Category: Bridging Loans

According to the Financial Times, bridging cash loans for property rose by 8.5% in the first 3 months of 2022 in the UK! 

Bridging loans are just that: a financial bridge. They’re short-term loans that are secured against an existing property. They provide funds while you’re waiting for something else to happen.

For instance, you may need a bridging loan to carry out renovations on your new property.

You could use the finance to buy cheap property at auctions or even purchase a property that a mainstream lender won’t provide funding for. 

If you want to sell a property, you can take out a bridging loan to cover refurbishment costs. Many people can cover the entire refurbishment cost with the profits from selling their property.

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With a bridging loan, interest is charged monthly. The interest rate you charge will be based on your financial standing, earnings, and loan to value.

Most deals won’t go beyond 50% loan to value on residential property.

How Are Bridging Loans Charged?

In general, bridging loans when purchasing property cost around 1-2% of your loan amount.

This is charged in the form of an arrangement fee by the provider.

Other costs associated with bridging loans include:

• Interest charges (monthly)
• Survey and valuation fees
• Broker fees
• Legal fees
• Administration fees including redemption and drawdown fees

Typical Costs Involved with a Bridging Loan

• Arrangement fees – this is usually around 2%
• Redemption fees – this is the fee charged to remove the legal charge from your property once it’s paid off
• Loan drawdown fees – this is a general admin fee that’s around £295 
• Exit fees – some lenders don’t charge this, but many do. It’s a 1.25% charge because your loan is paid off.
• Electronic transfer fees – this fee is around £25

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Interest Rates on Bridging Loans

Interest rates work very differently on a bridging loan than they do on a regular mortgage. Instead of being worked out as an annual figure, the interest rate is provided as a monthly amount.

This is because some bridging finance deals last less than a year.

They’re also calculated on a daily basis once you’ve completed the first month of the term, which means that if you choose to settle your loan early, you’ll only pay the interest amount up to that date.

Factors that Affect the Interest Rate on a Bridging Loans

If you’re applying for a bridging loan, how the interest is charged will depend on the type of loan you get.

Unregulated loans usually come with monthly interest charges, but some lenders may let you roll all the interest and repay it at the end of the term.

Regulated loans require interest to be paid at the end. The following are aspects that will influence the interest rate you’re charged on your bridging loan. 

• Whether the Loan is Regulated or Not

If the bridging loan is for your private home, it will be regulated by the FCA.

If it’s not for your home and someone else will live in the property, it’s an unregulated loan and is, therefore, riskier. Unregulated loans come with higher fees.

• Your Credit Score

Even if you have a bad credit score, you may still qualify for and be granted a bridging loan, but this often means you’ll have a higher interest rate attached.

Applicants with the best credit scores don’t always get the lowest interest rates, though.

If the property you need the bridging loan for is old, can’t be mortgaged, or will require considerable work to get it up to standard with no guarantee of generating the funds, a higher interest rate may automatically apply.

It’s not as straightforward as saying that the best credit scores will get the lowest interest rates. 

• Property Location

Lenders view prime location properties more favourably as there’s a higher chance you can sell the property or make the required rental to pay back the bridging loan. As such, remote or rural locations often get higher interest rates.

• Loan-to-Value Ratio

The lower your loan-to-value ratio is, the lower the interest rate you’ll be charged. For instance, a loan with a 50% LTV will have a lower interest rate than an 80% LTV loan.

That said, it comes down to the individual lender as to what the actual rate will be. A mortgage broker can ensure you get the lowest possible interest rate.

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• Required Loan Length

If you know you only need a bridging loan for a short period of time, usually less than a year, your broker may be able to assist you in securing a lower interest rate than the standard.

It’s a good idea to chat with a mortgage broker about the loan amount you need and how much you can afford to pay every month so that they can try and negotiate with bridging loan providers on your behalf. 

• Perceived Risk

If you’re hoping to renovate a property that may be in a very bad condition, you may find that the interest rates are higher.

If you can prove that the investment from the lender isn’t very risky, the lender may be open to more negotiable interest rates. 

Bridging Loan Costs in the UK Conclusion

Using a professional mortgage broker to secure a bridging loan is the best possible direction to take.

A mortgage advisor or broker can liaise with mortgage browsers on your behalf and ensure that you get the best possible rates and fees so that you can save on costs throughout the process. 

