Property developers and investors could tie up more than £1m in additional equity on a single project by failing to compare lenders, research from Brickflow has found.
The specialist property finance comparison platform analysed 300 simulated searches across bridging loans, commercial mortgages and development finance, comparing lenders’ responses to identical borrowing scenarios.
Its report, The UK’s Most Expensive Mistakes, found substantial differences between the net loans offered against the same properties and development schemes.
Bridging loan searches produced an average difference of £250,000 on a £1.4m purchase, while commercial mortgage searches returned an average gap of £306,000 on a £1.5m purchase.
The largest average difference was recorded in development finance, where offers on a £3.7m project with a gross development value of £5.2m varied by £842,000.
For a £1.4m residential purchase in London, bridging finance offers ranged from £646,106 to £979,265. The £333,159 difference meant that the most competitive lender was prepared to advance 52% more than the least competitive provider.
Across Brickflow’s bridging finance dataset, the smallest difference was £55,000. Residential purchases produced an average gap of more than £251,000.
On a £1.5m retail purchase in the North West, commercial mortgage offers ranged from £750,000 to £1.125m. Brickflow said the £375,000 difference would halve the deposit required from a borrower securing the higher loan.
A residential development in Wales produced the widest individual gap. The most competitive lender offered £3,371,262 against £2,340,936 from the least competitive lender, a difference of £1,030,326 on the same £3.7m scheme.
Brickflow calculated that securing the larger facility would result in a 94% higher return on capital employed.
THE EFFECT ON DEVELOPMENT PIPELINES
The report also examined how differences in lending terms could affect investors’ ability to undertake further projects.
On the £3.7m development scenario, the lowest deposit required was £450,000, compared with £1.4m under the least competitive terms. An investor with £1.4m of equity could therefore spread the capital across three projects under the first arrangement, rather than committing the entire sum to one.
Brickflow said that, if repeated over an investor’s career, the difference could amount to completing 30 projects instead of 10.
Ian Humphreys, chief executive of Brickflow, says: “Looking at a single lender or a handful of lenders is the industry standard for many borrowers and brokers not using technology. The reality is that this manual approach is costly.
“Borrowers can tie up hundreds of thousands of pounds in unnecessary equity on every deal by sourcing finance manually. If that capital were freed up and reinvested, the additional property transactions completed each year could be substantial.
“Manual loan sourcing is holding brokers and their clients back. We built Brickflow to help brokers close more deals for their clients, with less capital tied up in each one.”
