Lenders forecast more demand for bridging loans
Peer-to-peer lending platforms are anticipating increased interest in bridging loans, as developers need more funds to finish projects in a high-inflation environment.
The property development sector is currently battling a variety of headwinds. High energy bills have made it more expensive to run projects, while building materials have increased in price. Additionally, labour shortages and falling sales demand can create delays.
Read more: Property investors drive bridging loan activity
“We are seeing a significant increase for development exit finance due to delays with sales,” said Filip Karadaghi, chief executive of LandlordInvest.
“Development exit finance is a bridging loan, which most borrowers would probably rather avoid, but have to take them out so that the initial development facility that they used to complete a project, does not go into default.”
He said every platform has their own niche of borrowers, while spreads vary considerably between platforms, which he claims often does not reflect the risk of the borrower.
Read more: Bridging loans special report: Bridging the gap
“Lenders should always look to platforms with lower spreads, as they get better compensated for the risk they are taking,” added Karadaghi.
Alan Fletcher, partnership director at Invest & Fund, agrees that bridging finance could become more popular in the P2P sector.
“Our core product is residential development finance, and the demand for that is increasing as traditional banks increase their rates and tighten their risk profiling,” he said.
Read more: LandlordInvest eyes development loan growth
“It is a fair assumption that bridging as a marketing solution to successfully accomplish a client’s scheme will be increasingly visible in the broader market as a standalone product. Successfully dovetailing from one project to the next is essential to a functioning small-and medium-sized developer market.
“We are happy to offer it as part of our suite of products, but we only facilitate with sensible leverage headroom, our core risk tolerances aren’t diminished in that scenario, so it provides the same level of protection and returns our investors would expect.”