If you live in Essex or nearby you will know that there is a strong demand to refurbish residential properties, upgrade commercial spaces, and for small-scale development projects in Essex. This makes it one of the most active property development counties in the entire South East of the UK.
Due to this, property development finance, including short-term bridging loans, is very commonly used across Essex. It is a faster and much more flexible alternative to traditional bank lending, a form of lending that can take much longer than you need.
Developers and investors frequently encounter competitive conditions, especially in established towns and commuter areas such as those in Essex. We understand that any delays in funding can very quickly lead to a missed opportunity; this shows the significance and importance of short-term property finance even more. This form of finance allows projects to move forward without any lengthy approval processes, rigid criteria, or inflexible structures that are normally associated with high-street banks.
Property development finance, in the form of a bridging loan, is frequently used where timing, property condition, or complexity can make standard lending unsuitable at the point of purchase.
Common scenarios in Essex
Residential property renovations
This is one of the most frequently used reasons for development bridging finance in Essex. Most projects involve purchasing houses or flats that are dated, vacant, or unmortgageable in the condition they are currently in, they often need funding in order to complete refurbishment before a resale or refinance.
Light development
Light development projects are also very common across the county of Essex. This can include things such as:
- Extensions
- Loft conversions
- Small multi-unit schemes
The above examples are ones where full development finance may not be needed, but short-term funding is needed in order to buy the property and carry out the work.
Commercial refurbishments
Commercial refurbishments are another typical scenario in which development finance is used. Offices, retail units, and mixed-use buildings all more often than not require upgrading before they are a suitable option for tenants or long-term finance and this is exactly why short-term property finance is not only a practical solution, but the perfect solution.
Purchasing at auction
Properties that are sold at auction usually require completion within 28 days, which often rules out bank funding. Bridging finance allows developers to meet deadlines while retaining flexibility around their exit.
Why does property development finance work well in Essex?
If you’re looking for a location with a fast-moving property environment then Essex is the place for you. Property refurbishments can very quickly unlock value. Short-term property finance works very well in this context as it mirrors how projects are delivered in practice, not just on paper.
As using a bridging loan to develop a property allows for fast completion times it allows developers to secure properties before competitors, this can be very important when demand is high. Rather than long-term holding from day one, you can start your project straightaway.
When using traditional bank lending underwriting can be a lot more rigid, however, this is not the case with bridging loans. There is a greater focus on the asset, the project, and the way you intend to exit, rather than solely on historic income. This flexibility can be very valuable in Essex, there are many opportunities that involve non-standard properties, mixed-use buildings, or assets that require work before they are suitable for any type of long-term finance.
If you are a developer that works across multiple projects, this type of funding can also support momentum, it allows capital to be deployed in an efficient way with no unnecessary delays.
Exit strategies
Having a clear exit plan is front and centre when it comes to property development finance and is a key consideration for any short-term loan.
Two of the most common exit strategies include:
- Selling the property once the refurbishment has been completed and value has been added to the property.
- Refinancing onto a buy-to-let or commercial mortgage once the work has been complete and the property meets lender criteria.
Some developers also use this kind of financing as part of a portfolio recycling strategy, this is where they take money out of one project and then put it into the next one. The short-term nature of bridging loan funding makes it suitable as long as the exit plan is well defined from the outset.
Suitability
Property development finance is mostly used by property developers, investors, and commercial borrowers. It is not designed for owner-occupiers or standard residential purchases.
A property development bridging loan is most effective where there is a clear understanding of the following:
- The cost of the project
- Timeline for the project, whilst also making sure it is realistic
- The exit strategy, this has to be clear and again realistic
Example use of property development finance
A developer identifies a dated residential property on the outskirts of Chelmsford that has a potential for refurbishment and resale.
The property is structurally sound; however, it does require significant updating and is unsuitable for a standard mortgage in the condition it’s currently in. The purchase of this property is time-sensitive. If the developer was to wait for approval from the bank they could risk losing the opportunity to buy the property. By choosing to go down the property development bridging loan route, the developer is able to complete the acquisition quickly and start to fund the refurbishment work that it needs.
Once the renovation has been complete and the property has been brought up to modern standards, the developer can then exit the bridging loan via a sale or refinance. This strategy not only maintains the project’s timeline but it also releases funds for any potential future projects that the developer has in mind.