Whether or not you think his Help-to-Buy scheme will create a house price bubble, one thing is for certain about Mr Osborne’s intervention in the property market – it wouldn’t be necessary if the mortgage market was functioning properly.
And just as banks are now ultra-cautious when it comes to home loans, so their conservatism is causing difficulties for many commercial property developers and investors, too.
The commercial property sector is accelerating thanks to the fairer economic winds – returns totalled 1.9 per cent in the second quarter according to analyst IPD, the highest figure for three years – but a lack of finance is preventing many investors from exploiting the opportunities.
The solution for many could be bridging finance. Short term loans from specialist lenders that understand the needs of investors and developers – rather than the generalist banks – are often the best option for those who do not want to miss out on what commercial property has to offer.
The potential uses are numerous. Many commercial developers use bridging finance for the speed with which it enables them to move, either on the purchase of a new property or the refinancing of an existing loan. Conventional finance may take six months to arrange – bridging finance is much quicker.
Bridging finance can also be invaluable where lenders are unwilling to advance funds on an investment that doesn’t meet their standard criteria immediately, even when it is obvious that a refurbishment or redevelopment, say, would enable the borrower to qualify relatively quickly. Short-term finance enables the borrower to acquire the asset, execute their business plan in order to realise the upside potential, and then refinance with a bank.
Alternatively, bridging finance may give the borrower breathing space to improve their own profile, rather than that of the asset. Lenders often refuse to deal with borrowers who don’t have two years of trading accounts, or they turn down applications from those to which they already have lending exposure. Short term finance is a lifeline to investors during such stopgaps.
Basically, for brokers, the commercial bridging market has the potential to be a serious revenue stream. Commercial property is more attractive than at any time since the financial crisis, but a lack of bank finance threatens to prevent investors taking advantage. For many, there's no doubt that bridging finance could be the answer.
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