a potentially difficult scenario and the team at Sirius were able to secure funding without fuss and within a good timescale that exceeded the client’s expectations. We have now committed a debt pipeline of more than £50m to Sirius Property Finance and we hope that this marks the start of an ongoing and mutually beneficial relationship.”
Robert Heywood, Senior Associate at Sirius Property Finance, said: “This was an excellent example of a big team effort to secure the completion of a large deal in difficult circumstances. There were lots of different elements to this scheme which could have caused a problem, but the team at Miragon Investments, the client and Hilltop Credit Partners were all fantastic and we all worked together in partnership to get it across the line, and in good time. I’m looking forward to working together with Miragon Investments on funding more developments in the future.”
The private rented sector now accounts for 20% of all households, having grown from 2.8 million households in 2007 to 4.5 million household in 2017 – an increase of 63%.
Younger people are more likely to rent privately than older households, according to the ONS, and those in the 25 to 34 years age bracket represent the largest group (35%) of private renters.
However, households in the private rented sector are getting older; between 2007 and 2017, the proportion of people aged 45 to 54 in private rented accommodation increased from 11% to 16% while those aged 16 to 24 dropped from 17% to 12%.
Put simply, the private rented sector is a vital component of this country’s housing stock and the statistics indicate that it is becoming more embedded as an option for people throughout their lives, not just as a stepping-stone for the young.
This trend shows no signs of abating. The impact of the Covid pandemic has increased job uncertainty and wiped out the savings of many potential homebuyers. At the same time, mainstream mortgage lenders have tightened their risk appetite and the supply of high LTV mortgages has been limited, driving up the cost of borrowing. Even amidst the uncertainty of the current environment, it is safe to assume that more people will continue to rent for longer, creating an even stronger rental market.
So, it is perhaps unsurprising that despite the onslaught of taxation and regulatory changes property investors have had to endure in recent years, as well as the difficulties of collecting rent during the pandemic, the number of UK landlords has hit a record high of 2.7m. This is according to London based estate agency, Ludlow Thompson, which says the number of buy to let landlords has increased by 49% compared to 2015, when there were 1.8m.
Where there is strong demand, smart investors will find a way to supply it and recently the build to rent sector has grown in popularity as a way of doing just this.
The rise of build to rent has not always been due to choice. Many developers have found that they have been unable to sell some stock in recent years and so have retained properties and refinanced onto three- to five-year mortgage in order to stabilise their assets.
There are many advantages to doing this. By refinancing onto a term loan, developers are able to lower their funding costs and by letting the properties they can earn an income on the asset while waiting for the most opportune to time to sell. They may even choose to hold onto the property for a number of years before disposing of the asset if it delivers a reliable income and the capital value shows growth.
What started as an accidental trend has become amplified by the pandemic. With so much uncertainty, developers are planning for multiple different exit strategies so that they are prepared for different circumstances, and many are now entering projects with build to rent considered as their primary exit strategy.
Although it is sensible for developers to maintain a flexible approach and keep their options open when it comes to an exit, identifying build to rent as the primary strategy often has a significant impact on the design of a scheme. For, example, if developers intend to let the properties from the outset they will be more inclined to opt for lower maintenance, harder wearing specifications.
Covid has also had an impact on the types of property that are in demand by both buyers and renters, according to Rightmove, which says that apartments have fallen out of favour with property hunters, who are seeking larger premises with outdoor space, often outside of large cities and towns – and this will also be a big consideration for investors.
There are likely to be other trends that come to the fore as build to rent continues to grow in popularity. For example, for many developers it makes more sense from a tax and management perspective, to build portfolios in a company structure rather than their own name.
Lettings are unlikely to be restricted to longer term tenants renting on an AST. More investors are choosing to operate their properties as short term lettings businesses, particularly in popular areas for staycations. The pandemic forced most holiday makers to remain in the UK in 2020, and in 2021 holiday lets in this country are likely to remain in high demand. There are many different considerations to running a holiday let compared to a buy to let, but they can deliver superior returns and are treated more favourably from a tax perspective, as a trading business rather than a rental property. Short term lets present another opportunity for build to rent, with developers choosing popular seaside destinations and including more luxurious specifications to capture the holiday let market.
And, as the sector matures, there will be a growing remortgage market for investors who have developed properties to let. Despite recent turbulence, rates remain historically low and developers can continue to maximise the return they earn from rental income, by making the most of those low rates and reducing their finance costs.
2021 still holds many unanswered questions, but it also presents many opportunities for investors. The key to making the most of those opportunities is securing professional, specialist and bespoke advice.
