The Property Funding Trinity: Price, Speed & Flexibility | Monday Morning Musing #20

Last week, I discussed the need to understand The Funding Trinity to help best manage expectations and navigate the higgling fragmented capital markets.

The Property Funding Trinity is a valuable tool used for prioritising and decision making when it comes to establishing your financial needs as an investor or developer. The basic premise is that these are the three main factors to consider when making decisions about property finance.

1. Price: How much are you willing to pay, and how much will the lender/investor charge you? This is the bedrock of all business decisions and is largely determined by your circumstances, budget and requirements.
2. Flexibility: How flexible can you be, or can your lender/investor be with you to secure the right product with the best terms and features that suit you?
3. Speed: How quickly do you need the finance? Things can always be faster by utilising more resources; however, this comes at a cost.

I can share a few recent examples of this in practice. One recent scenario has involved multiple units in a broken freehold, which are all above shops, and the developer needs to move quickly as they are on an expensive development loan that is due to expire. The borrower overall has a great track record, and there are several lenders with competitive pricing. This however, has been thwarted by 3 (relatively minor) credit infringements such as missed payments and late payments. Whilst the appetite to lend for many lenders remains strong and lenders are willing to progress at pace and are flexible in their underwriting, the pricing of their products increases to account for the increased perceived risk.

In another case, the borrower is a portfolio landlord. With a growing portfolio, the costs of finance really can enhance or hinder the performance of the portfolio over the next 5 years. As such, the focus is on reducing the pricing as far as possible, no matter what it takes to achieve it. The lender of choice famously has slow turnaround times, and this is largely due to their ability to provide the cheapest terms in the market, and they are inundated with applications to process. The borrower is happy to be patient to achieve the best price, which will enable his portfolio to perform better over the long term.

Whilst most consider bridging loans to be cases that have some major complexity, there is even a spectrum within the bridging world that ranges from the vanilla to the truly mind boggling complex. Whether someone requires speed (like less than a week) or they have a shockingly low credit score, or the asset is less than desirable, there is a lender out there for each scenario and the major difference is the LTV and pricing attached.

There is always a compromise to be made and it comes down to what you value most - price, flexibility, or speed. As an investor, it is crucial you understand this from the outset and how it relates to your situation and needs.

We are here to navigate you through this whenever you are ready.