Borrowing and the Real Estate Refinancing Gap

The 'refinancing gap' refers to the difference between the amount needed to be borrowed to refinance existing debt and the amount that lenders are willing to lend.

This issue has become much more prevalent in the last couple of years due to the hike in interest rates and the decline in property values.

With the Bank of England's interest rate currently at 5.25%, borrowers have to pay much higher interest than a few years ago, so borrowing is more expensive.

The refinancing gap is not just limited to Britain but is also seen across Europe and globally.

According to surveying firm JLL, the current refinancing gap worldwide is $270-$570 billion.

Myerson Solicitors' Banking lawyers explore the refinancing gap for real estate.

Some lenders may be willing to extend the term of their loan, which could help the borrower in the short term.

One solution is for borrowers to consider alternative lenders rather than the more restricted traditional banks.

These lenders often have more appetite to lend than traditional banks, but their interest rates will still be higher than the rates that borrowers have become accustomed to.

Bridging loans can offer a short-term solution, and many alternative lenders have a more flexible approach, such as offering mezzanine funding.

Private lenders and funds may also be an option for investors looking to raise funds.

It will be a last resort for the borrower to sell the property, but this may be the only way to proceed in some cases.

Interest rates have stabilised in the last few months, which is positive for anyone who needs to refinance their property soon.

However, it's very unlikely that rates will return to the very low rates that existed before COVID-19.