Refinancing a Bridging Loan to Help Property Developer Slash Repayments

Short-term bridging loans are a common sight in the world of property development – especially when the developer favours auctions. Buying a property in a time-limited fashion means you’ll need capital quickly, which means many business owners turn to lenders for short-term bridging loans.

Bridging loans have lots of advantages for auction properties – you’ll get a decision quickly and they aren’t as restrictive in terms of requirements as other products like a commercial mortgage. However, they are typically expensive to repay and have high-interest rates. 

For one of our clients, a bridging loan they’d taken out had helped them get the property they wanted – but they now saw an opportunity to reduce costs through refinancing. Recognising the need for a partner who could help guide them through this complex process, they approached our team for help. 

Why was there a problem?

The client was a property developer who had taken out a short-term loan to fund an auction purchase. The property was won at an appealing price, but the auctioneer demanded the funds within 14 days, and the developer in question did not have the capital to hand to fund it. 

The opportunity presented by the property was too good for the client to pass up, so they accepted a fairly last-minute bridging loan agreement that allowed them to make the transaction, but with fairly high ramifications. The loan carried an interest rate of 0.75% per month and needed to be repaid in 12 months. 

Some developers would accept the bridging loan’s rates as a necessary allowance and just take the hit to cash flow, but they’d be missing out. This client, luckily, knew of our team here at Rangewell and decided to ask for our advice around the loan and whether they could change from a bridging loan into a different kind of finance agreement. 

Why we were able to help

The Rangewell team is experienced in all forms of lending, so we are able to quickly identify opportunities to refinance our clients from one type of agreement to another to reflect their change of circumstances. 

Bridging loan agreements are restrictive in their terms because lenders only offer finance against a 90 or 180-day value. 90-day value is the market value of the property assuming it will be sold in 90 days, also known as its auction value. 180-day value takes a longer-term approach and assumes the seller will have the time to advertise and sell the property. Bridging loans don’t take the open market value or longer-term LTVs into account. 

The property developer knew that they could save money by reducing their bridging finance repayments, allowing them to use saved capital to refurbish their new purchase. We helped them understand the lender’s market as a whole and identified the right lenders for their needs. In this case, we approached challenger banks rather than traditional lenders. 

Following this, we were able to approach lenders and demonstrate that our client would add value to the property. We showed them that their past development work in property showed strong potential far past the auction sale. This meant we could persuade them to look at the long-term value of the property rather than its 90-day value.

To meet the client’s goal of saving cash, we secured a term loan agreement that delivered on all of the client’s needs:

1. The longer term of the new loan gave the developer more freedom with their cash flow and immediate growth plans. 
2. The increased term also meant the lender could offer a significantly reduced interest rate. The original bridging loan had a high monthly interest rate annualised to 9%, whereas the new loan was at a far more manageable 3.46% per year. 
3. The new term loan was refinanced within 9 weeks from enquiry, so the developer didn’t have to continue repaying the higher rates any longer than was necessary. 

About refinancing a bridging loan

While bridging loans are useful for specific short-term cashflow requirements, they are always offered at rates worse than you can negotiate for a term agreement. The challenge is in actually securing a term loan, as some lenders will only offer a bridging product if they deem you to be high risk. 

Refinancing allows you to accept a bridging loan in the short term and then move to a more suitable product when required. For some low-risk borrowers who just needed the rapid cash injection offered by bridging loans, refinancing almost immediately afterwards is a good way to save money. 

For other borrowers who may not have the experience or portfolio to convince lenders, refinancing gives you the flexibility of knowing that once you’ve improved your initial business/property after taking the bridging loan, you can eventually switch to a more affordable product. 

Refinance with Rangewell

Lenders base their decisions on your experience and the value of your property or business. With a broker on your side, however, the lender can also be negotiated with and shown added value, such as your experience in a sector or the longer-term value of a property at auction. We’re experts in negotiating with lenders and finding the right loans for your needs. 

If you’ve taken out a bridging loan and you need to refinance to something more affordable, choose Rangewell today and see how we can help.