Developers are potentially losing out on significant funding by not adequately comparing lenders for bridging finance. A recent analysis revealed that the differences in offers can amount to over £1 million, highlighting the importance of thorough market research for borrowers and investors alike.
How Much Can Developers Lose by Not Comparing Lenders?
The analysis of 300 simulated searches across various financing options, including bridging loans, commercial mortgages, and development finance, has shown alarming discrepancies in lender offers. For instance, bridging loan searches for a £1.4 million purchase showed an average difference of £250,000, while commercial mortgage searches for a £1.5 million purchase revealed an average gap of £306,000. The most striking difference was found in development finance, where offers for a £3.7 million project varied by £842,000.
What Are the Implications for Borrowers Seeking Bridging Finance?
For a £1.4 million residential purchase in London, bridging finance offers ranged from £646,106 to £979,265, resulting in a £333,159 difference. This disparity indicates that the most competitive lender was willing to advance 52% more than the least competitive provider. Such differences can dramatically affect the financial viability of projects, especially for those with limited capital.
How Does This Impact Investors in Bridging Finance?
Investors looking for development finance should be particularly aware of the potential for significant savings. On the same £3.7 million scheme, one lender offered £3,371,262, while another provided only £2,340,936, leading to a staggering difference of £1,030,326. Securing the larger facility could yield a 94% higher return on capital employed, allowing investors to spread their capital across multiple projects rather than committing it all to one.
What This Means for Landlords and Brokers in Bridging Finance
Landlords and brokers should encourage a more comprehensive approach to lender comparison. The findings suggest that many borrowers rely on a single lender or a limited selection, which is a missed opportunity for better financing options. By utilising technology and comparing a wider range of lenders, borrowers can significantly enhance their funding potential, possibly completing more projects over their careers. For more insights, check our bridging finance guide.
Frequently asked questions
Why is comparing lenders important in bridging finance?
Comparing lenders is important because offers can vary significantly, impacting the amount of funding available and the overall cost of financing, which can affect project viability.
How can I effectively compare bridging finance options?
Utilising specialist property finance comparison platforms can help borrowers see a range of offers from different lenders, allowing for informed decisions that can save substantial amounts of money.