Bridging finance is typically seen as short-term lending for asset rich and cash flow poor individuals looking to execute a project quickly. This means that traditional lending methods fall short of their needs.
Although Bridging finance was established in the 1960s, this lending method became far more popular, and even a stand-alone industry, after the UK property crash in 2008. In 2020, the bridging finance market was worth an estimated £3 Billion and is expected to continue to grow in 2021 and beyond.
So, why is bridging finance becoming more mainstream?
During the first quarter of 2021, the UK bridging sector saw a huge shift in how bridging loans were used. In particular, 1 in 5 bridges during this period was used to break a chain; this trend continued into the second quarter with 21% of bridging loans still used for chain breaking.[1]
What do these changes ultimately mean?
The Managing Director of JDH Financial Guidance, Jonathan Heath believes that “This shows a huge shift towards bridging finance becoming a mainstream form of lending within the property sector, not just for developers or buy-to-let landlords but also for the man on the street too.”
As bridging finance rates drop to some of the lowest the industry has previously seen, the draw away from traditional finance methods has become more and more appealing to everyday borrowers. Now more than ever bridging finance has become a real alternative form of lending which is ideally placed before the time consuming and complex application for traditional financing methods as Bridging loans offer faster access to funds than a buy to let or commercial mortgage. Where investors are buying at auction or renovating a property, this type of funding is likely to be high on their agenda.’ [2]
With the introduction of the stamp duty holiday in July 2020[3] the urge to buy a property in the UK increased significantly and the fear of missing out (FOMO) for home buyers kicked in, which may have contributed to the increase in demand for bridging finance. Bridging finance would allow homeowners to break chains quickly, experience a hassle-free and quick application process and allow them to take advantage of the stamp duty holiday in a timely fashion. Once the purchase is complete with the help of the bridging loan, the homeowner has the time and a less pressured environment to go through a traditional finance or mortgage lender.
Given this example, as banks continue to tighten their already strict lending criteria, a shift away from traditional finance to securing a dream home may see a bridge first and finance later strategy for homeowners across the UK for years to come.
JDH Financial Guidance has seen this as an opportunity to provide an investment structure for High-Net-Worth Individuals (HNWI) and Sophisticated Investors who are looking to diversify returns within the property sector. As the bridging market becomes far more popular for developers, buy-to-let landlords and homebuyers, the demand for capital for these types of loans could increase. This would create even more opportunities for investors to provide capital for these types of loans which as an industry are secured against property, which is a known and loved asset class. Unlike many property investments, the simplicity and lending demand allows for a fixed rate of return when providing investments in the bridging finance space.
With a goal to raise an additional £24 million over the next 18 months to further increase its reach into the bridging finance market, JDH Financial feels it is in a strong position to become a significant name within the bridging finance market over the next few years.
JDH financial have over 30 years of experience in the access to finance market within the property sector and have had family values since its inception and continues to be a family-run business to this day.
Find out more about JDH; www.jdhfinacial.co.uk
[1] https://www.bridgingtrends.com/
[2] https://www.commercialtrust.co.uk/news/2707-why-are-bridging-loans-set-to-boom-in-2021/
[3] https://www.gov.uk/guidance/stamp-duty-land-tax-temporary-reduced-rates
