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Bridging finance to fund prime real estate

Bridging finance to fund prime real estate

COVID-19 has posed many challenges to the prime property sector, but with life slowly coming back to normal thanks to the easing of lockdown restrictions, it leaves us to question – what can we predict will happen in the coming months?

There is still confidence that prime real-estate markets will bounce back – largely due to a number of transactions still going through even when social distancing was in place. The world has to keep turning, and in our industry we are lucky that COVID-19 did not made financing impossible, even when valuers were unable to visit properties in person, until recently.

“Bridge lenders are more flexible than institutional lenders” suggests Toby Johncox of Enness Mortgages.For particularly unusual cases – and high-net-worth clients or those with associated higher risk – a bridge offers more flexibility over traditional underwriting. 

Speed is another benefit of using bridge loans to finance prime assets – which can be completed in as little as two weeks compared with 8-12 weeks for mortgage loans. Obtaining property funding can often be make-or-break. “There is one example where we had to move very quickly as the bank was trying to repossess a property,” says Toby. “So we used a bridge because of the speed of the transaction.”

One of the primary challenges lies in the valuation. During lockdown, valuers were unable to visit properties though this did not stop more creative solutions being employed, such as drive by and desktop valuations. 

Traditionally valuers have relied on previous transactions as a benchmark, though it will be difficult for them to use pre COVID-19 valuations going forward. That said valuations have always been tricky when it comes to locations in prime central London and as a result the brokers at Enness are very experienced in managing this part of the transaction.

Toby believes the ‘prime’ locations – London, New York, Monaco, Singapore, Hong Kong – will remain as attractive investments once coronavirus becomes less of an issue. “On the whole I am largely positive. Speaking to clients throughout the Middle East there is still huge interest in prime London property, with many looking to buy as soon as they can travel again.”

Does Toby foresee any changes to the prime and super-prime market as the pandemic crisis eases and the world begins to re-open its doors? Only in perceived risk. “You might see lenders reducing their loan values, which would mean the borrowing percentage on the asset would be impacted. But in reality, most lenders on prime and super-prime are only at 60-65% of the value in any case.”

Financing aside, his advice for clients who are looking to buy is to get good professional advisors. “It is now more important than ever for clients to instruct an experienced estate agent, specialist lawyer, knowledgeable tax advisor and of course a well positioned mortgage broker that can make sure you have the best product to fit your requirements.”

 

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