- Monday to Sunday
- 9am till 9pm
- +44 (0) 20 3889 4403
If you’re looking to purchase a property at auction – perhaps to refurbish, or to acquire the land to build upon – then you may need finance to complete the transaction.
100% NET
01 Day
0.65%
Minutes
100%
£200k
£100M+
OMV
In the world of development finance it can be difficult sometimes to know what your options are and, more importantly, which is the right option for you.
More often that not in those types of situations it helps to seek advice and guidance to allow you to get back to what you’re good at and get your project completed, so here we’ll run you through one of the popular finance options when developers are looking for second charge bridging loans amongst other property developing choices.
In basic terms a second charge bridging loan is where you raise finance on an asset that already has a mortgage or other type of first charge on it.
Typically, these types of loans are used as bridging finance to raise capital quickly in the event of unforeseen costs. These types of loans are usually designed to be lent over shorter periods of time so usually have higher interest rates.
A second ‘charge’ means that in the event of payment problems, the company providing the finance will be able to take charge of the asset that you’ve offered as security. In most cases for developers this will be the property that they’re building or developing.
If you’re involved in a property development project and you’ve already raised finance, or already have an existing mortgage and you’re renovating a property and require further finance then a second charge loan may be appropriate for you.
As you’ll know, developing properties and houses as well as new build developments can often throw up unforeseen situations and costs that couldn’t have been predicted. In these circumstances developers often need to raise finance quickly, second-charge loans can help with this.
Hank Zarihs Associates are specialist and highly-experienced intermediaries in the development finance and investment funding industry. We work with a tried and tested panel of specialist funders with an excellent track record in the market, who can offer high leverage and gearing.de
We take the time to truly understand the nature and complexity of each project, each client and their needs. As experienced developers and property experts will know, no two projects, developments or refurbishments are the same and as such all will have different financing needs.
As an experienced and trusted intermediary we’re also able to take away much of the stress of trying to approach lenders directly. Often due to the complexity of the project it can be time consuming and our clients depend on us to make things as simple and speedy as possible for them, and it’s what we’re good at.
After so many years in the finance industry we’ve developed a number of exclusive relationships with lenders, finance companies and mortgage providers that allows us to offer exclusive rates and exclusive deals that you won’t find elsewhere.
Our experienced team are also perfectly placed to go through your project and proposal with you every step of the way in order to ensure you’ll be offered the very best rates and save time and money along the way. Talking things over with an expert will allow you to get a new perspective.
Ready to apply for second charge? We work with a tried and trusted panel of lenders who are actively lending. The deals that we can recommend to our clients are updated daily, so you have complete peace of mind that you are receiving details of the best possible finance products on the market in real-time.
We recommend that you try out our bridging loan calculator to give you an idea of what you could be eligible for and how much your finance could cost.
Due to the complex nature of raising finance for your development, it’s worth weighing up your options as there could be other types of development finance that could suit your needs more appropriately. However, if you’re looking to raise finance quickly on a project with an existing mortgage or ‘first charge’ then second charge loans could be right for you, here are some benefits of this type of finance.
Bridging loans do what they say on the tin, they’re designed to be short-term lending and as such this means that they’re excellent for short-term problems such as cashflow issues or unforeseen building costs. Although the headline interest is likely to be higher due to the shorter term it’s also true that in many scenarios developers will spend less on a short term bridging loan.
In many instances bridging loan companies are more flexible with their lending criteria with regards to bad credit. As the interest tends to be higher and they’re shorter term it means that you could be more likely to be accepted. You’re also in a better position with assets to provide as security. As long as you meet the criteria you won’t have to worry as much about bad credit.
With a bridging loan you’re able to access large amounts of cash fairly quickly. With most lenders allowing you to borrow between £50k and £750k you can rapidly get the money you need to keep your development project on track.
Speed is of the essence. With bridging loans and second charge bridging loans they’re designed to give you access to funds in the quickest possible time so that you can keep your project on track.