Call us today on 01925 906 210 or contact us to speak to one of our friendly advisors.

How much do you know about the loan options available to you as a mortgage applicant?

For starters, many versions of mortgage loans are available, but each may have something unique about it.

It can be somewhat overwhelming if you’re new to loans.

It may seem like you’ve narrowed your loan options to one viable seeming product only to discover that there are different variations of the same product.

One case where this happens, and where it can become quite confusing is bridging loans that come in two distinctive variations:

• Closed bridging loans.
• Open bridging loans.

What’s the Difference Between a Closed Bridging Loan and an Open Bridging Loan?

First, let’s nail down the most obvious differences between closed and open bridging loans.

Closed bridging loans are short-term loans with defined exit strategies, whereas open bridging loans are short-term loans without an end date or exit strategy.

In other words, open bridging loans have no end date.

The major difference between these two versions of bridging loans is whether or not the borrower has to follow a clear, planned-out strategy for paying the loan.

Exit strategies are general strategies that transition the loan at a certain period.

This could be selling another property, getting a new mortgage or another transaction planned for a future date.

If you know you have the finances and can afford to pay off the loan by a certain date, you will probably end up with a closed bridging loan.

An exit plan for a closed loan must include a clear exit strategy that includes the date the loan will be completed. Open bridging loans are quite different.

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What Can I Use a Bridging Loan For?

There are many reasons why borrowers opt to apply for closed and open bridging loans.

While every borrower is unique, some common reasons for bridging loans are obtained.

These include the following:

• You can use a bridging loan to secure your next property while waiting for your current property to sell.
• Bridging loans can be used to secure auction properties.
• Proceed with a purchase even if there’s a break in the buying chain.
• Fund the carrying out of developments and refurbishments a property needs before a mortgage can be obtained.
• Expanding an existing property portfolio as a landlord.

Who is Eligible for Mortgage Bridging Loans?

No one can just apply for a loan on a whim.

You need to ensure that you have the correct documentation available and meet the eligibility requirements.

Are you eligible to apply for bridging loans?

You may well be! Below are some of the eligibility requirements:

• You must be a partnership, limited company or private individual to apply.
• You can still apply if you are retired, self-employed or traditionally employed.
• Minimum age to apply is 18 years old, although some lenders have higher age limits.
• Have a registered UK address.
• Applicants must have a defined exit route. For instance, you plan to refinance a loan or sell the property.
• You must be purchasing or refurbishing the commercial or residential property.
• You should have some form of security for the loan.
• Borrowers should be requesting a minimum of £10,000.

Keep in mind that these are generalised eligibility requirements, and they can change at any time without notice.

So it’s always a good idea to check the requirements before you start and potentially waste your time.

That said, it is best to work with a mortgage broker with a finger on the pulse of all things bridging loans.

This means they know the latest industry standards, where to find the best bridging cash deals and the latest eligibility requirements.

Which Loan is the Better Choice? Open Bridging Loans or Closed Bridging Loans?

When choosing the right bridging loan for you, you may wonder if it’s better to go with an open bridging loan or a closed bridging loan.

Understanding them a bit more might help you make an informed decision.

Regarding better rates and easier approvals, closed loans win first prize.

In addition, because there is a defined exit strategy in place, these loans are considered simpler to get than when compared with open-ended bridging loans.

The thing about bridging loans is that they are designed to be short-term loans, not long-term solutions.

The interest rates on bridging loans are typically much higher than regular loans, and they don’t usually extend past 12 months.

If you can prove to the lender that you can pay the loan off in the prescribed time, you’re likely to get approved and, of course, be offered favourable terms.

If you think that closed bridging loans have a high-interest rate, open bridging loans have an even higher interest rate.

There may be no definitive exit strategy, but the lender will still want to know how you plan to raise funds to repay the loan.

These loans cannot be paid off in little bits each month.

An example of this type of loan is an open loan applied for by a borrower who plans to sell the property to raise funds to repay the loan.

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Closed vs Open Bridging Loans Last Word

When trying to decide whether open or closed bridging loans are for you, take the time to consider what your actual plan is for the loan.

For example, do you have a defined exit strategy or wish to have a more open-ended situation?

Check if you meet the general eligibility criteria, and then take the time to consult with a professional mortgage broker who can advise you on the correct course of action.

A bridging loan is just that: a bridge.

