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Bridging is becoming a ‘risky market’ with ‘ridiculous’ low rates – Fluid Finance

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  • 28/05/2019
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Bridging is becoming a ‘risky market’ with ‘ridiculous’ low rates – Fluid Finance
Fluid Finance has warned that the bridging sector is becoming an increasingly “risky market” with some lenders taking ridiculous rates.

 

The lender, which is backed by a retail ISA, also noted that it would only look to enter the development finance market once it had secured institutional funding.

And CEO Ansar Mahmood (pictured) revealed developers in London were suffering with some projects seeing valuations fall by around 30 per cent mid-build, and in one example by 50 per cent.

This was driving a surge in international investors, often from the Far East, where investors are taking further advantage of an already knocked-down Sterling currency.

 

Wait for institutional funding

Speaking to Specialist Lending Solutions, Mahmood revealed that he had concerns about moving into development finance too quickly.

“We’ve just started with bridging, we’re not going into development finance yet,” he said.

“We will only look at development finance if we get institutional funding – it’s safer for everyone.

“Development funding can be a risky game and things can change very quickly, it’s too risky for my liking,” he added.

Mahmood continued: “Using ISA funds I have got to be 100% safe and secure. In four or five years’ time we can look at institutional funds, but not right now.”

Mahmood also noted that Fluid had been looking at a lot of deals completed by Lendy before it went into administration, but they just “do not stack up.”

 

Risky market

The lender entered the bridging market in the second half of last year and Mahmood said he was surprised by some of the competition strategies and falling rates.

“That’s a risky market – 0.45 per cent per month is ridiculous,” he said.

“I’m not comfortable with that, we’re not going to be competing like that, it’s not what we did the business for.”

 

Bargain basement London

While Fluid is based in the North West and tends to conduct most of its business in Northern England, the lender has also been seeing potential deals from London’s prime property space.

“In London we’re seeing lots of investors looking to buy, and at distressed rates,” Mahmood continued.

“A 25-30 per cent reduction is typical in some prime central London residential blocks which are part-built, but I saw one that was half its original value and was sold in two weeks.

“Far East investors see it as a bargain basement at the moment,” he added.

Mahmood explained that the troubles were coming from several directions.

Developers were overpaying for land and then pursuing over ambitious sales prices, he noted.

They are also often not budgeting for build costs and potential overruns correctly.

All this is being conducted in an environment with very small margins so there remains little room for manoeuver when things go wrong, he said.

 

 

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