Large bridging loans are a particularly sophisticated area of the bridging market, which has seen increasing demand over recent years. More investors are utilising the benefits of large-scale bridging loans, and as a result, lenders are adapting to facilitate such funding requirements.
Classifications of large bridging products vary significantly from lender to lender. In the past, a large bridging loan was typically regarded as any bridge in excess of £1m, but given today’s market and in the context in which I write this, I would define a large bridging facility as anything north of £3m. The continued rise in house prices, combined with lenders’ increasing appetite to lend on larger projects, means the average loan size has increased over recent years. With regards to premium property markets such as London, what would have been considered a large bridging loan 10 years ago is very much the norm in today’s market.
Large bridging loans
The typical clientele for large bridging loans includes developers and property professionals, rather than the consumer end of the market, which is more unusual. Bridging loans are a great option for developers looking to move funding swiftly between large-scale projects, for example, the refinance of a completed development property in order to release funds for a new venture. Although loans of this size are occasionally required for residential investments, the flexibility and speed of large bridging loans make them ideal for high-end commercial investors, and we are seeing an emergence of ‘jumbo’ bridging facilities to fund projects of considerable size, such as the conversion of large office blocks into residential accommodation.
For any broker, the calibre of investor is vital when arranging loans of a substantial value. This is not often an issue with this area of the market, although there are exceptions. Clients in search of large bridging loans tend to be experienced developers or property professionals who are competent in managing large-scale investments. Whether your client is looking into a speculative purchase to secure planning permission, or to exit an existing loan in order to pull cash out of a deal before it sells, a good track history is the best way to assess whether your client can manage their investment.
Every bridging case is different, but when considering the viability of a large bridging loan I tend to start by looking at the assets involved. It’s always more assuring, from a lender’s perspective, for clients to spread their loan across multiple assets. For example, lenders would be more hesitant about a £6m loan against a single property worth £10m, than three £2m loans across three separate properties. This is because the risk is spread more evenly across multiple properties rather than concentrated within just one security. Nevertheless, we are seeing more in the way of large bridging loans on single assets, and assuming the application has been packaged to a good standard, lenders have more appetite to lend on deals of this nature.
In the run-up to the general election earlier this year, prime property markets suffered from the uncertainty that arose from the prospect of stamp duty changes – actual changes before the election and the threat of new mansion tax, and as a result, valuing such properties became a complex affair. In retrospect, I don’t think these regimes have had anywhere near the impact many people expected, and average prices of prime London properties per square foot were up slightly, by 0.7 per cent, in the third quarter this year compared to 2014. Now the markets have calmed, I feel lenders have come to terms with the fact that valuation of this kind is as much about market perceptions than anything else.
The large bridging loan space is reserved for those lenders with a significant appetite to lend and the capital to do so, and many lenders simply do not have access to the funding to allow them to lend at this level. Nevertheless, the market is incredibly liquid, and recently we have seen specialist lenders such as Shawbrook Bank, West One Loans and InterBay increase their appetite for this type of lending. As a result of this increased competition, brokers have more options than ever when it comes to large bridging loans. Rates are obviously an important factor, but when choosing funding for this type of facility I would sway towards the more experienced lender. Large bridging loans are particularly complex when it comes to the valuation process and assessing the level of risk involved and there are a number of obstacles that can arise – choosing a lender that is experienced in transacting at this level can make all the difference.
As the large bridging loan market continues to expand, the outlook is promising for both brokers and lenders alike. Whilst professional intermediaries look to reap the rewards of large-scale bridging loans, this area of the market remains particularly complex, and it’s essential that brokers ensure every client investment is sustainable, in order to uphold industry standards.
By Lucy Hodge, Director, Vantage Finance