Short-Term Property Finance, The Ins & Outs


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Once seen as an expensive and complicated form of finance, short-term lending has grown up. A type of loan that is obtained to support a temporary personal or business capital need, short-term property finance can be particularly valuable to those looking to secure or develop a property.

The arrival of challenger banks to the sector over recent years has been welcome, driving down property development finance rates and further commanding high standards of service. The sector has become more professional and more accessible, and as a result it has become more acceptable to take a bridging loan than ever before.

The buoyant market spells good news for borrowers. Whilst during the pandemic some lenders surprisingly stopped lending, others adapted to the market, developing new products that satisfied the requirements of private funding whilst at the same time being advantageous for borrowers.

This surge in new products, coupled with the entrance of challenger banks, has led to an increasingly competitive market, making it easier and cheaper than ever before for individuals to secure short-term property finance.

For individuals or institutions looking to secure and receive funds quickly then short-term finance is a valuable option. When required, a short-term property finance lender can deliver money in days rather than weeks, or even months. Short-term property finance can also be lent against the value of a property, as opposed to the purchase price. Historical issues such as poor credit or bankruptcy will not necessarily exclude an individual from borrowing, unlike traditional avenues.

Borrowers should equally be aware of the potential challenges. The biggest mistake that borrowers can make when securing short-term property development finance is underestimating the timeframe over which they require finance. A borrower does not want to end up in a position of extensions, renewals, and defaults. It’s important to set out clear timeframes with your property development finance lender ahead of completing, with some room for slippage, and ultimately redeem in term. Fees outside of term can be very prohibitive, which is why choosing the right lender for you at the outset is imperative.

As in any other area of business, lending is not just about price. It is about the people – who are the decision-makers, how are they funded, what is their stance on extensions, renewals, and defaults? All products cannot be compared in the same way. Key factors every prospective Borrower should consider are:

  • Property development finance interest rates – there are some reasonably complex products on the market with stepped interest rates, so these need to be interrogated fully
  • Term – what is the lender’s stance on extensions, renewals, and defaults, as well as their initial view on terms? Are they recommending the right term for the loan? And are there any penalties for redeeming early?
  • Values – there are a considerable number of lenders in the market, and therefore there is
  • a clear opportunity for borrowers to pick one that suits their value set – particularly around the above point about extensions and defaults.
  • Funding – how is the lender funded and how do they manage in times of crisis like the pandemic? Who are the individuals behind the company and are they experienced?
  • Property development loans – how are they dealing with signing off releases of each stage of cash? Is it done by valuation or quantity surveyor for instance?
  • Special conditions – what cover or special conditions, if any, are they putting in place within your agreement?
  • Key decision makers – are you dealing directly with a key senior decision-maker who will be able to flex with you as your bridging/development project progresses?
  • Rates – rates should not be the main reason you take one deal over another – do your due-diligence.

Looking to the future, the short-term property finance market will continue to grow. Given that it’s an increasingly complex marketplace, some borrowers who don’t understand the nuances or aren’t particularly solvent will however fail as part of the process.

Banks and other lending institutions will change their risk profile and become stricter in the type and amount of money that they lend, and, increasingly, to whom they lend.

New entrants will of course enter the market. Established and trusted market leaders such as Mint Property Finance will continue to set the standard, pushing the boundaries of short-term lending and delivering the highest standards of service.

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