Smaller builders back moves for a quicker planning system .

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Smaller builders back moves for a quicker planning system scaled 1536x1098 1

SME developers are to take centre stage in the drive to build more beautiful new homes, the government has announced.

It has said they would be key players in a zonal planning system outlined in a white paper released today where land will be earmarked for development, renewal or protection.

According to government figures, the proportion of new housebuilding by smaller builders is 12 per cent compared with 40 per cent 30 years ago.

Housing secretary Robert Jenrick described the reforms as “once in a generation” and said they would lay the foundations for more homes for young people and better-quality neighbourhoods.

“We will cut red tape, but not standards, placing higher regard on quality, design and the environment than ever before. Planning decisions will be simple and transparent, with local democracy at the heart of the process.”

The Planning for the Future white paper wants to cut the current seven years to agree to local housing plans and five years for a standard residential development to 30 months. The government thinks this will help it reach its target of 300,000 new homes a year by the mid-2020s.

The Federation of Master Builders, FMB, backed the proposals, which it hopes will diversify the housing market.

FMB chief executive Brian Berry said: “Local, small builders are ready and waiting to play their part in delivering the homes, jobs, and growth we need if we are to ‘build, build, build’ our way to recovery.

“But the increasing complexities and costs of the planning system in England have held them back. Alongside struggles to access affordable land, 64 per cent of developing small builders cite the planning system as the biggest barrier they face.”

The National Federation of Builders said local planning authorities frequently bowed to campaigners not to build on smaller sites. NFB’s head of housing and planning Rico Wojtulewicz said this meant councils often allocated larger areas of land for housing which favoured big developers.

“What this new consultation says is that this can already be allocated and now you can get smaller players delivering the homes. With local authorities saying they don’t have enough resources then maybe this makes their life easier,” said Mr Wojtulewicz in a Talk Radio interview this morning.

Reducing risk will open funding doors

Brokers Hank Zarihs Associates said reducing planning risk uncertainty for smaller developers would encourage them to build more and would make it easier for them to gain construction loans.

However, the Town and Country Planning Association, TCPA, said while it was clear the system needed to change it was concerned the proposals would undermine local democracy.

It said it was worried the reforms would fail to achieve the high-quality places the government wants and was weak on how planning can contribute to health and well-being.

TCPA chief executive Fiona Howie said: “It also puts back the date for achieving zero carbons homes to beyond 2025. It seeks to abolish the much-criticised duty to cooperate but offers no framework for strategic planning to replace it.”

The FMB said the reforms needed to maintain high-quality standards as this was what his members competed on rather than price. The government has said the proposals will include establishing local design codes which if met will automatically grant planning permissions.

A new charge for developer contributions fixed as a proportion of the value of the housing scheme will replace section 106 agreements and the community infrastructure levy.

The government also confirmed its first homes scheme would offer newly built homes at a 30 per cent discount for locals, key workers and first-time buyers.

The UK purchasing managers’ index for construction output rose to 58 for July above the 50 no-change thresholds. The increase was the steepest expansion in work since October 2015 and was led by strong growth in housebuilding.

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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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