Longer bridging terms offer flexibility but add £14,000 in interest costs – Octane Capital
The specialist lender said bridging terms of between 18 and 24 months are becoming increasingly common.
Longer-term bridging facilities can give borrowers greater flexibility but could add more than £14,000 to interest costs, according to analysis from Octane Capital.
The specialist lender said bridging terms of between 18 and 24 months are becoming increasingly common as slower property transactions and less predictable exit strategies create demand for longer financing periods.
Traditionally, bridging loans have typically run for between six and 12 months.
Octane Capital compared the cost of an average nine-month bridging facility with a 21-month term, based on an average property value of £277,542, a loan-to-value (LTV) of 52% and an average monthly bridging rate of 0.82%.
On this basis, a borrower would require £144,322 in bridging finance, resulting in monthly interest costs of approximately £1,183.
Over nine months, the estimated interest cost would total £10,651, rising to £24,852 over a 21-month term – an additional £14,201.
Octane Capital said the extra 12 months could provide borrowers with additional time to execute an exit strategy where property sales, planning or refurbishment projects take longer than expected.
The lender added that opting for too short a term could create refinancing or re-bridging pressures if the planned exit is delayed, meaning borrowers should consider the overall cost and flexibility of a facility rather than solely its initial term or headline rate.
Jonathan Samuels, CEO of Octane Capital, said: “Bridging has always been about speed and flexibility, but flexibility increasingly means giving borrowers sufficient time to execute their exit strategy as well as getting the initial funding in place quickly.
“Property transactions don’t always follow the timeline you expect.
“Sales can take longer, planning can be delayed and refurbishment projects can encounter unforeseen issues, so building a realistic timeframe into a bridging facility from day one is extremely important.
“Of course, additional time comes at a cost and our analysis demonstrates just how much more interest can accumulate over a longer term.
“That doesn’t mean borrowers should automatically opt for the shortest facility possible, but nor should they simply take the longest term available.”
Samuels added: “The key is working with your broker and lender to establish a realistic exit strategy and assessing the total cost and flexibility of the facility rather than focusing solely on the headline rate.
“It’s also important to compare lenders carefully. Features such as having no exit fee can provide borrowers with the breathing space of a longer facility whilst still allowing them to exit early without an additional charge should their plans progress faster than expected.”
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