Planning delays pose the biggest threat to SME housing delivery .

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Planning delays pose the biggest threat to SME housing delivery 1536x864 1

More than half of SME builders reported the planning system as their biggest barrier to delivering new homes, according to the Federation of Master Builders, FMB, annual survey.

Respondents cited ‘inadequate resourcing’ of planning departments as the main reason for delays in applications followed by poor communication.

FMB chief executive Brian Berry said: “For small builders, the survey is clear that the system is too complex and costly. Communication from local planning authorities is also poor. Without changing this, planning issues are likely to loom large as a barrier for some time.”

Extra expense due to planning delays was the most significant cause of additional costs. Out of the 127 members surveyed only 12 per cent had a ‘high degree of certainty’ in the planning process.

Nearly half, 45 per cent, had medium certainty with a third, 32 per cent, seeing a low degree followed by 11 per cent with a very low degree of certainty in the planning process.

The second biggest barrier was restricted mortgage availability with just over half, 51 per cent, indicating this was a problem.

Buyer demand was at its lowest since 2015, when the survey began recording this data, with an average score of two out of five, with five being very good and nought being very poor.

“This issue has seen a rapid rise over the last two years, reflecting the devastating impact the wider economy can have on the small house builders. With many consumers choosing not to take out mortgages it would appear the market is only getting smaller, resulting in less homes being built,” said Mr Berry.

He added that this would be tough for SMEs whose housebuilding market share has dwindled from 40 per cent more than 30 years ago to just ten per cent now.

Nearly a third of respondents, 63 per cent, said small site opportunities are decreasing, down from 82 per cent last year, with five per cent reporting that the number is increasing.

And 60 per cent reported obtaining planning for small sites was worsening with 59 per cent believing national planning policy framework requirements on councils to identify sites wasn’t helping.

“Lack of available land is also frustrating small builders and without proper incentives for local authorities to promote small sites it seems unlikely there will be much change,” added Mr Berry.

Interest rate charges hold SME developers back

Access to finance received the lowest rating in six years of just under two out of five with interest rate charges on new loans quoted as the most significant issue restricting the ability to build new homes.

More than half, 53 per cent, cited self-build or custom contracts as the most popular source of funding for a new project.

Brokers Hank Zarihs Associates said there were still development finance lenders out there offering a property development mortgage at a good rate.

Nearly all respondents, 94 per cent, said it had become more expensive to build over the last 12 months. More than half, 53 per cent, said it had become 20 per cent more expensive with one in five saying it was 30 per cent more expensive per site.

Just under a quarter, 24 per cent, plan to grow their on-site workforce over the next year with 57 per cent planning to keep roughly the same numbers and 12 per cent planning to decrease headcounts.

Half of respondents said they would be upskilling their workforce with 36 per cent reporting they would hire one or more apprentices down slightly on last year’s 40 per cent.

Over 70 per cent of respondents said they were not confident about the new rules on biodiversity net gain which go live next year. More than half said there would be increased costs associated with future homes standards in 2025 when gas boilers can no longer be installed.

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Shiraz Khan
Stay informed with the latest news, market trends, and expert guidance on bridging loans, development finance, and UK real estate investment. Our blog is here to support your property journey with clear, practical advice.
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Frequently Asked Questions

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.

Bridging loans can be used in a number of situations. For example:

  1. When people are moving home in a chain, with a gap between completion dates (e.g. needing to pay for the new property before receiving funds on the completed old property).
  2. When property investors or private buyers renovate a home and want a rapid sell-on.
  3. When an individual is looking to buy a property at an auction.
  4. When property investors and developers are looking to pay a tax bill
  5. When buyers want to secure finance against an uninhabitable property.

This type of finance can be used by homeowners, landlords and property developers alike.

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.

Shiraz

Shiraz Khan linkden

Managing Director

Shiraz Khan is the author of the content. Shiraz is the managing director and founder of Hank Zarihs Associates. With over 16 years’ of experience we are master brokers within the short term financing industry. We specialise in a wide variety of short term loans.

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