When you take out such a loan, you’re trying to bridge the gap in your finances. As luck usually has it, financial emergencies or unexpected expenses usually turn up when you’re short on cash.

Bridging loans can also be used to get the money you need now to pay off an incoming debt that you know you will have the money to pay for later.

The great thing about a bridging loan is that it’s flexible and pays out quickly, but the question begs to be answered: how much will the flexibility, convenience and quick pay-out cost you in the end?

Bridging loans are usually short-term and are often used to fund time-sensitive deals and projects.

Interest rates are generally higher for bridging loans than other financial products, but they’re faster to arrange than secured loans and mortgages and have more flexible terms. Plus, with the right advice and some research, you can get a good deal.

The costs of a bridging loan in the UK can vary depending on the lender and your specific circumstances.

In this guide, we’ll look at the separate elements to consider when calculating the overall cost of a bridging loan. These include interest charges, valuation fees, arrangement fees, solicitor fees, and exit fees.

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Interest Charges

Bridging loans last a few weeks or months, so lenders charge interest rates monthly rather than an annual percentage rate (APR).

Lenders will charge you interest on a bridging loan in one of three ways, and it’s essential to clarify how you’ll be assigned to determine the overall cost. These include:

Monthly

The interest repayment is set and made every month in this option, and it’s not added to your loan amount. This can mean lower interest amounts because you make payments more frequently.

Rolled Up Or Deferred

In this option, the lender adds the interest to the loan amount every month then you pay the cumulative total at the end of the term. The interest increases in value on a sliding scale because it’s applied to a renewed sum of the increments plus the previous month’s interest as the term progresses. The rolled-up option may be suitable if you can’t make monthly repayments and are short on capital until your exit strategy pays out.

Retained

In this option, you’ll ‘retain’ the interest for the entire term and repay it together with the loan amount at the end of the period.

The lender calculates the total interest at the beginning of the period based on how long you’re borrowing the amount for then you’ll make one lump sum payment at the end.

For example, if you have a 12-month loan, you’ll repay the total interest plus amount on month 12.

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Rolled Up And Retained

Some lenders can let you use a combination of repayment options like a rolled up and retained option. Here, you can repay the interest as retained for an agreed number of months within the term, and then the interest is rolled up for the remaining months.

A bridging loan adviser can offer insight and advice on the best option for you based on your needs and circumstances.

Valuation Fees

A valuation of your property is necessary if you’re using it as security to set up a bridging loan. The valuation fees are payable to the lender or surveyor, and costs can vary depending on location, value, and the required valuation type.

Sometimes a remote valuation through the internet can be enough and will be cheaper than an on-site valuation.

Read our related quick help guides: 

• Bridging loans for property development.
• A guide to bridging loans brokers.
• Bridging loan examples.
• Alternatives to bridging loans.
• Development finance.
• Construction loans.

Arrangement Fees

Also known as facility or broker fees, these will usually amount to a percentage of the bridging loan. You can find them in the terms set by the lender with a basis on the gross or net amount.

The standard amount ranges around 2%, but some lenders can go lower or waive the fee altogether, especially for large amounts.

Some lenders can also charge small administration fees to pay for the documentation and paperwork after the loan is accepted.

Exit Fees

Some lenders may charge an exit fee for loan redemption. It’s usually a fee to remove the charge over the security or property, and the standard is 1% of the loan amount. The payment will be added to the loan amount when you redeem it.

Solicitor Fees

The solicitor fee is a set charge you’ll pay to the lender to compensate for the legal expenses of the loan. Lenders often use solicitors to carry out due diligence and the costs charged to the borrower.

You have to consider these fees when calculating how much a bridging loan will cost in addition to your legal fees.

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Factors That Impact Costs Of Bridging Loans

The total cost of a bridging loan can vary depending on the lender and your level of risk. To have higher chances of getting the best rates, you need to have access to the entire market for comparisons and meet the eligibility criteria of as many lenders as possible.

You should remember that different lenders may use differing standards. However, most bridging loan lenders will offer favourable rates and terms to borrowers with:

• Viable and robust exit strategies

This involves how you’re going to repay the bridging loan. It’s vital in any bridging loan deal, and the stronger your exit strategy, the higher your chances of getting reasonable rates.

• Good credit histories

A good credit standing will improve your chances for better rates. However, most bridging loan lenders have flexible criteria that cater to borrowers with bad or poor credit histories.

