There was a boom in bridging loans in the autumn due to the contraction and shifts in the buy-to-let market as a result of the budget.
Brokers report that the number of bridging loans being taken out increased in November as rates for the products also fell.
Bridge loans are short-term secured loans taken out by property owners who need cash to cover a shortfall.
For example, they are often used by homeowners who are purchasing another home, but have not yet sold their current home. The money can be used to literally “bridge” the gap while they wait to sell their property, and it can be paid off as the money becomes available.
Adam Stiles, director of Helix financial partners Speaking to the Newspage agency, he explained that some of his clients were using them due to the ongoing cost of living crisis. He said: “They use bridging when they have found the perfect home, but have not yet sold their own home and do not want to lose out on the further purchase.”
And according to other brokers, it’s not just the rising cost of living that is driving demand for bridging finance over the past month. Many also hope that interest rates will fall in the spring.
Mark Dyason, owner of Mortgage Advice Edinburgh said via the Newspage agency: “There is a groundswell of demand for bridging between downsizing who want to move before they sell.
“These people want to move at a pace that suits them and want to sell in the spring, when expected interest rate cuts will boost confidence and increase demand and the prices they can achieve for their existing properties.”
Professional landlords diversify
But it is also professional landlords who are driving the boom. A number of amateur landlords decided to sell after the Autumn Budget due to extra taxes on purchases for rental and second homes.
These properties are purchased by professional real estate investors and they use bridging loans for this.
Graham Cox, director of Bridging hub also spoke via Newspage. He says: “We are currently seeing a lot of demand for bridging loans. November was exceptionally busy, as many amateur landlords left the market following the budget.
“In addition to sharply rising mortgage rates and a less generous tax regime, the increase in the buy-to-let stamp duty surcharge from 3% to 5% was the final straw for many.
“This offers enormous opportunities for professional landlords, who buy rental properties below market value from distressed sellers. Commercial to residential conversions under permitted development are also becoming increasingly popular.
Many also use their bridge financing to diversify Houses with multiple occupancy (HMO). This concerns homes that have been divided into smaller homes with shared facilities, such as student housing.
Harpen Garcha, director of Brooklyn’s Financial via Newspage said: “Seasoned investors are actively seeking below-market deals where they can add value, often using bridge loans for their speed and flexibility, especially when properties require work.
“Many investors are now focusing on higher return projects, such as the conversion of homes into healthcare facilities and the development of commercial to residential projects under permitted development.”