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Property developers and investors in the UK could be foregoing more than £1 million in borrowing capacity on individual projects by relying on manual finance sourcing instead of comparing lenders, according to research by Brickflow. Its report, The UK’s Most Expensive Mistakes, analysed 300 simulated searches covering bridging loans, commercial mortgages and development finance. The research found average net loan differences of GBP 250,000 for bridging finance, GBP 306,000 for commercial mortgages and GBP 842,000 for development finance across identical borrowing scenarios. Individual cases showed financing variations exceeding GBP 1 million, with differences affecting the amount of equity borrowers must commit and the number of projects they can undertake.
Property investors and developers in the UK may be losing substantial borrowing capacity on individual transactions by sourcing finance manually, with lender terms varying significantly even when borrowers present identical funding requirements, according to research by specialist property finance comparison platform Brickflow. The findings were published in its report, The UK’s Most Expensive Mistakes, which examined how differences in lending terms can affect borrowers’ cash requirements and wider acquisition and development pipelines.
Brickflow analysed 300 simulated finance searches covering bridging loans, commercial mortgages and development finance. The searches compared responses from different UK lenders to identical borrowing scenarios across the three financing categories.
The research found an average net loan difference of GBP 250,000 for bridging loans on a GBP 1.4 million purchase. For commercial mortgages, the average difference was GBP 306,000 on a £1.5 million purchase, while development finance recorded an average net loan difference of GBP 842,000 on a GBP 3.7 million project with a gross development value (GDV) of GBP 5.2 million.
The variations were recorded across the asset classes and finance products assessed. In bridging finance, the smallest gap in the dataset was GBP 55,000, while pure residential purchases recorded an average difference of more than GBP 251,000.
One simulated bridging transaction involving a £1.4 million residential purchase in London produced a net loan offer of GBP 979,265 from the most competitive lender, compared with GBP 646,106 from the least competitive. The GBP 333,159 difference meant the stronger offer provided 52% more funding against the same property.
A GBP 1.5 million retail acquisition in the North West showed a similar disparity in commercial mortgage lending. Net loan offers ranged from GBP 1.125 million to GBP 750,000, creating a GBP 375,000 difference. According to the research, this translated into a 50% reduction in the deposit requirement for the borrower who secured the more competitive financing terms.
The largest difference in the individual examples involved development finance. For a £3.7 million residential project in Wales with a GBP 5.2 million GDV, the highest net advance was GBP 3,371,262, compared with GBP 2,340,936 from the least competitive lender. The resulting GBP 1,030,326 variance was associated with a 94% higher return on capital employed (ROCE) for the investor securing the better financing terms.
Brickflow also examined the cumulative effect of differing loan terms. In the GBP 3.7 million development scenario, the required equity contribution ranged from GBP 450,000 to GBP 1.4 million. An investor with GBP 1.4 million of equity could therefore allocate the capital across three projects when securing the lowest deposit requirement, compared with committing the entire amount to one project under the least competitive terms.
The report estimated that repeating this difference over an investment career could result in 30 completed projects for an investor securing more competitive finance, compared with 10 projects for one consistently accepting the least competitive terms.
Ian Humphreys, CEO of Brickflow, said manual sourcing remained common among borrowers and brokers who do not use technology. He said the approach could leave significant amounts of equity tied up unnecessarily on individual transactions, restricting the capital available for further property purchases and development projects. Humphreys added that the platform was developed to help brokers secure financing with less capital committed to each transaction.
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