• Good security

The property you use as security can be part of your exit strategy. If your plan involves selling the property, it’s essential to ensure that it’s desirable enough to guarantee its sale at the desired amount.

A lender can look at factors like type, condition, or location to determine anything that may deter potential buyers.

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Costs For Regulated and Unregulated Bridging Loans

Generally, the cost of a bridging loan will be the same whether it’s regulated or unregulated. Regulated means the lender must comply with the Financial Conduct Authority (FCA) rules involving independent advice and mis-selling and usually cover personal bridging loans.

Unregulated bridging loans usually involve commercial borrowers, and the lending is agreed on a case-by-case basis for projects that don’t include a residential home. Such borrowers often require more flexibility, and the agreement is tailored based on their needs.

Give us a call on 01925 906 210 or get in touch for advice that is personal to you and takes your credit history into account. That way you will know where you stand in the development finance market and we can guide you on your route to securing a suitable loan.

Whether you are unsure if a bridging loan is for you, or need to explore alternative finance options, you have come to the right place!

This article will explore what a bridging loan is and the alternatives financial options available should a bridging loan not be appropriate for your requirements.

What is a bridging loan?

A bridging loan is a short-term financial product that provides funds that enable a property purchase to take place while another sale is still in progress.

Technically, a bridging loan uses the equity within one owned property as a deposit towards another property, resulting in two (or more) properties being owned at the same time, while the sale is going through.

Bridging loans are a method of secured lending and therefore to apply for a loan, a procession of a high-value asset is needed.

The equity within the owned property will also need to cover all of the fees associated with purchasing the new property to enable completion, including estate agent fees and stamp duty.

In addition, as bridging loans are a short-term financial solution an exit strategy to pay off the loan will need to be identified and documented as part of the application process.

Bridging loans can range between £5,000 and £10 million, depending on the situation and personal circumstances of the applicant, however, this type of finance is known for the speed at which it can be arranged. Typically, a decision from a lender can be sought very quickly.

Read our related quick help guides: 

• Bridging loans for property development.
• A guide to bridging loans brokers.
• Bridging loan examples.
• Alternatives to Bridging Loans.
• Development finance.

What are the costs of a bridging loan?

Typically, the costs of using a bridging loan can be high, with an interest rate typically around 0.4% – 2 % a month, plus an arrangement fee often payable upfront.

The interest rate offered will depend on a range of factors including:

• The total value of the bridging loan
• The equity available to secure the loan in other assets
• The duration of the loan required
• The status of the sale of the asset, including if a buyer has been found, and if contracts have been exchanged
• The personal financial circumstances of the applicant

Some lenders may also apply exit fees upon settlement of the bridging loan as well as bank transfer fees and administration fees, therefore applicants must be aware of all of the fine print of any loan offer before committing, to be able to calculate the full costs of the financial option.

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How to Access Bridging Loans

Bridging Loans can be obtained via specialised mortgage brokers who have access to the entire financial market and can therefore provide in-depth market knowledge plus guidance and comparison of quotes on a wide range of financial products. Brokers can also find the most favourable interest rates and borrowing terms for the applicant’s circumstances.

What Alternatives to Bridging Loans are Available?

Other alternatives to bridging loans include:

• Unsecured Lending – Depending on the value of finance needed, unsecured loans such as personal loans, credit cards or bank overdrafts, may be an option to raise funds, however, unsecured lending is typically capped at around £30,000. Often the interest rates are usually higher than secured loans, due to the risks to the lender and therefore the overall costs would need to be analysed against other financial options. It is also worth noting that unsecured lending is generally for a much shorter time period than secured lending, typically up to seven years, which is likely to impact the level of repayments.
• Remortgaging – A secured method of raising additional finances for a range of purposes can be to re-mortgage the current property, in order to withdraw some equity. Depending on the current terms of the mortgage, there may be savings on interest rates by re-mortgaging however other fees would be applicable such as valuation fees, arrangement fees and solicitor fees and therefore a full costing of the option should be undertaken before proceeding.
• Second Charge Mortgages – A second charge mortgage is a further loan on a property, however, the duration of the financial option differs. Second charge mortgages are useful in situations where re-mortgaging would be costly due to early redemption fees. Rates are higher than a first charge mortgage but usually lower than an unsecured loan as the property is used as security.
• Specific Finance for the Purpose of the Loan – There is a range of specific financial products on the market for certain circumstances, such as buy to let mortgages, property development finance and equity release products which may be suitable depending on the purpose of needing the loans. To discuss the options available for various scenarios, it is highly recommended that a personalised appointment is made with a finance broker to explore the most suitable option.

