At Shawbrook, we are seeing more and more landlords using short-term or bridging finance within their portfolios.
Bridging has proven to be a great enabler for many landlords, allowing them to take hold of investment opportunities in active markets where previously this may not have been possible. Whereas short-term loans might not have had the best reputation in years gone by, this has changed as lenders have improved their products and they have become increasingly mainstream.
These products are more affordable and reputable than they have ever been. One such area where short-term loans are especially useful is when a client is looking to exit development finance.
The key here is that this is a very specific target market of active developers likely financed by bridging style lenders for their projects. The timing could be opportune for this; if Brexit means a slower property sales market then time will become more of a valuable commodity than it is already for some developers.
Some development lenders are reluctant to provide anything more than small extensions to loan terms, sometimes requiring a new arrangement fee or penalty charges, whereas banks such as Shawbrook can lend for up to 18 months for property that is wind and watertight. This safely banks the project for the developer to both focus on the next project and to ensure they are not pressured into selling at a lower price because of time pressures to repay loans. If the client is faced with a fee to extend anyway, then the cost of switching can be competitive in comparison.
Cash flow is also a significant consideration for active developers. If a client intends to move on to the next project quickly, by lending against the finished development lenders may be able to release capital to buy a new piece of land. Alternatively, if a client is at their exposure limit with a current development lender, using a bank like Shawbrook to repay an existing loan may enable new development finance to be agreed to start the next project more quickly and squeeze more projects in to the year.
These are just a few of the many reasons why short-term finance can be so effective, and at Shawbrook we expect these products to continue to grow in stature as time goes on.