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The rise of longer-term short-term products




The average time taken to sell a home increased by nearly two weeks in 2018 compared with 2017, according to the latest City Rate of Sale report that has been produced by the Centre for Economics and Business Research (CEBR) and Post Office Money.

The research found that the average time to sell a property in the UK was nearly four months (114 days), while homes in Oxford took the longest to sell, staying on the market for an average of five months (152 days). London dropped down the list having topped it the previous year, but the average time to sell still increased by a week from 131 days to 138 days.

It’s little wonder then that demand for longer-term, short-term lending is increasing, as property investors are realising from the outset that they may need more time to secure an attractive exit.

This is why, at Castle Trust, we launched development exit products that are available on a three-year term with a two-year early repayment charge (ERC). These products provide developers with the extra time they need to properly market their scheme and achieve the best possible price, without the inconvenience and cost of having to refinance after 12 or 18 months. Developers are also able to repay the loan without penalty any time after two years if they are able to do so and the products can even include the flexibility to sell an agreed percentage of the properties during the ERC period, giving the client a product that works on their terms.

But three years is not the limit when it comes to longer-term, short-term funding. After all, the distinguishing characteristic of most bridging products is not necessarily the term, but the flexibility they can deliver in funding an acquisition, project or investment ahead of an exit in the future.

So, with this in mind, short-term products don’t always have to have a short term. In the right circumstances and for the right clients, there could be times when a longer term of five, or even 10 years, provides a client with the space and time they need to secure the most opportune exit. As with most decisions, timing is everything and so providing investors with more freedom about when they dispose of an asset gives them greater control over the value they can achieve.

There are obviously considerations here about how long a client may be tied into a loan with ERCs before they can exit without cost, but in the current environment and the foreseeable future when house price activity continues to look subdued, longer-term, short-term products could become a very useful tool for brokers and their clients.

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