Using Bridge to Let to manage sales in a rising market

House prices have risen by nearly 10 per cent in the last year, according to the Halifax House Price Index and values are expected to keep on growing. The latest report said that “the current strength in house prices points to a deeper and long-lasting change”.
As always, beyond the national picture there are also more local regional trends.

Property prices in Greater London, for example grew by just 3.1 per cent in the last year, according to the index, as demand for city living dropped in favour of larger homes with more outside space in more rural areas. 

The top-line rate of house price inflation is good news for developers of course, but it also poses a problem. Once they have completed a scheme, are they better off selling all the units while the market is hot or holding on to some to benefit from additional capital gains?  

In addition, for those investors building units in London, there’s a question as to whether they would be better off holding on until the impact of lifting lockdown restrictions is better known, when smaller properties close to amenities are likely to be more in demand. 

Timing is everything when it comes to investing and so the ability to have more control over when to make a sale can be a very powerful tool for developers. So, how can developers achieve greater control over when they sell some of their units? 

Gaining control 
One way of doing this is to use bridge-to-let. The bridging element of bridge-to-let can be used as a development exit loan to refinance the scheme that is completed or nearing completion, often at a lower rate than the development finance facility.

Then, when the properties are ready, the developer can choose to switch all the properties onto a buy-to-let loan and let the properties to tenants, perhaps with the intention of selling at a later date. Or, if they choose, they could sell some properties now and switch some onto the buy-to-let loan, reducing the outstanding balance in the process. 

Some lenders can also structure clever hybrid loans that give developers even greater flexibility. For example, a development exit loan which has a hybrid solution that combines a serviced loan and a bridge.  

The loan can be split at the outset between a bridging loan on some properties that are being marketed for sale and a fixed rate loan with serviced interest on those that were being retained to let out.  

Once the term ends, the bridging loan can be converted to a serviced loan without an early repayment charge (ERC), enabling the client the flexibility to choose whether to deleverage at this stage or to service the debt. 

The current market is encouraging increased activity from developers and the use of bridge to let, or a structured hybrid loan, can prove an important tool to give them the control they need to maximise their returns.