Getting comfortable with larger lending

By Thomas Cantor, Head of Bridging Finance, West One Loans.

Getting comfortable with larger lending

Of all the trends we have seen in 2021 that will extend into 2022, one of the most significant has to be the rise in demand for large bridging loans. Whilst these loans are not a daily occurrence for most brokers and do require more time and effort, they are not something that brokers should shy away from.

Brokers should not be put off if they haven't dealt with large bridging cases before as competent lenders are always willing to guide them through any complexities. Large loans, by their very nature, are usually complex so lenders and brokers need to work together to get the best outcome for their clients.

Different lenders have different definitions of what a large bridging loan might be but generally, it will be above £1m. At West One we will lend up to £30m but we've lent more and will consider each case on its own merits.

When working on high value loans, it is imperative that the BDMs, and especially the underwriters, are highly experienced and can work with the intermediary and client to structure the loan around the specific requirements. When cases like this arise, customer service is key. With such huge amounts of money involved and complex circumstances, it's easy to see that trust between all three parties is crucial to success. 

It's not just the complex nature of large bridging loans that brokers should be aware of but also the funding lines of the lender. Knowing that a lender has substantial financial backing to service large loans is crucial as you don't want the deal falling through because the finance required is not available.

Why take out a large bridging loan?

We have seen a rise in multi-million-pound bridging cases in the past 24 months. There have been several contributing factors from the stamp duty holiday, property market surges and increased investment from overseas. In addition to this, there will always be a core set of reasons behind large loan requirements.

Development exits

Bridging is often used for development exit finance where property developers use the bridge to repay a development finance loan. This gives them breathing space to either finish the build or find buyers.

In the past 12 months, we have seen numerous reports of labour shortages due to the pandemic and the impact of Brexit, this coupled with materials shortages has had a knock-on effect on deadlines on development sites. In situations where developer's deadlines have been missed a common exit route is to refinance onto a bridging loan to avoid potential fees. With large development sites comes the need for large bridging refinance cases driving the loan sizes into the millions.

Property investment

The impact of the stamp duty tax relief between July 2020 and September 2021 saw the UK property market boom. After the introduction of the stamp duty holiday in July 2020, house sales rose by 15.6% in August increasing to 21.3% in September. Whilst the majority of this was driven by UK homeowners, first-time buyers and UK property investors, a large percentage of purchases came from international investors looking to expand property portfolios while saving money.

The increase in investment properties has certainly driven up the average loan size. Therefore, those looking to grow an existing portfolio may need a bridging loan to cover the cost of buying multiple properties at once or to finance when cash flow is tight.

The fluctuating housing market 

The recent boom in the property market is set to continue into 2022. The latest figures show buyer enquiries are up 15% and house prices rose 9.8% in 2021 which in turn sees the need for increased borrowing when the market is so competitive. For those looking to finance luxury properties and London based accommodation the need for large million-pound funding is necessary.

Conversion from commercial to semi-commercial  

Over the past 18 months, there have been more commercial property conversions into semi-commercial facilities. Developers have been taking advantage of the drop in commercial property prices due to the impact of covid and capitalising on the demand for residential property and housing shortage. The nature of these deals and the cost associated have driven up the need for large bridging loans for heavy refurb and conversion developments.

If clients approach brokers for any of the above reasons, look upon this as a great opportunity to explore how you can help. Don't be afraid to speak to lenders who will be more than happy to talk you through options.