The UK mortgage market has undoubtedly grown more complex in recent years, particularly from a high-street lending perspective. This shift has elevated the profile of specialist sectors. In this context, broader access to a range of short-term financial options has become crucial for landlords and developers nationwide, enabling them to seize opportunities quickly as they arise.
Throughout 2024, we’ve encountered various scenarios that have demonstrated how short-term lending has provided essential solutions to common challenges faced by a wide range of property professionals.
The chain break
Historically, one of the most common uses of short-term finance has been to resolve chain breaks, and this continues to be the case. Chain breaks occur when one party in a property chain is unable to complete their transaction, putting the entire process at risk. In such situations, short-term finance, such as bridging loans, can provide the necessary funds, allowing buyers to proceed without losing the property.
For property investors, this flexibility is invaluable, as it enables transactions to move forward even when unexpected delays threaten to derail the process. This ability to act swiftly has made short-term finance a key differentiator in an increasingly competitive market.
Bridging the gap for refurbishment projects
Many property professionals have shifted their focus from buying ready-to-rent properties to undertaking refurbishment projects. The idea is often to secure a buy-to-let mortgage once the work is complete.
However, these projects can often be larger than anticipated, with costs spiralling, timelines extending, and work requiring more attention than initially planned. In these situations, mainstream BTL lenders may withdraw their offers, leaving investors scrambling for an alternative.
Bridging finance allows investors to access short-term funds to complete the refurbishment and bring the property to a standard suitable for future BTL financing. This ensures that the project continues to move forward, even when unforeseen challenges arise.
Exiting development finance
Another common scenario is when developers need to exit their development finance but have not yet sold the completed units. This can happen for various reasons, such as market delays or the project taking longer than expected. Even experienced developers face this challenge, and in these cases, short-term finance can provide a vital lifeline. Bridging loans can be used to pay off the original development loan, giving developers additional time to sell the units at a more desirable price.
In some instances, developers may also want to raise capital against completed units to fund their next project. Short-term finance can facilitate this process, allowing developers to unlock the value of their assets and keep their pipeline moving.
Auction purchases
Auctions have become increasingly popular among property investors, offering opportunities to secure properties at highly competitive prices. However, the tight completion deadlines - 28 days for traditional auctions and 56 days for online sales - can be a significant challenge. Mainstream lenders are often unable to meet these timeframes, leaving investors at risk of losing their deposits.
Having access to short-term finance means funds can be generated quickly to ensure that investors can meet strict auction deadlines. This speed is critical, as it enables buyers to act swiftly and avoid missing potentially lucrative opportunities.
A crucial mechanism
In a market characterised by increasingly stringent lending criteria, short-term finance has become a crucial mechanism for overcoming challenges and seizing opportunities. As a specialist finance broker, our role is to provide tailored financial solutions that address these specific needs, ensuring that our clients have access to the right products within the required timeframes.
We anticipate that demand for these types of solutions will continue to rise in the coming months, helping property professionals across to UK to successfully navigate the ever-changing property landscape.
