Developers are at risk of losing over £1 million by not adequately comparing lenders when seeking bridging finance. A recent analysis has revealed significant disparities in loan offers, highlighting the importance of thorough lender comparison to secure the best financial outcomes.
What are the risks of not comparing lenders?
The analysis conducted on 300 simulated searches across various financing types, including bridging loans, commercial mortgages, and development finance, uncovered alarming discrepancies. For instance, bridging loans for a £1.4 million purchase showed an average difference of £250,000, while commercial mortgages for a £1.5 million purchase had an average gap of £306,000. The most striking finding was in development finance, where offers for a £3.7 million project varied by £842,000. Such differences can significantly impact a developer’s financial strategy and project viability.
How do bridging finance offers vary?
In the case of a £1.4 million residential purchase in London, bridging finance offers ranged dramatically from £646,106 to £979,265, creating a £333,159 difference. This disparity means that the most competitive lender was willing to provide 52% more than the least competitive option. Similarly, for a £1.5 million retail purchase in the North West, offers varied from £750,000 to £1.125 million, a £375,000 difference that could significantly reduce the deposit required for borrowers.
What this means for developers and investors
For developers and investors, the implications of these findings are profound. The analysis from Brickflow indicates that securing a larger loan facility can lead to a 94% higher return on capital employed. For example, on the £3.7 million development scenario, the lowest deposit required was £450,000, compared to £1.4 million under less competitive terms. This flexibility allows investors to allocate their capital across multiple projects, potentially completing 30 projects instead of just 10 over their career. Such strategic advantages underscore the necessity of comparing lenders to maximise financial outcomes.
What should borrowers and brokers do?
Borrowers and brokers are encouraged to use technology and comprehensive lender comparisons rather than relying on a limited selection of lenders. Ian Humphreys, chief executive of Brickflow, highlights that many borrowers and brokers still adhere to the traditional practice of looking at only a few lenders. By broadening their search, they can uncover more competitive offers and significantly enhance their project financing options.
Frequently asked questions
Why is comparing lenders important in bridging finance?
Comparing lenders is important as it can reveal significant differences in loan offers, which can impact project financing and overall returns. A thorough comparison can lead to better financial terms and increased project viability.
How can developers ensure they are getting the best deals?
Developers should utilise technology-driven platforms that allow for comprehensive comparisons of various lenders. This approach enables them to identify the most competitive offers and secure better financing conditions for their projects.