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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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Property development is booming across the UK. Contrary to earlier predictions of a slowdown, the industry is experiencing some of its strongest performances in decades. Landlords, developers, and investors are now facing heightened competition for resources like land and development opportunities.
The surge in the property market has also led to a sharp rise in mortgage applications. However, banks are struggling to meet the overwhelming commercial and residential demand. This shortfall has prompted a significant increase in alternative financing options, particularly bridging loans.
Bridging loans are short-term financing solutions that help bridge the gap between the purchase of a new property and the sale of an existing one or fund property development projects. These loans can be either regulated or unregulated, depending on the property’s intended use and the borrower’s circumstances.
The main distinction between regulated and unregulated bridging loans lies in the property’s intended use and the borrower’s identity:
This differentiation also applies to commercial mortgages. A commercial mortgage on a property occupied or to be occupied by the borrower or their immediate family falls under FCA regulation. Conversely, if the property is not for personal occupancy or the mortgage is in a company’s name, it is unregulated.
Hank Zarihs Associates are specialist and highly-experienced intermediaries in the funding industry. We work with a tried and tested panel of specialist funders with an excellent track record in the market, who can offer high leverage and gearing.
With our knowledge and experience, we are able to present lending cases to our panel in a format which is most likely to increase your chances of being offered attractive development finance. By following a comprehensive due diligence process with each client we make it possible to find the right development loan in the UK, quickly and efficiently – from the right lender.
We’re also proud to work with most of our clients on a repeat business basis – by proving the value of our service at every turn and by building long-term relationships with our developer clients. Whatever your level of experience, size of project or development loan need, you can be guaranteed of a superb experience with the team of friendly and helpful experts at Hank Zarihs Associates.
What’s more, we are able to add value at every step of the process, with in-depth knowledge and guidance, designed to help our clients match up with the right lender, for the ideal loan. We recognise that development loans are usually large and complex, so our service ensures that clients are best placed for acceptance from our lending panel.
We can save you money too, as we work with property development finance lenders who offer specific deals on development finance for intermediaries – cutting-out the middleman and meaning that our clients can access even more attractive deals on their borrowing – with our help, expertise and support at every step of the way.
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.
This type of bridging loan isn’t dissimilar to others and so the criteria isn’t hugely different either. First and foremost, each commercial lender will have its own criteria and this can differ depending on your circumstances.
Most will want you to be able to provide a deposit of about 25% but this can vary, and the more you have the lower the interest. Lenders will also look for an exit strategy to show how you’ll repay your loan. Finally most lenders will want to see some evidence that you’re able to deliver and have a good track record of success and paying on time.
Aside from these basic criteria the best idea is to speak to one of our bridging finance brokers and they can advise you on what you might qualify for, and what business finance may suit you. Intermediaries can often find you the most suitable products at the best rates.
See which type of loan might be best for your needs:
Different lenders will have different products and different lending criteria, however, one of the big benefit of bridging loans is that because they’re designed as short term solutions the interest rate is often relatively low.
The view for your credit history isn’t as important with these types of lenders. Other criteria tends to be more important and each case is judged on its own merits.
Our team can help you with the different products and their requirements, including your exit strategy and can help you put a full plan together.
Most of our panel of lenders will require some form of deposit, but we can discuss your development and your application in greater detail with you and discuss your options.
Hank Zarihs Associates can help you secure funding for your property, whether its located in the heart of London or if its on the outskirts of Manchester, we can help fund your property acquisitions
Hank Zarihs Associates streamlines your financing journey with tailored solutions, fast approvals, and expert guidance, connecting you to trusted lenders for project success
We’ve got a team of brokers with years of experience in the bridging finance and commercial mortgage industry. They know what’s needed for a successful application process and one of the things most companies providing mortgages and bridging finance will require is a viable exit strategy.
An exit strategy in simple terms is how you plan to repay your loan on time. For property developers or investors this usually comes in the form of a business plan or a timeline of when you expect to be able to repay your bridging loan. For example, if investors buy a property at auction and don’t have enough in savings accounts or in cash to pay the money within 28 days, or if the property is uninhabitable and doesn’t qualify for mortgages, then investors will take out unregulated bridging. They will then be asked to show a plan of how they will renovate the property to qualify for mortgages in time to pay the bridging loan.
Most lenders in the UK will want some kind of property as an asset to secure your loan against, however, this varies depending on circumstances and your development. We’d advise you to contact us and speak to one of our team.
Both commercial and residential properties are usually acceptable but if you have other assets with a good re-sale value these may be considered.
Most of these type of loans don’t actually expect you to service the interest monthly and will usually offer a range of options for the user.
One option is to have the interest taken out of the initial sum before it’s transferred over to you removing the need for you to service the interest monthly, and secondly you can opt to pay the interest in a lump sum at the end of the term which allows many of our clients piece of mind that they can get on with their development without having to worry about making monthly interest payments.
Again, this will vary depending on the lender and it’s worth getting in touch with a member of the team to discuss this as we have a large and diverse panel of companies that provide this type of finance and the chances are we’ll be able to find exactly the right fit for you whilst helping you with your project from start to finish.
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
