Developers are potentially risking over £1 million by not thoroughly comparing lenders when seeking bridging finance, according to recent analysis. This oversight can significantly impact their financial outcomes, particularly in a competitive market where differences in lending terms can be substantial.
How Significant Are the Differences in Bridging Finance?
A recent analysis of 300 simulated searches for bridging loans, commercial mortgages, and development finance revealed alarming discrepancies in lender offers. For instance, bridging loan searches showed an average difference of £250,000 on a £1.4 million purchase. In commercial mortgages, the average gap was £306,000 on a £1.5 million purchase. The most striking difference was in development finance, where offers on a £3.7 million project varied by a staggering £842,000.
What Does This Mean for Developers?
For developers, the implications of not comparing lenders can be profound. A £1.4 million residential purchase in London saw bridging finance offers ranging 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 option. Such differences can drastically alter the financial market for developers, impacting their ability to invest in multiple projects.
Why Should Borrowers Compare Lenders?
For borrowers, the importance of comparing lenders cannot be overstated. On a £1.5 million retail purchase in the North West, commercial mortgage offers ranged from £750,000 to £1.125 million, highlighting a £375,000 difference that could significantly reduce the deposit required. The most competitive lender provided £3,371,262 against £2,340,936 from the least competitive, a difference of £1,030,326 on the same £3.7 million scheme. This can lead to a 94% higher return on capital employed, showcasing the financial benefits of thorough lender comparison.
What This Means for Investors
Investors should take note of these findings, as they suggest that by securing larger facilities, they can spread their capital across multiple projects. For instance, under the most competitive terms for a £3.7 million development, the lowest deposit required was £450,000, compared to £1.4 million under less favourable conditions. This allows an investor with £1.4 million of equity to potentially fund three projects instead of just one, effectively doubling their project output over their career.
Frequently asked questions
Why is comparing lenders important in bridging finance?
Comparing lenders in bridging finance is important because offers can vary significantly, impacting the amount borrowed and the overall cost of financing.
How can differences in bridging finance affect my investment?
Differences in bridging finance can affect your investment by altering the amount of capital required upfront, which influences your ability to fund multiple projects and achieve higher returns.