Bridging Finance - a vital tool for property investors by Tomer Aboody

Friday, 4 November 2016

The property world moves fast - particularly when it comes to investment properties - and fast funding is increasingly crucial when pitted against an ever-slowing mortgage environment.

From clinching a fantastic deal, to buying at auction within a 28-day timeframe, the need for quick access to finance is clear, and bridging loans have always been there for property investors to fill a liquidity gap.

Furthermore, investors often target properties that a mainstream mortgage lender would not look too kindly upon. Properties deemed uninhabitable by a high street lender - perhaps because they don’t have a kitchen or a bathroom in their current state - are hugely attractive to investors. Often on the market for rock-bottom prices, they allow buyers to purchase a bargain, bring it up to a decent standard and then let it out at market value, achieving a strong rental yield.

When a mortgage lender turns a buyer away because a property is not up to scratch, bridging lenders are on hand to provide the cash needed to complete the purchase. The buyer can then conduct the necessary works and refinance the bridging loan with a mortgage from a mainstream buy-to-let lender.

But while short-term finance has always been useful to investors, it is likely to become even more important going forward, thanks to a series of changes being introduced surrounding the way buy-to-let mortgages are underwritten.

It is news to no one that the buy-to-let sector has been in the Government’s sights in recent years. From the proposed cuts to landlord tax relief (set to come into play in April 2017) to leaving landlords out of cuts to Capital Gains Tax and, of course, hiking Stamp Duty on second homes and buy-to-lets, the market is under increasing pressure.

Last month, in a further blow to the sector, the Prudential Regulation Authority (PRA) announced tighter controls for buy-to-let lending. The new rules will see lenders impose tougher stress testing for investors and stricter affordability checks.

Undoubtedly there will be landlords who don’t meet the new criteria and as a result are unable to buy, while for those that do, the process will be much more time consuming.

Bridging finance is fast, flexible and reliable, and with rates more competitive than ever, demand is expected to soar. Expect big things from bridging in 2017.

Tomer Aboody is a founding director of MTF. With over 20 years’ experience in the property market, both in the UK and abroad, he brings first-hand understanding to the property finance sector. Tomer is the driving force behind MTF’s asset-based lending approach and commonsense attitude to underwriting a bridging loan.