Gavin Diamond, Commercial Director Bridging Finance

Today’s property professionals are working with specialist short-term lenders to build their businesses.

Bridging finance has gained a reputation as being something of a jack of all funding solutions. Rightly so in my opinion. The speed and flexibility make it suitable for a wide variety of scenarios, helping everyone from downsizing retirees, to trusts and companies refinancing property portfolios. However, there’s a sector that has grown particularly strongly over the last few years and that’s in the field of property development and improvement. The latest figures from the Association of Short Term Lenders (ASTL) point to a 22% increase in development-related bridging loans in the first quarter of 2018 compared to the last quarter of 2017. In Q1 of this year, ASTL members delivered over £386m of developmentrelated loans of which £242m were categorised as bridging.

United Trust Bank (UTB) was one of the first lenders to spot the opportunity for property improvement loans and we launched our own at the start of 2016. This product has helped to drive the growth we’ve experienced in the Bridging Division over the last 18 months. They are a quick and straightforward means of obtaining short-term finance to both acquire a property and secure the funding required to complete refurbishment works. For the purposes of the ASTL’s figures, development-related bridging loans do not include loans purely to carry out what might be termed as ‘light refurbishment’, such as replacing kitchens and bathrooms or adding a conservatory for instance. Development-related bridging loans are usually employed when more extensive works are planned. These include internal remodelling, loft and other extensions, change of use projects and other schemes that might require planning permission or building regulations. Flexible bridging lenders, UTB included, can cater for customers carrying out both ‘light’ and ‘heavy’ refurbishments by property professionals where there’s an intention to add value.

In both scenarios there can be several possible exits and, in line with bridging’s inherent flexibility, these may be adapted during the term if the customer’s circumstances change. For some, the exit will be from the proceeds of the sale of the improved property, while for others who intend to improve and then retain some or all of the properties for their portfolio, the exit may be a combination of a sale and/or refinance on to a buy-to-let or other investment loan. One of our recent clients had intended to sell the two apartments he’d created from redundant office space above a bank but changes to the local market caused him to rethink his plans and he instead arranged to let them for a while until demand picked up again. When his initial facility came to an end, UTB was able to provide the borrower with a medium-term facility to accommodate his change of plan.

For qualifying projects, some property developers choose to use the bridging route over traditional development finance because of the size of the loan, the flexibility of the product, the range of securities that can be considered, the speed at which it can be obtained, and therefore the attractive relative cost. As a property lending bank with strong development finance, structured finance and bridging finance teams, between us we can find solutions to suit most developer clients, whatever the type and scale of project they have in mind.

Bruce started his property career in the late 1980s. Joining Woolwich Property Services (now Haart) at the age of sixteen, he quickly moved through the ranks to become the youngest branch manager across the company’s 300 offices and ran its most profitable branch for three years. Seeking a greater challenge and with strong ambitions to run his own business, at the young age of 20, Bruce bought into his own agency in South West London and has never looked back. Having gained valuable experience on the sales and lettings side of the industry, in the mid 1990s Bruce ventured into property development. Initially purchasing smaller properties to refurbish across South West London, it wasn’t long before he progressed on to conversion and new build projects.

Bruce to date has developed over 700 units, many of which he has retained for his multi-millionpound, private portfolio. While Bruce and his team continue to grow his portfolio, he also provides mentoring sessions for budding developers as well as overseeing projects for retained investor clients. Bruce has known Gavin Diamond for many years and this relationship has led to repeat custom for UTB’s Bridging Division, most recently securing a £1.8m facility to buy and convert a three-storey house in Croydon, into seven self-contained flats. Although Bruce used to go to the high street banks to fund his earlier projects, he saw a step-change in 2008, which not only affected their credit appetite but also their service, and not in a good way. “I can peg it almost exactly to when I saw the news of Lehman Brothers collapse,” explains Mr Burkitt. “The next time I spoke to high street lenders they had become extremely risk averse and made it quite clear they weren’t interested in supporting the sorts of projects they’d been falling over themselves to lend on just a few months earlier. I switched to specialist bridging lenders after that and now I wouldn’t go back.”

He continues: “Bridging lenders like UTB are keen to support businesses like mine. It has a vested interest assisting in my company’s success, safe in the knowledge that this will result in repeat business. As such, the bank looks at a proposal and thinks ‘how can we do this deal?’ If it needs to take a charge on some additional security, it processes this quickly without delay. The bank has exceptionally good lawyers and works with a team of leading professionals to get the job done. It gives me the confidence when considering a project that I can move quickly and talk to experts like Gavin and his team at any stage of the transaction.” Although Mr Burkitt could consider other ways to finance his business, he believes bridging is the one best suited to his needs.

“The speed of arranging bridging, especially with a specialist like UTB, is really important to me. Despite what some market indices may suggest, it’s a competitive market and there’s always interest in sites and properties with development potential. When I see an opportunity, I must be able to seize it quickly. Although some of the high street banks have shown some interest in development and refurbishment funding again, they’re desperately slow and lack any kind of skill or creativity to do anything but the most vanilla loans. They have lost any personal touch they once had”.

Bruce continues: “Their service has deteriorated and it can take a week or more to get a view on a proposal from a high street bank. I can get that straight away with lenders like UTB. Great bridging lenders are commercially minded and tenacious. They don’t put up walls, but instead find ways to do the deal while remaining responsible lenders. They’re quick and dependable. Yes, the interest rates may be slightly higher, however it’s a small price to pay for the speed, flexibility and service you get.” Mr Burkitt believes that the hight street banks have fallen too far behind specialist bridging lenders when it comes to attracting businesses like his.

“The specialist and challenger banks are setting a pace the high street providers just can’t keep up with. They’re the disruptors in the sector, introducing intelligent products and services that cater for people like me. They move with the times. The hight street banks are stuck in the past.”