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Costs of using a Broker

With some types of borrowing, fees can be added to the loan although this would incur additional interest over the term.

However, often by using a specialised finance broker applicants can save both time and money, as well as relieving stress, knowing that a professional is assisting with the research and throughout a mortgage application.

Alternatives to Bridging Loans Summary

As with any financial decision, it is always suggested that all options are explored and analysed before committing to any option in order to ensure that the option is suitable for the requirements and is cost-effective.

As specialist brokers, we have insight into the current market conditions to be able to advise the best lenders to approach for various situations as we have an insight into recent success rates of other applications. We can also support you from your initial enquiry all throughout the process to completion, aiding with paperwork and any queries along the way.

We highly recommend that financial advice is sought ahead of making any large financial decisions and can support applicants with a range of personal circumstances and financial objectives. Why not call us today to book an appointment to get started!

Give us a call on 01925 906 210 or get in touch for advice that is personal to you and takes your credit history into account. That way you will know where you stand in the bridging loans market and we can guide you on your route to securing a suitable loan.

Are you wondering how to buy a house before selling yours?

Ideally, a homeowner would choose to sell a property within the same property transaction chain as when purchasing, however in reality this ideal is not always possible.

There are many scenarios that may occur that prevent the sale of the property from taking place before the subsequent purchase and therefore short-term finance may be required.

Short-term finance methods such as bridging loans can provide a solution to secure the purchase of a property before a currently owned property has been sold.

This may be urgently required in situations such as a buyer pulling out of a chain or a slow property market resulting in the owned property not being sold when needed.

In this guide, we will explore bridging loans in more detail including how the finance option works and at what point are the borrowed monies repaid.

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What is a Bridging Loan?

A bridging loan is a method of short term secured finance that can fund a property purchase whilst the sale of other assets is still in progress.

A bridging loan can enable a property transaction to take place without delay by applying owned equity within a current property as a deposit towards another property.

The result of which is that the mortgage holder owns multiple properties while further transactions are proceeding.

Bridging loans can be arranged at short notice and promptly, therefore should a reviewed homebuyer need to move fast, they can be the perfect solution comments Homebuyers4u.

Typically, the loan is offered for up to twelve months, although other durations may be possible depending on the circumstances.

Like many other financial products, there are considerations to be aware of such as often, bridging loans are subject to arrangement fees and exit fees. Interest is also applicable and is usually charged monthly.

Commonly there is the option available to defer the repayment of interest until the end of the term. Should this option be selected, the interest would be payable at the end of the bridging loan term. Along with the principal amount, providing cost savings during the loan term compared to other financial products such as a standard mortgage, where this option is not usually available.

It should be noted that if the interest repayment is postponed, the total loan must include the total interest total due over the period.

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Read our related quick help guides: 

• Bridging loans for property development.
• A guide to bridging loans brokers.
• Bridging loan examples.
• Alternatives to bridging loans.
• Development finance.
• Construction loans.

Common Reasons for Using a Bridging Loan

Example 1 – Downsizing with the use of a Bridging Loan

Homeowners often seek to downsize their property with the objective of reducing or paying off the current mortgage, decreasing household bills or maintenance requirements however sometimes a downsize requirement can also be the result of a change in personal circumstances such as divorce or ill health.

The use of a bridging loan can enable the purchase of a smaller property before the current, larger property is sold, which can be useful in many scenarios when time is of the essence for the new purchase however, the currently owned property isn’t ready for sale yet.

Example 2 – Purchase of a Retirement Property

This example of purchasing a retirement property could face similar challenges to the downsizing example above. There may not be delays due to purchasing a retirement property as often there is ample supply however, additional time may be needed before the sale of property owned due to sorting possessions or undertaking renovations.

Example 3 – Buying Property Quickly such as at Auction or Due to a Relocation

Sometimes a property purchase needs to be undertaken rapidly either due to a change in personal circumstances such as a property relocation or due to the nature of the method of purchase such as at an auction. A bridging loan can be an ideal solution to finance a relocation move whilst the original property is put on the market, whereas purchasing property via an auction requires completion within 28 calendar days and therefore access to funds promptly is required.

