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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.
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The explosion in popularity of property development, property renovation and other forms of development, in recent years has also meant that there’s been a huge surge in demand for bridging finance and short term finance more generally.
It’s an extremely popular form of finance and an ideal solution to many short term issues, meaning that, despite mainstream banks and lenders broadly avoiding it, many other lenders have now started to specialise in this type of loan for their clients.
We’ve certainly seen a drive in demand for our clients as a bridging loan can often mean rapid access to finance and cash in situations that call for it and in comparison to more traditional finance, this type of loan tends to be much easier to apply for and be approved for in a short timeframe, making it attractive to sectors that can be unpredictable.
Bridging loans can be used for many different reasons and can be applied to lots of different situations, which is why many of our clients often approach us for advice on them and the market as a whole, so we’ve put together a handy short guide to regulated bridging loans.
Regulated bridging finance is usually used for property and is regulated by the Financial Conduct Authority. It becomes a regulated loan when you’re going to be living in the property or your immediate family will be rather than, for example, an investment property or a commercial property.
Regulation means that when you’re purchasing a property to live in, this falls under consumer law rather than if you’re buying the property or using the finance as a business or for business purposes, which then falls outside of a regulated bridging loan.
This type of loan is usually secured as a first charge on a residential property that you’re going to be living in.
Absolutely, bridging loans can be used for all types of things. Bridging for some refurbishments is actually a popular option for our clients as, for example, some banks won’t lend against a property unless it’s in a certain state of repair and so, for example, if you’re looking to purchase a property that needs some refurbishment works before agreeing a mortgage then a bridging loan could well be a good option for you.
The clue is in the name that a bridging loan is intended to be a short-term fix, so if you’re looking to plug a short finance gap then yes this will probably suit your needs.
We’ve got years of experience in the loan and finance industry, and especially with bridging loans and other types of bridging finance. Our specialists brokers have years of collective experience and have worked to fund millions of pounds worth of this type of loan in the past.
We offer you the best free advice on your finance needs and because we’ve built up long lasting relationships with our panel of lenders, we’re able to offer you exclusive rates and deals. We’ll also comb the market for the best possible bridging loans and other type of finance so that you don’t have to. When it comes to this type of finance, we understand the stress that can be involved in approaching lenders individually, and especially if you’re in a situation where you need access to funds quickly. Because we work closely with this type of finance regularly, we’re often able to get finance to our clients within a matter of days. We’ll help you through the application process, the paperwork required, meeting the criteria and throughout the process. We know that our clients want the reassurance and confidence of using a recognised, reputable and experienced intermediary, so we ensure that you can feel confident when speaking to us. .Ready to apply for a loan? We work with a tried and trusted panel of lenders and challenger banks 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.
Hank Zarihs Associates streamlines your financing journey with tailored solutions, fast approvals, and expert guidance, connecting you to trusted lenders for project success
We’re always keen to be open with our customers, and so we’ve included our handy bridging loan calculator for you to get an idea of what this type of property loan may cost if you decide to take one out. Because they’re only short term they’re often more affordable and at better rates than a traditional loan, so this should illustrate that for you.
it’s perfectly straight forward, all you’ll need to do is fill in each field with your deposit, how much you want to borrow and the length of the loan.
Regulated bridging finance can be used for a number of things, however, most of our clients tend to use this type of bridging loan for property.
Examples include to purchase an auction property, to raise funds on your current property to purchase your next one, to downsize a property or for refurbishment if you’re struggling to get a standard mortgage.
You could even use this type of regulated finance for things like a divorce settlement or to break a property chain.
Commercial bridging loans tend to be applicable if you’re buying a property as an investment, if you’re buying a property as a business entity, or if you’re buying a commercial property.
Bridging loans tend to be secured against a property, so the type of property and what you’re intending to use it for would dictate what type of finance you’re taking out.
A commercial loan would be, for example, if you wanted to buy an auction property as a buy to let investment but needed to do some refurbishments, these would then be classed as different types of bridging loans.
Yes, we only work with reputable lenders and the main reason it’s referred to as unregulated is because it’s being used for business purposes rather than for you as an individual, hence the requirement for the Financial Conduct Authority to then regulate that type of finance as it becomes consumer related.
As with many other things, such as contract law or tenancy agreements, they’re not regulated in the same way as standard consumer products, where the consumer needs protection as opposed to business.
In most circumstances they won’t be as many consumer finance companies won’t consider a second charge on a property as sufficient security against a secured loan.
When it comes to commercial property deals, however, lenders tend to not be quite as strict in this regard and are more willing to take on extra risk. Whilst second charge finance tends to remain quite a specialist area, we have plenty of lenders on our panel who will consider you for second charge loans if you meet their criteria.
The exact amounts you can borrow from and to will depend on the lender themselves as the loan needs to be at a certain amount to make things worthwhile for the finance company.
Because bridging finance tends to be shorter term finance, most lenders will expect you to borrow a minimum of around £10,000 but this can vary up to between £50,000 and £100,000 depending on the terms and length of the finance.
Because each lender is different, however, it’s worth speaking to one of our experts who can understand your situation fully, and it may be the case that a different type of finance may be the best for you, but we’ll talk you thro
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
