"Even for investors looking to buy a property outside of auction, in a buyer’s market, bridging finance may enable them to secure a discount by leveraging the prospect of a quick sale."
‘In the middle of every difficulty lies opportunity,’ - Einstein’s words certainly hold true for investors in today’s market.
We are currently in a buyer’s market, which means timing can be crucial, with investors needing to act swiftly to seize property opportunities.
Whether looking to buy at auction or through more conventional channels, a bridging loan could give clients the competitive edge and funds required to quickly secure a discounted property.
The average discount to the asking price for a newly agreed sale stood at £12,125 in September, according to Zoopla’s latest House Price Index. This represents an average reduction of 4.2%, climbing to 4.8% in London and the South East.
We are seeing a similar trend in auction houses, with data from digital property pack provider Moverly showing the average selling price of a property at auction decreased by 1.8% to £190,871 over the past year.
Auction houses are synonymous with below-market-value properties, and given the affordability challenges for some buy-to-let investors, a refurbishment project, and its potential for greater returns, is likely to appeal.
This could in part be why we are seeing a significant volume of properties currently being bought at auction. Property auctioneer Auction House, recently reported a 20% increase in property sales for this year compared to the same period in 2022.
While we may hear stories of landlords selling up and leaving the market, given house price falls of around 5% have been reported over the past year, for some astute investors, this presents an opportunity to add to their portfolio.
There is exceptionally strong demand for rental properties, with Hamptons forecasting rental increases of 25% across Great Britain between 2023 and 2026, with the most rapid pace of increase in 2023 and 2024. It is predicting rents will rise more than four times faster than house prices over the next four years.
With this in mind, we anticipate strong demand for our recently launched ‘Express Bridge’ product, as we see continued demand from those looking to buy at auctions to capitalise on opportunities in the rental sector.
The fast pace of buying and financing a property at auctions lends itself to bridging finance. In addition to paying a 10% deposit on the day, successful bidders will have just 28 days to complete the purchase, often relying on a broker and specialist lender’s assistance for a rapid turnaround.
For some buying at auction, securing a mortgage may not be possible, not just because of the tight timeframe but because the property itself might be unmortgageable, either due to its non standard construction or a structural defect.
A bridging lender like ourselves however can assess each case on its own individual merits, while our in-house legal team can ensure clients have the funds in a matter of days.
Even for investors looking to buy a property outside of auction, in a buyer’s market, bridging finance may enable them to secure a discount by leveraging the prospect of a quick sale.
Given the current demand for rental properties, an investor will potentially want to get moving and renovate as soon as possible, either to sell on or start renting out.
As we start to see confidence return to the market and mortgage rates come down, this could serve as a further incentive for those looking to use a bridge to refurbish a run-down property, with the prospect of remortgaging up to 18 months down the line more appealing.
There may also be professional investors who can tap into personal or business cash reserves or assets to help increase their deposit, potentially reducing their exposure to increased mortgage rates.
While the housing market may have slowed, for some investors, this presents an opening, and bridging finance can help them seize those opportunities.
