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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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Previous years brought a lot of things into focus for a lot of people, and one of those was our homes and living spaces. Whilst many expected property to have a bit of a dry patch in previous years, pretty much the reverse was true and the property market has enjoyed a remarkably successful stretch.
With that in mind, there has been an explosion in the popularity of home improvements, property purchases, Buy-To-Let purchases and in other areas of the property market too. This has, in turn, led to a boom in popularity for things like residential bridging loans, bridging loans and property finance more generally.
Residential bridging finance, for example, is now much more popular than it once was with many now looking to convert property for profit with the potential to make good money better than almost at any other time.
Investors have been noticeably increasing their exposure to the market in recent times, and this has meant that many finance companies are now specialising in these areas for their clients to ensure they’re offering the best products to this expanding base.
These types of residential bridging loans are basically a short term finance option for people who are looking to use their own home as security against a loan that can be used for a number of different things.
As an example, these bridging loans can be used to renovate a property, for an auction property, or for building an extension or renovating your own residential house. A residential bridging loan is usually a good option in these circumstances.
A residential bridging loan is designed to cover funding gaps over a relatively short term compared to traditional lending such as a mortgage or standard loan. They’re called bridging loans because they’re designed to bridge the gap between certain events or situations. Most of the time our clients use these types of bridging loans and finance for renovating houses or for other types of property development. For those looking to start a development, many use bridging loans or finance to buy materials, purchase properties at auction or to cover a chain breaking down.
There are any number of reasons why our clients may use bridging loans or finance. Here are a few examples of what you may use bridging loans for, however, to see how they may be able to help you. For example, to raise quick funds for a project if somebody needs access to cash quickly. Some use bridging loans for extending the lease on a property before selling it, or to fund the extension or refurbishment of their house. Many of our clients use bridging loans or finance to purchase a house at auction, due to the fact the funds must be paid within 28 days of the auction for the sale to complete. Some use them to complete the purchase of a house before there is sold and some use bridging loans or finance to pay debts when they fall due. Again, though, there are many reasons why our clients use bridging loans or finance and these are just a few examples, if you’re unsure about whether this type of loan is right for you simply speak to one of our brokers who are experts in this type of finance.
Theoretically yes, it is, however, there are some things you’ll need to qualify. This type of loan is different to a traditional bank loan in that the lenders aren’t quite as interested in your personal credit history as much as your track record in property development, your plan and how you intend to repay the loan, as well as the security you’re able to offer. Broadly speaking, however, anybody could get a bridging loan. The best advice is to speak to one of our brokers or one of our experts and they’ll be able to advise you on exactly what you’ll need and whether you qualify for a loan.
Ready to apply for development finance UK? We work with a tried and trusted panel of development 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 development finance products on the market in real-time.
We’ve included our handy calculator below to allow you to see what these types of bridging loans may cost, and this will give you a better idea of what is involved and what you might pay if you’re successful.
Simply fill out the criteria in the blank boxes and the calculator will instantly show you a representation of what to expect.
Hank Zarihs Associates streamlines your financing journey with tailored solutions, fast approvals, and expert guidance, connecting you to trusted lenders for project success
Of course, a bridging loan isn’t always the best option for everybody, and there are some other options you consider before applying. We always offer free, confidential and straight forward advice to all our clients and we’ll always look to the best solution for your personal circumstances, so here are some other options.
It may be the case that getting a mortgage may be a better option, or potentially you could re-mortgage your property if you have equity available to access. Mortgages offer a longer term solution to a bridging loan, and could be better in some situations if you’re looking to finance over a longer period.
If you’ve got savings available it may seem an obvious thing to advise, but in some circumstances you may be better off using that cash if it’s only to plug a short term gap as there won’t be interest to pay and this can be quicker.
We offer other types of specialist loans such as mezzanine loans which are very specific types of loans that would usually require you to have some experience before applying, however, we have a team of experienced expert brokers who can talk you through all the available options and let you know if a more specific type of finance might be suitable for you rather than, for example, a residential option.
We’ve built a team of expert brokers over a number of years who are specialists at what they do.
Our team have many years of experience between them and have worked on millions of pounds worth of financing for our clients, so they know what they’re talking about and are in a position to give you the best possible advice for your personal situation.
Thanks to our supportive and detailed application process, we always advise our clients from start to finish. This means that when we submit your application to our panel of lenders they know that we’ll have taken the time with you to ensure we’ve gotten things right, and this gives them the confidence that we’ll only put forward with a good chance of acceptance.
This has allowed us, over the years, to build a very good relationship with our panel of lenders and this means that in many situations we’re able to offer you exclusive rates and deals that aren’t available in other places.
Further to that, we know that the process of looking to get finance for your development can be extremely time consuming and stressful, and our process removes that added stress from the process for you. We know speed is of the essence in most circumstances so we’re able to work with you closely to ensure that we waste no time and in many cases we can have the funding sorted and with you within 72 hours.
Why not get in touch with one of our expert brokers to discuss your circumstances and see how we might be able to help you.
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
