Recent analysis highlights a significant financial risk for property developers who neglect to compare lenders when seeking bridging finance. The findings reveal that failing to shop around can lead to substantial differences in loan offers, potentially tying up over £1 million in unnecessary costs.
What are the differences in bridging finance offers?
A recent study examined 300 simulated searches for bridging loans, commercial mortgages, and development finance, revealing alarming disparities in lender responses. For instance, bridging loan searches for a £1.4 million property showed an average difference of £250,000 between lenders. In commercial mortgages, the gap reached £306,000 for a £1.5 million purchase. The starkest contrast was in development finance, where offers for a £3.7 million project varied by £842,000, highlighting the importance of thorough lender comparison.
How does this impact residential and commercial purchases?
For residential purchases, particularly in London, bridging finance offers ranged from £646,106 to £979,265, resulting in a £333,159 difference. This variance means that the most competitive lender was willing to offer 52% more than the least competitive. Similarly, commercial mortgage offers for a £1.5 million retail purchase in the North West ranged significantly, from £750,000 to £1.125 million, indicating that a more competitive loan could halve the required deposit for borrowers.
What this means for property investors
For investors, the implications of these disparities are profound. In the case of the £3.7 million development project, the lowest deposit required was £450,000, while the least competitive terms demanded £1.4 million. This means that an investor with £1.4 million in equity could potentially fund three projects instead of being locked into a single one. Over an investor’s career, this could translate to completing 30 projects instead of just 10, significantly enhancing potential returns.
Why is lender comparison essential?
Ian Humphreys, CEO of Brickflow, points out that many borrowers and brokers often rely on a limited number of lenders, missing out on better options. By leveraging technology and comparing a wider range of lenders, developers and investors can secure more favourable terms, ultimately leading to better financial outcomes. This practice is increasingly vital in a competitive property market where every penny counts.
Frequently asked questions
What should I consider when comparing bridging finance lenders?
When comparing lenders, consider the total loan amount, interest rates, fees, and the terms of repayment. Look for lenders that offer the best overall package, not just the lowest interest rate.
How can I effectively compare bridging finance options?
Utilise specialist property finance comparison platforms that can simulate various borrowing scenarios and provide insights into the best available offers tailored to your specific needs.