Most companies that offer bridging finance have a wealth of experience with these types of loans and, as such, can offer great advice and can offer provide approvals more quickly than with other types of property finance. Our panel of lenders have years of background in this industry and understand what property developers need and what they need it for as well.
Hank Zarihs Associates streamlines your financing journey with tailored solutions, fast approvals, and expert guidance, connecting you to trusted lenders for project success
The amount you’ll be able to borrow with this type of finance, as with other types of loan or second charge bridging loans, will vary depending on your project.
Most loans of this type will start at around £10,000 and can go up to £250 million, and the amount you could get approved for will depend on things such as what the gross value of the project is when finished, what your track history is like, the terms and condition of the lender, what your credit rating is like, and whether you may need a business plan.
Bridging loan criteria will differ between lenders, however, generally speaking they’ll require that you have your initial mortgage with them too, that you put an asset forward as security, proof of your income, evidence of your track record when developing properties, and in some cases a business plan too.
It’s advisable to speak to a team member firstly so that they can get the details of your project and let you know what you may or may not need to complete an applications.
Once again, this will differ depending on which lender you go with, but generally speaking you could expect to pay somewhere in the region of 1.5% per month, which would equate to roughly 18% APR (Annually)
If you’re wondering what types of things people typically use second charge finance for, then we can give you a few examples here.
Yes they can, but this will depend and differ between lenders. Your project, value and timescales as well as existing finance arrangements will have implications for whether you’re approved, which is why we recommend speaking to one of our specialist advisors beforehand.
As well as the interest payments on the loan you’ll also pay an arrangement fee for setting up the loan on your behalf with your chosen lender. That will usually be between 1% and 2% of the total amount of the loan. An exit fee may also apply which covers the cost of paperwork and admin, but this all varies between lenders and depends on the amount you’d like to borrow on your loan and what your circumstances are.
You may have heard about bridging loans in the context of property investment or moving house, but what exactly are they? Basically, bridging finance is a type of short-term loan that allows a buyer to purchase a property before their existing home or investment property is sold. As the name suggests, it ‘bridges’ the funding gap in the lag between purchase and sale – offering rapid access to the necessary purchase funds for a brief period of time.
Borrowers can access from £5,000 to £250 million, depending on applicant status, the value of the property and other lender criteria. Higher lending amounts are typically reserved for borrowers who can put up several properties as security. Quotes are provided on a Loan to Value (LTV) of 65%-80% in most situations.
The bridging finance market has grown rapidly, with a number of small and focused lenders now on the market, catering for specialist property finance needs. The market has changed because large high-street lenders have become less willing (and sometimes less able) to lend ever since the financial crisis of 2008.
As to whether a bridging loan for property development, auction purchase or private home buying is a good idea, it depends on a variety of factors. Bridging loan requirements vary by lender, but each will have certain common features that need to be considered.
The most notable feature of this type of finance is that the interest rate is likely to be high. At the same time, there are typically high administration fees applied to the loan. Because of this, it is essential to proceed very carefully and with a full view of the facts. Borrowers have been burned by this type of loan in the past, in instances where transactions have fallen through, or where lenders have turned out to be unscrupulous and untrustworthy.
Benefits of instant bridging loans
1. Rapid access to money
2. Ability to borrow large sums – often up to £250 million depending on applicant status
3. Options for flexible borrowing.
Possible downsides of bridging loans:
1. Failure to understand the unique features of these loans can result in financial risk
2. Bridging finance is secured against your property; meaning it can be sold if you can’t meet the repayment terms
3. A costly option with fees and higher interest
Bridging finance interest rates will vary by lender. However, interest costs of 1.5% a month are not unusual, which can equate to an annual percentage rate of 18%.
Bridging loans may have fixed or variable interest rate features. Fixed interest rates are ideal for customers who want stability, as they offer the same amount of interest for the duration of the term. The rate is pre-agreed, but there may be a premium for this security.
