Everyone is talking about the uncertainty in the market, interest rates and the weight of media influence on both. Interest rates have always been a hot topic in bridging but have we been spoiled in recent years?

Transactions typically are either emotionally or financially motivated. Emotionally motivated transactions are usually those such as chain breaks, buying the ‘dream home’ before selling the current home, or moving an older relative closer to family or into assisted living prior to the sale of their home.

It’s at times like this that savvy investors come to the surface

It’s a true ‘means to an ends’ transaction where you use the bridging loan to achieve a certain outcome rather than to turn a profit. Interest rates and associated fees ultimately dictate whether this emotional tie to the transaction outweighs the cost.

Low rates in recent years coupled with no requirement for monthly payments and USPs for owner-occupied transactions, such as online valuations, have meant people largely regard bridging finance as a useful tool to make things happen. The choice is usually: take the bridge or let the opportunity at hand slip away.

I don’t see increasing rates scaring off financially motivated investor transactions

The million-dollar question now, with interest rates increasing, is: when will the scales tip the other way? When will the means (the cost of the loan) be too much to justify the ends, even if the ends really are the dream home or something similar?

No regrets

Perhaps I am overly optimistic but I don’t think that point will come. I don’t think increasing rates and the overall cost of getting things done in fact stop people from using bridging finance to do just that: get things done. We are human, and we want what we want. We will often do what it takes to get it because the pull of an emotionally invested outcome outweighs the cost.

There is still a huge amount of interest from the investor market. When one door closes, another opens

I don’t think many people look back on life and regret taking the finance to buy the dream home in the good school catchment area or to move an older relative closer to their loved ones. I do, however, think people may regret not making things happen. Bridging finance is the catalyst that people use to get things done and make things happen.

Financially motivated transactions are a whole different ball game. If the deal doesn’t make money, the deal doesn’t make sense. There are no ‘forever’ homes, gardens for the kids to play in or home offices calling investors’ names. It’s all profit margins, cost of materials and gross development values. Rising interest rates are making deals less profitable, but only if you aren’t factoring in the cost of finance to the overall picture.

I don’t see increasing rates scaring off financially motivated investor transactions. There is still a huge amount of interest from the investor market. When one door closes, another opens.

Bridging finance is the catalyst that people use to get things done and make things happen

What this means is it’s at times like this that savvy investors come to the surface. Where most people will see a deal that doesn’t stack up, investors with good relationships will be able to turn a profit more easily. They will see opportunities at properties to increase end values. They will have the relationships to buy properties off market. They will have the skills to be able to negotiate a below-market-value purchase price.

The cost of finance, and specifically bridging finance, is only one element of the recipe for making money out of property. Even with increasing interest rates, if the ends justify the means then bridging finance will always have a place — be that on emotionally or indeed financially charged transactions.

Sam O’Neill is head of bridging at Clifton Private Finance