The end of the Stamp Duty holiday has not quelled the appetite among property investors to add to their portfolios. A succession of industry studies has found significant numbers of landlords and investors are keen to expand their portfolios, and it’s a trend that we’ve seen from our own lending at Alternative Bridging Corporation.
Because while buy-to-let finance is crucial for any landlord, it’s important not to underestimate the role that bridging loans can play for investors hoping to secure an excellent deal on a new property.
When a property investor spots a property with potential, they often want to move quickly. The longer they wait, the more likely it is that another would-be buyer with a keen eye will spot it, potentially driving up the price.
This is one area where bridging loans prove themselves such a terrific tool for property investors. As investors and brokers know only too well, the turnaround time for a normal buy-to-let loan can be frustratingly slow, leaving the borrower frustrated as they wait to close the deal.
That isn’t the case with a short-term loan like a bridging loan though. Borrowers are able to get their hands on the funds they need for the purchase much more quickly than is typically the case with a traditional buy-to-let loan, meaning that they can secure the property within a matter of weeks rather than months.
Providing that funding rapidly can make all the difference to securing the property ahead of the competition.
Going, going, gone!
Some of the best investment properties aren’t found on the open market though; they are bought and sold through property auctions.
It’s not uncommon for these properties to be in some state of disrepair, perhaps even missing basic rooms like bathrooms or kitchens. Because the condition of the property is far from perfect, these are the sorts of properties that some mainstream lenders would be uncomfortable lending against.
But that doesn’t mean they are a less attractive prospect for investors. If anything, the opposite is true - the fact they are in poor shape means they can be bought cheaply, and with some smart refurbishment work, they can be flipped for a substantial profit, or retained as an ongoing investment once the buyer refinances onto a more long-term mortgage deal.
Auction finance is a type of bridging loan and is specifically designed to support investors looking to pick up a property bargain at auction houses, even if they are the sort of property that you could not take out a normal mortgage against.
Investing in a doer-upper
Of course, there are some properties that don’t require such extensive refurbishment work. They might at least have a kitchen or a bathroom, it could simply do with some improvement.
Again, bridging loans can be a fantastic way to secure the property and the funds needed for that refurbishment, in a speedy way.
These doer uppers can offer an excellent profit if they are sold on again after that work is carried out, or remain part of an ongoing portfolio - either way, the investor benefits from the fast financing bridging can provide.
Working with the right lenders
The good news for investors is that there is no shortage of choice in the bridging market currently. Indeed, competition has rarely been so strong, which has meant that borrowers now have a wider range of competitive deals to choose from than ever before.
However, there’s far more to picking a bridging lender than simply identifying the lowest rate. There will be investors with horror stories about bridging lenders who talked a great game, only to let them down when the investor most needed them.
That’s why it’s so important to do your homework on how a lender works, not just what their products will cost you. Focus on working with on lenders that truly understand the bridging market, are transparent about their processes and are keen to build long-lasting relationships. This will make it a much more straightforward experience, allowing you to focus your efforts on turning that investment property into a revenue stream.