The phrase ‘a bridge too far’ has always been used to describe something that is unrealistic or unreasonable. Bridging finance has often fallen into that category by uneducated investors. In most people’s minds bridging is ‘******* expensive!’
This still largely true if you’re using it for its original purpose, buying a new main residence before selling your current one but that is a small percentage of the bridging market. Commercial use is the main way bridging is now used i.e. to make money on properties you don’t actually live in.
More than a decade ago, bridging interest rates were approx. three times higher than mortgage rates. Back before 2010, the standard rate for bridging finance was 1.5% a month – i.e. 18% pa, At that time mortgages were running at around 5-6% annually.
The credit crunch caused mortgage interest rates to drop, and they’ve stayed low for more than a decade, sitting at around 2-3%. In the early 2010’s bridging remained around that 18% pa mark, so that ‘expensive’ accusation had some accuracy, being around 6 x more costly.
However, in the last 5-7 years, bridging costs have become progressively cheaper.
Why? As new bridging lenders came into the market, lots of undercutting was going on to gain a foothold in a lucrative market and that resulted in bridging interest rates spiralling inexorably downwards. This means that bridgers nowadays make significantly less money than they used to, but its borrowers who now get the better deal – a true shift in fortunes.
Add to that the fact that exit fees for bridging loans used to be commonplace but are now pretty much unheard of. However, since mortgage lenders always charge redemption penalties with very few exceptions, the absence of exit fees makes bridging finance even more attractive by comparison.
The fact is that the cost of bridging has halved in last decade. Now even 1% per month is an unusually high and a rate of 0.75% is now normal. In fact, bridging for the right deal can be as low as 0.5% a month (6% pa).
In terms of that cost comparison between mortgages and bridging, in the last 6 months everything has changed.
Rising interest rates for mortgages has featured repeatedly in the news headlines, as mortgage lenders followed the Bank of England’s base rate as it has risen. BTL mortgage rates hit around 6-8% in late 2022, before sliding back to around 5%, but they’re at the aspirational end of the market and you’ll need to tick every single lender’s box to qualify for sub 5% investment mortgage rates.
Meanwhile, bridging remained virtually unaltered. There hasn’t been even a little spike in interest rates so that, for the first time ever, bridging and mortgage interest rates are almost level – certainly when you compare the best bridging rates with not-so-great mortgage rates.
Bridging, possibly for the first time ever, offers better value; in terms of the competitiveness of bridging compared to mortgages. That puts us in uncharted waters as it’s never been as cheap as it is now. It’s a seismic shift in comparable affordability – the like of which we’ve never seen.
Here's the best bit – almost no one understands this. Pretty much everyone is still stuck on that now outdated mantra of ‘Bridging finance is ‘******* expensive!
What does this mean? Well, for the savvy few who understand the implication of this seismic change, unparalleled opportunities to do deals, to buy properties using bridging that the masses of property investors unthinkingly disqualify themselves from, due to their outdated mind-set.
You want less competition? Of course, we all do – and here is a gilt-edged opportunity, hidden in plain sight. This is a proper ‘fill yer boots’ opportunity – ignore this at your peril.
If you’re thinking about applying some of the Ninja investor techniques I teach – there has never been a better time.
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