Investors turn to bridging loans to flip houses and maximise on rising prices – analysis

Sundeep Patel, director of sales at Together, said many of the specialist lender’s customers were using products with terms between six and 12 months to “quickly buy, refurbish and then sell on” to cash buyers or those with a standard mortgage agreement. 

He said: “We’ve seen a rise in these types of customers approaching us for bridging finance to refurbish properties during the last year, as they take advantage of rising prices and a red-hot property market.” 

House prices in the UK have reached record highs this year with increases in the double digits. 

The latest index from Nationwide showed prices had risen by 11 per cent annually in August to an average of £248,857. 

Changes to permitted development rights have also enabled house flipping as it gives investors the ability to convert a wider scope of non-residential properties for residential use, as long as they meet government space standards. 

Patel said this change had “streamlined the planning process, making it easier for them to be developed into modern homes for people to live in.” 

Jo Breedan, managing director of Crystal Specialist Finance, said this could also offer a higher return than renovating a rundown residential property. 

He added: “In terms of floorspace coverage, a commercial residence is typically about 30 per cent smaller than its residential equivalent. So [investors are] getting a discount there anyway.  

“They get the planning permission, do the conversion and these guys are making a 20 per cent profit in that sort of transaction.” 

Breedan said as long as financing and renovation costs were covered by the profit, investors were making a higher return on the average house prices increases of up to 11 per cent. 

The broker firm saw much of this flipping activity between January and June, Breedan said, with this tailing off recently. However, he expected business to pick back up again after October when the holiday season ends. 

He suspected this would not be down to any savings to be had during the last phase of the stamp duty holiday but rather “people needing a break and trepidation about whether we’re going to be in another lockdown by the end of the year”. 

Breedan said short-term house flipping was not new, but instead of going for super prime properties like usual, “anything below £2m is fair game”. 

He said the clients he was seeing were typically more experienced and knowledgeable, giving them the advantage of not being held up by any delays in the construction sector or caught out by mortgage and planning breaches. 

“These guys tend to have a great broker, architects, builders who can deliver within a certain timeframe. They have a professional team behind them and a brilliant tax adviser so they know what they can and can’t offset,” Breedan added. 

The long game 

Chris Oatway, owner and director of LDNfinance, said his firm had actually seen less house flipping activity at his firm this year.

While a number of experienced, small developers have taken advantage of distressed assets being sold below market value, increased product choice and flexibility has provided more opportunities. 

Instead, developers are holding on to assets and using the increased equity to finance other projects, Oatway suggested. 

He added: “Buy, develop and hold is the standard process now and only certain assets where exceptional profit levels have been hit result in the asset being sold.  

“The stamp duty holiday reduced the costs of buying which may have encouraged investors to flip, but from what we have seen this has also meant there is more equity in the project which allows them to keep them in their portfolio and still be able to move on to another project.”