AUTHOR: Nicholas Christofi
Sirius advisor Charlotte Stanford MD Nicholas Chrostofi orchestrated this complex £7.84m deal to completion meeting a strict ‘pre-Christmas’ deadline. A great example of a solution being masterfully executed by professional teams pulling together.
The client needed to refinance a recently completed development of a 94 unit student block to retain the asset. The existing debt included mezzanine finance and totalled over 70% LTV. As the scheme had only very recently completed during Covid-19 lockdown, the volume of student occupation was lower than anticipate thus they needed the bank to lend against anticipated post-Covid-19 occupancy. Sirius worked closely with the valuer and lender to support the viability of this and were able to secure a first charge commercial mortgage of £7.84 m for the freehold.
Risk is something that is always present in all of our lives – you take a risk every time you cross the road, for example. But, at a time of a global pandemic, we are all much more acutely aware of risk.
For lenders, the same is true of credit risk. In an environment of uncertainty, lenders are more watchful regarding the risk they take on and tend to be more cautious, and this is before you start to consider the dramatic impact of the pandemic on business and personal finances.
Mainstream banks are built to deliver lending at high volumes, with largely automated systems and process. However, in an environment of heightened risk this approach can lack the flexibility required to assist borrowers with increasingly complex needs.
In recent years we have seen a rise in self-employed workers, and people with irregular income or multiple income streams. There has been an increase in later life borrowers for whom traditional maximum age criteria is no longer appropriate, and there is a growing number of people with poor credit history and increasing debt. Set against the current backdrop, it can be increasingly difficult for customers in these segments to secure borrowing as, although they may not necessarily consider themselves to be high risk, they often fall outside the mainstream lending criteria.
So, what does this mean for the future of the lending landscape?
Fortunately, there continues to be a growing specialist lending market, with lenders that are able to take a diverse and considered approach to risk to deliver lending to customers who fall outside of the requirements of the mainstream. Throughout Covid-19, lenders in this part of the market have remained proactive, flexible and willing to find solutions for brokers and their clients. Much like the global financial crash, when many lenders were able to take market share and develop a loyal client base, these lenders have continued to work with consistency and clarity throughout a very difficult period.
One thing that is certain is that access to capital is hugely important for people now and will continue to be so as we move into next year. There continues to be significant demand for finance on HMOs and student lets, portfolio lending and expat lending. Yet, with so much on their plates currently, the rate at which mainstream lenders are entering niche markets such as bridging is relatively slow. So, there are plenty of unsaturated markets where challengers can grow, and we are still seeing expansion of existing lenders into new sectors and the launch of new entrants. This creates a more competitive market and eventually better product choice, increased flexibility, and more favourable terms – which are all good news for borrowers.
One of the challenges to the growth of the specialist market is that very few of the lenders in this sector are household names and so there is a job to be done in raising awareness of the options and opportunities, and also instilling confidence amongst customers.
I spend a lot of my time raising awareness amongst my network of developers, investors, and property professionals about the benefits of turning to specialist options. At Sirius Property Finance, we see our role as advisors as pivotal in this growth of the specialist market. We work in trusted relationships with our clients and so our recommendations can give them greater confidence to utilise other products aside from the offerings of the big household names. This is not to say that we don’t place deals with the high street banks – for more straight-forward deals they certainly still have their place, but there are alternative options when cases are more interesting.
We take great pride in helping customers to realise their property goals and achieve the seemingly unachievable – and are often able to place borrowers with lenders where they had lost hope after having had their applications refused by several others before. Often the key to a successful application is ensuring that a client has a robust and reasonable exit strategy and so we work hard to get under the skin of a deal, which can often require a more artistic approach to structuring and may include multiple lenders or mezzanine finance to provide a bespoke package that is best suited to the client’s needs.
Relationships are key in the specialist sector. This is human element is arguably lacking in the more automated mainstream lending world, but in a market where lenders have the capacity to make a judgement call on an application, good lines of communication and trust are vital. As Head of Strategic Partnerships for Sirius, I see daily the trust imparted between professional parties along the entire chain of a property transaction to get deals across the line.
The specialist sector was growing before Covid, and the disruption caused by the pandemic is likely to serve as a catalyst for further growth. This is good news for customers who have previously been excluded from the mortgage market as it leads to a more inclusive environment. Responsible lending remains crucial to the sustainable growth of the market and expert debt advisors, with strong experience and relationships in the sector are the key to ensuring that customers are placed with the right lending solutions.
AUTHOR: Kimberley Gates, Head of Strategic Partnerships
Group CEO Rob Jupp wins the 2020 British Mortgage Award for ‘Business Leader: Specialist Distribution. Rob has continued to be a beacon of positivity, reason & inspiration for the entire team this year. He works tirelessly to raise industry standards, educate & deliver for our clients so could not be more deserving of this award.