Why brokers and lenders should be looking at more bridging refinance deals
Over recent weeks, the industry has seen a surge in bridging refinance deals, as exits have been hampered due to the pandemic and extended lockdowns across the UK.
Many investors and developers have faced long delays in restoration, renovation and other building work and have had to extend their schedules by several weeks and months.
In fact, recent research from Turner & Townsend, property consultants, the impact of COVID-19 is causing productivity losses of around 35% on the UK’s construction sites, triggering extensive programme delays and spiralling costs that exacerbate the sector’s underlying performance problems. The research also found that the uncertainty of whether labour will arrive on site, social distancing measures and material delays are compounding the productivity gap.
Analysis of 45 projects delivered during the pandemic reveals that labour shortages together with the impact of social distancing accounted for around 7% of productivity losses. A further 1% is being lost through the poor transfer of design information, while remote working. In addition, late material deliveries or unavailability is leading to another 7%.
It will be no surprise then that we have experienced a sharp rise is enquiries for refinance from investors and developers looking to exit existing bridging loans or take on new bridging loans to replace ones coming to the end of their term.
Historically, many lenders and brokers have been reluctant to provide bridging refinance as they present greater risks and more complex legal challenges in the loan application process. But we are facing unprecedented economic times and brokers and lenders should be adapting to make more refinance products available.
Though the bridging market has experienced a significant slowdown this year, with a 56% drop in loans year on year, applications rose slightly in the same period. Clearly there is an appetite for bridging finance despite the current challenges.
If investors are considering refinancing, the main factors are to consider staying within the LTV limits when applying for finance and starting the loan application as early as possible. This will ensure that the funds are processed quickly, and outstanding bridging loans are settled to meet deadlines.
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