Rents soar in London as lack of housing supply bites .

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House prices rise in the North

Average private rents rose by more than 10 per cent over the last year in the capital compared with a UK average rise of 8.7 per cent, according to HM Land Registry data.

The London borough of Kensington & Chelsea was the most expensive place to rent at £3,397 per month compared with Dumfries and Galloway in Scotland at £480.

The National Federation of Builders policy and market insight head Rico Wojtulewicz said: “We have a lack of supply of housing. People still need to buy somewhere. Rent rises really nails home the cost of not having supply.”

Hargreaves Lansdown personal finance head Sarah Coles said that measures for renters in the election manifestos had focussed on improving rights and conditions rather than affordability.

“Ironically, those measures could well end up pushing up rents, as more landlords may be persuaded to sell up, and those who stay could face higher costs, and pass them onto tenants.”

She said this would increase the desire to buy a home at a time when house prices in most areas look set to rise.

House prices across the UK rose by an average of 1.1 per cent over the 12 months to May 2024 to £281,373. However, the average cost of a new build property in February 2024 was £393,888 representing a year-on-year rise of more than 15 per cent.

This has brought house prices close to levels before the Kwasi Kwarteng mini-budget during Liz Truss’ brief premiership in September 2022.

House prices rise in the North

“House prices have dropped in expensive areas such as London, Brighton and Hove but in more affordable areas they’ve risen. For example, house prices in the North are higher than they were a year ago,” said Mr Wojtulewicz.

For example, the average price in London has decreased by three per cent from £517,373 in May 2023 to £501,880 in April 2024. However, the Northwest has experienced a rise of nearly four percent bringing the average cost of a home to £216,714 in April 2024.

The number of new home registrations for the first quarter of 2024 showed a year-on-year drop of 20 per cent to 21,967 with new home completions down 13 per cent to 26,240. The National House Building Council, NHBC, who produced the figures, attributed this to higher mortgage rates, a skills shortage and the wettest winter on record.

NHBC chief executive Steve Wood said a cumbersome planning system and a skills shortage continued to impede output.

“A national skills gap means almost 225,000 extra workers will be required to meet expected UK construction demand by 2027,” he said.

The main parties have said in their election manifestos they will build more with Labour pledging 1.5m new homes and the Conservatives 1.6m. Labour is focusing on building more affordable housing, prioritising first-time buyers, and reforming planning. Both have pledged a permanent mortgage guarantee scheme, to help buyers with smaller deposits secure a mortgage.

The Conservatives want to cut stamp duty on homes costing up to £425,000 for first-time buyers and give a temporary two-year capital gains tax holiday for landlords who sell to tenants. They have said they would introduce a new help-to-buy equity loan scheme to assist first-time buyers with their deposits.

Brokers Hank Zarihs Associates said development finance lenders were keen for a speedier and more efficient planning system that would make it easier for SME housebuilders to compete in the market.

LinkedIn Question: How optimistic are you that a new government once elected will commit to building new homes even when there is stiff local resident opposition?

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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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