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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.
80% NET
01 Day
0.65%
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28 Days
£200k
£25M
OMV
The UK has been, despite a global pandemic, experiencing one of its best periods for property investment in decades. Thanks in part to a lack of supply, a surge in demand and changing priorities thanks to Coronavirus, prices have skyrocketed since late 2019.
This has meant that the attention of the world was turned towards the UK property market and its relative stability and strong returns.
Whilst global equity markets and bond markets experienced a very rocky few years, the UK property sector has flourished and grown almost exponentially.
This, in turn, has meant an explosion in popularity of buying, investing, and converting properties, and with it the finance industry has adapted to provide better and more specialised products to property investors and developers to accommodate this increase in popularity.
This is something that isn’t expected to change for some time, and as the country bounces back and the economy recovers, the government has made it clear that they intend to put UK property right at the centre of their recovery plan either with incentives, tax breaks, or access to better finance.
One issue, however, that our clients face is that many high street lenders will not provide a mortgage unless a property is in a certain state of repair. Many properties that are bought for a good price are ones with potential and so require some work before they’re eligible for a mortgage. This is where refurbishment bridging comes in, and how we can help our clients that are looking to finance refurbishments.
In very simple terms a refurbishment bridging loan is a type of loan that is designed to cover the costs of refurbishing a property in the short term until the owner either decides to sell the property, or arranges a long term alternative such as a mortgage.
Many of our clients buy properties at auction, and if those properties aren’t in a state of repair to qualify for a mortgage, they approach us to discuss a bridging loan in order to carry out refurbishment before either selling or arranging a longer term solution.
When applying for a refurbishment loan, many lenders will just want to know how long you anticipate you’ll need the finance for, what you’re intending to use it for, and what your exit strategy is in terms of repaying your loan.
Again, it can be difficult to access funding or finance if it’s purely for refurbishment or if it’s for a property that’s not in a good enough state of repair for tenants or inhabitants. This is seen as a riskier prospect to lenders and banks that other types of lending on property, and so it’s inherently more difficult to access.
That’s why so many lenders have recently started to offer this specific type of bridging loan to clients in order to cater for this short term need. We know, for example, that our panel of lenders has grown substantially in recent years to accommodate this drive in demand, and so it makes sense to go to specialised lenders for this type of project.
We have access to a wide variety of lenders and refurbishment loan companies. This means that you have access to the best specialised finance companies on the market and can get a wide variety of quotes for a loan.
We know that in property, time is of the essence which is why many of our clients are able to get an agreement in principle within 72 hours!
We’ve built up relationships with our panel of finance companies over many years, so we’re able to offer our clients exclusive rates and terms with our lenders.
Our advisors and brokers have decades of experience between them and are able to advise you and help you every single step of the way from first contact to receiving your funds.
Ready to apply for financing? 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.
To help, we’ve put together a refurbishment bridging finance calculator. This will help you get a better understanding of what you may be eligible for, what the rates may be, and what the costs could be too.
Of course, this is intended as an illustration, and if you’d like a more detailed conversation with one of our advisors or bridging loan brokers then we’d recommend that you speak to them directly.
In our calculator for refurbish finance, you can adjust the amount, deposit, term and rates that will allow you to see what you could afford if you were approved with one of our lending panel.
Hank Zarihs Associates streamlines your financing journey with tailored solutions, fast approvals, and expert guidance, connecting you to trusted lenders for project success
Generally speaking, there are two types of finance for refurbishments, which are classified as light refurbishments or heavy refurbishments.
This ‘light’ type of finance would generally be for quite minor works, such as replacing a central heating system, having a roof fixed, or mainly for works that wouldn’t require planning permission.
These types of works are light in nature and not considered to major renovation works that would require more significant funding for the property and can be completed fairly quickly.
These types of heavy renovation works are generally considered to be anything that might require planning permission or anything that requires work on the structure of the property, such as supporting walls, foundations, or anything similar in nature.
Broadly speaking, it also includes anything that would require an extension or addition to the building itself, or any building works that may need to be done as part of building regulations, such as fire doors, separate bathrooms, or things of that nature.
The classification for this this type of bridging finance is due to the fact that it will mostly take longer than light works and will more than likely require a larger amount of lending.
A refurbishment bridge, or bridging finance, may also be referred to as a refurbishment mortgage, and again the classification of what type of lending it will be will largely depend on the scale of the works you’re looking to undertake.
If you only require a small or relatively straight forward level of renovation then this would be classed as a light refurbishment mortgage, however, if you’re looking to change the structure of the property or add an extension, this would be a heavy renovation, but this is something we can discuss with you in more detail, and something we can help with.
Most high street lenders won’t lend against properties that need renovations doing before they’re inhabitable, so one great benefit of this type of bridging finance, or specialist mortgage, is that our panel of lenders understand the project you’re undertaking and have designed their lending around you and your needs, meaning they can offer you the terms, amount and rates that you need.
Due to the nature of renovations and refurbishment, most of this type of lending and bridging finance is designed to be flexible in that you can take it for as little as a month, all the way through to 24 months should you require it. All these types of lenders will usually look for from you is a viable exit plan and proof that you’re able to complete your project on time.
More traditional lending can be quite rigid in its terms and rates, in that a lot of these lenders won’t want to lend out to you if you’re looking for a relatively short term loan, however, we’re able to get you access to much more flexible lending.
We’ve spent years putting together a team who can discuss all your needs with you and find you exactly the right finance for your situation.
Because we work with a niche panel of lenders we’re confident that no matter what your needs we’ll be able to put you in touch with a lender who’s able to meet those needs and offer flexible terms that work for you.
We’ve also been working with our panel of lenders for years now, so we know that when it comes to getting you the best deals, we’ll always have access to the best, including exclusive rates and offers.
We also understand and appreciate that for many of our clients they need access to capital quickly, and we provide ourselves on working quickly and efficiently to make this process as quick as possible for, which is why we ensure that all our brokers and advisors are able to provide you with the best possible advice.
If you’re looking to talk about bridging finance, a mortgage, or other types of lending, then why not get in touch with us today?
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
A Privately Owned Independent Boutique Financier Whose Main Area of Focus is the UK Real Estate Market. Specialists in Raising Debt and Equity for Professional Sophisticated Investors and Developers.
Our core focus is offering fast solutions, financial products that deliver results, and the highest of service levels. If you would like to find out more please contact us to discuss your funding requirements.
Address: 2nd floor North Park House, The Precinct, High Road, Broxbourne, EN10 7HY, United Kingdom
Mobile: +44 (0) 20 3889 4403
Email: contact@hankzarihs.com
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