Do you remember when a bridging loan was just that, a loan for 3 – 6 months for a homeowner until something more permanent was available or the property was sold? Well, that’s the past and today bridging can be for residential investments, shops, offices, factories and more and some bridging companies also provide residential development finance, loans to corporate borrowers including off-shore companies; so what next?
First, there will more use of Bridge to Term, the opportunity to remain with a bridging lender for three or five years after the project is completed and the income is stabilised, so that the asset can be sold at maximum value or a long-term lender can be satisfied there is sufficient regular income to satisfy debt service requirements. This generally applies to student housing, HMOs and serviced apartment but is particularly relevant to hotels where it is usual for the property to be held for up to three years before being sold. It also suits residential developers seeking to exit expensive development finance and to retain all or part of the project as an investment.
This strategy reduces the cost of borrowing as following completion of the construction of the property or its improvements, most of the interest on the loan will be serviced from rental income which will be at a lower rate than for the bridging loan or development finance. Further, this avoids the need to refinance and the resultant delays and the related legal costs. Possibly the lender will wish to refresh the valuation but there should not be much else and, of course, a relationship will have been established with the lender making it far easier to transact the new arrangements.
Not far over the horizon, bridging lenders will offer overdrafts and revolving loans. In fact, Alternative Bridging Corporation already does this and invariably it will not be long before others copy. With these arrangements, the borrower can establish the security and borrow against it time after time, without incurring new setting up costs or needing to wait for a new loan to be finalised before funds are available. Perfect for auction lots, in this way, urgent purchases will be quickly funded with repayment coming from refinance to a long-term loan or sale with the facility available to be used again. In fact, there is no reason why the bridging loan should not convert to a term loan as well – all under one roof, seamless and cost efficient.
The recent rash of new bridging loan lenders will need to remain just that for the time being as it is unlikely they will have the flexible funding lines, systems or ability to structure and manage more complex facilities in a simple way. They will serve a purpose, generating competition to keep more established lenders on their toes, while unable to match the lower interest costs of larger lenders with efficient funding lines.
Going forward, as it is now, life will not be dull with innovation acting as the driving force in the bridging world.