A typical reaction when I mention to property investors about using bridging finance to acquire property is “that’s very expensive and risky”. To which my standard reply is that when used correctly, it can be a very reliable and quick way of funding deals that you would not be able to access if you are solely relying on using your own, often limited, funds. Unsurprisingly, in this month’s trade interview, Chris Baguley agrees with my observation.
“How can I disagree,” he replied, “as using bridging finance is how many savvy investors and developers who understand how to structure deals are using it regularly nowadays. Of course, the deal has to ‘stack’, with a margin for error, and also with the confidence that a clear game-plan is in place to exit the bridge within a short time frame.”
As we all know only too well, the last eight years has resulted in a raft of government regulation and changes in tax towards buy-to-let investing, which have stifled the enthusiasm of the ‘dinner party’ crowd boasting about how they have made ‘loadsamoney’ in property. Sources both from anecdotal and actual data-led evidence shows that there has been a retreat from the sector from those who previously saw it as a risk-free passive investment option to supplement a pension and which around 10 years ago would regularly produce a good annual return.
“Yes I would agree,” said Chris “and that is one of the two clear trends we are seeing in the current marketplace. As you say, some landlords with only one or two properties have been exiting as the tax changes introduced back in 2016 have taken hold. However, there has been very little reduction in available rental stock in many locations as more professional landlords have acquired the properties and of course they often take a more entrepreneurial approach when buying.
“It is these more astute buyers who have seen the opportunities in recent years to add additional units to their portfolios. Very often they will look at enhancing the asset value by going down the HMO route to gain additional rental income. The more novice, part-time landlords are the ones who have been selling up as they see a very different marketplace, compared to ten years ago.”
Apart from tax and regulation changes, another key factor is the sudden change from almost two years ago in interest rates, which Chris acknowledges.