The other choice is to have a variable rate bridging loan which can change with the base rate. However, you can save money if the base rate decreases. Borrowers who are less concerned about security sometimes prefer the variable rate option if they believe that the financial markets will travel in their favour. Knowledge and market insight is required here, along with a thorough understanding of personal risk tolerance. If interest rates appear to be rising, most customers will choose the fixed interest rate to lock it in and avoid further increases in the event of a base rate rise.
Bridging loan periods tend to be for several months and there are usually different options for paying the interest portion.
Monthly repayments
The customer repays the interest every month as a separate payment, rather than adding it to the outstanding balance
Rolled-up bridging finance deals
The compound interest is calculated monthly but added to the outstanding loan balance and paid together when repayment is due.
Retained interest
The monthly interest payment due is covered up to a predefined date so that the full sum is only repaid when monies are due.
As well as interest payments, there will be an arrangement fee for the set-up of the bridging loan, which is usually around 1-2%. A repayment fee for exit paperwork may also apply, along with valuation fees for the cost of the surveyor.
Remember, this type of finance is designed to be short-term. As soon as it extends beyond the agreed interim or bridging period, penalties can rapidly stack up. Typically, bridging finance is available for 1 – 18 months.
Yes, there are two broad types: closed bridging finance and open bridging finance.
With closed bridging finance you will tell the lender how you will repay the loan – with what funds and when. These loans usually complete within a few months and the clear exit plan is required as a lending condition.
Open bridge finance won’t usually need this type of exit plan, and it is typically the loan of choice when funds are needed urgently to complete a property transaction. No detailed plan is needed to explain how the debt will be settled, and the finance tends to be offered for up to a year. Of course, it’s important to note that interest will keep being applied throughout this period.
There are also first charge bridging loans and second charge bridging loans.
If you have a loan against a property which is already mortgaged, you’d take out a second charge loan. An example of this would be if you were planning to finance a property extension to improve the property. The categorisation tells the lenders who will have legal priority for repayment if the loan was unable to be paid off at the term-end.
First charge loans apply if the new loan is the first secured on the property.
Bridging loan requirements will depend on the lender. Often, lenders will require that:
Customers must also take out their property mortgage with them too, providing the bridge finance as an interim measure before the standard mortgage comes into play.
Property is put forward as security against the loan. Some lenders expect applicants to have more than one property in order to be eligible for their bridging finance products, but this will depend on the lender and the size of the loan.
Applicants show proof of income – although, interestingly, as loan interest isn’t repaid monthly, some lenders do not request this.
The applicant shows evidence of their property investment track record if they are planning to develop their purchased property.
The applicant can show a business plan if they are using the bridging loan for commercial purposes.
Development loans are another type of short-term property development loan. They are repaid in stages and calculated on the gross value of the development. Personal loans are another option, as are remortgages when timescales are more flexible and a long-term loan is desirable.
Use a bridge loan calculator
Ask for your lender to provide a tailored bridge finance example or illustration around your particular borrowing needs.
Think carefully about the type of bridging loan that you need – whether open bridge finance or closed bridge finance.
Know whether the loan is a first or second charge type.
Clarify whether the interest rate is fixed or variable.
Review products from several lenders.
Be clear on your security.
Read the small print!
Bridging loans are offered by banks, building societies, specialist lenders and brokers. They aren’t widely advertised and usually require a direct application by the customer to find out the product features and offers.
Once you have made an application, a decision will usually be made within 24 hours. The funds then will take around two weeks to be issued, including time for checks to be carried out, the valuation and the actual transfer.
Hank Zarihs are highly experienced and specialist financial intermediaries operating in the property development market. We work with a tried and tested panel of over 60 trusted lenders and can provide excellent bridging finance with attractive features. Contact us to find out more.
Hank Zarihs Associates streamlines your financing journey with tailored solutions, fast approvals, and expert guidance, connecting you to trusted lenders for project success
