Developers could be missing out on significant financial opportunities by not comparing lenders for bridging finance. A recent analysis revealed that failing to shop around can result in developers tying up over £1 million in unnecessary costs. This highlights the importance of thorough lender comparison in the property finance sector.
How Much Can Developers Lose in Bridging Finance?
In a study involving 300 simulated searches for bridging loans, commercial mortgages, and development finance, significant discrepancies were found. For instance, bridging loan searches on a £1.4 million purchase showed an average difference of £250,000 between lenders. Commercial mortgage searches on a £1.5 million purchase revealed 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, illustrating the potential financial impact of not comparing lenders.
What Are the Implications of Bridging Finance for Borrowers?
For borrowers, particularly in London, the stakes are high. A £1.4 million residential purchase saw bridging finance offers ranging from £646,106 to £979,265, a difference of £333,159. This means that the most competitive lender was willing to advance 52% more than the least competitive provider. Such differences can significantly affect the financial viability of projects, especially for those operating on tight margins.
What This Means for Investors Using Bridging Finance
Investors should be particularly vigilant when seeking development finance. For a £3.7 million development, the lowest deposit required was £450,000, while the least competitive terms demanded £1.4 million. This disparity allows an investor with £1.4 million of equity to diversify their capital across multiple projects rather than committing all funds to a single venture. Over a career, this could enable an investor to complete 30 projects instead of just 10, dramatically increasing potential returns.
Why Is Comparing Bridging Finance Lenders Important?
The findings underscore a common practice among borrowers and brokers who often limit their search to a single lender or a few options. This approach can lead to missed opportunities and higher costs. Ian Humphreys, CEO of Brickflow, emphasizes that using technology to compare a wider range of lenders can lead to better financial outcomes for borrowers.
Frequently Asked Questions
What is bridging finance?
Bridging finance is a short-term loan used to bridge the gap between the purchase of a new property and the sale of an existing one. It is often used in property transactions to secure quick funding.
How can I compare bridging finance offers?
To compare bridging finance offers, consider using specialist comparison platforms that analyze various lenders’ responses to identical borrowing scenarios, ensuring you find the most competitive rates available. For more information, check out our bridging finance guide.