Example 4 – Purchasing a Property Which Would Not Obtain a Standard Mortgage

Another use for a bridging loan could be to purchase property that would not typically meet the criteria of standard mortgage such as properties without functional kitchens and bathrooms or properties with structural concerns. The bridging loan could be used to purchase the property and undertake the necessary renovations to make the property habitable, at which stage a standard mortgage application could be submitted.

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When would a Bridging Loan be Repaid?

When a request is made for a bridging loan, the repayment strategy must be specified within the application, clearly detailing a plan of how the loan will be repaid at the end of the term.

Often, in a simple transaction where a bridging loan is used to purchase property while the sale is of other assets are still progressing, the repayment strategy is straightforward as the proceeds of the sale will pay off the additional borrowing. If the reason for the bridging loan is more complex, a more detailed repayment plan would be required, however, in any circumstance our brilliant team of experts can assist.

How to Access Bridging Loans

Bridging Loans can be obtained via specialised finance brokers who have access to the financial market and can therefore provide knowledge, guidance and quotes on a wide range of financial products. Brokers can also find the most favourable interest rates and borrowing terms for the homeowner’s circumstances.

In addition to accessing a wider choice of financial products, brokers can also assist with the application process.

How to Buy a House Before Selling Yours Summary

There are many benefits to bridging loans including the flexibility and speed offered by this method of short-term finance. In addition, bridging loans can be applied against both residential and commercial property types, therefore providing a prompt funding solution for a variety of investment opportunities.

As with any financial transaction, there will be positives and negatives associated with the financing options available, and therefore it is highly recommended that independent financial advice is sought as early as possible, to review the circumstances of the situation as well as the financial products that may be able to assist.

Call us today on 01925 906 210 or contact us. One of our advisors can talk through all of your options with you.

If you are dreaming of developing a property but are overwhelmed with obtaining finance to make this happen, you have come to the right place!

You may already be a property developer needing to change direction with a next investment, or a budding new developer.

Either way, we can help guide you through the process of securing finance for development projects of any size.

What is Property Development Finance?

Property development loans are short term financial products that can be utilised to build a new property or to develop existing properties.

Such loans are a secured type of lending and can be obtained for a range of different development projects including residential houses, commercial property or industrial buildings.

Property development finance is an attractive method of borrowing due to the flexibility offered to the applicant and can also be a cost-effective way of funding development projects.

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What is the Application Process of Development Finance Loans?

Due to the specialised nature of property development finance, the use of a broker is highly recommended to aid the application process. Brokers perform many services from assisting with the initial market research and comparing lenders to assisting with the application itself and liaising with the preferred lender throughout.

An application for property development finance requires gathering lots of information about:

• The applicant themselves including their current financial circumstances.
• Details of other assets to be used security.
• Thorough details of the planned project.
• A documented proposed exit strategy.

The lender would review an application in its entirety, sometimes requesting further information and undertake the usual credit checks. If successful, an agreement in principle can be issued.

At this stage, further investigations are undertaken including a site visit to ensure project viability and an independent valuation of the project is forecast. Should the findings of these investigations be sufficient, a formal loan offer and terms can be issued.

Any legal elements would be taken care of next, followed by the completion of the loan and the first drawdown payment.

Read our related quick help guides: 

• Bridging loans for property development.
• A guide to bridging loans brokers.
• Bridging loan examples.
• Alternatives to bridging loans.
• Development finance.
• Construction loans.

What are the Advantages of Development Finance?

One of the main benefits of property development finance is that this type of borrowing can enable access to a higher level of finance than traditional borrowing methods.

Typically, should the borrowing be required for the initial purchase of the site or plot, the amount that can be borrowed at this stage is typically between 50%-60% of the purchase price of the property.

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In addition, developers can usually also borrow up to 100% of the build costs, providing that the total amount is within 60-70% of the gross development value. However, as with most lending, the actual figures offered to an applicant may vary depending on the personal circumstances and details of the project itself.

Another huge benefit of property development finance is the flexibility offered, such as drawing down finances as needed throughout the project as well as having fewer restrictions when it comes to settling the loan.

These elements also ensure that borrowing costs are kept to a minimum as interest is only charged when monies are drawn, and monies are not borrowed for longer than needed.

What are the costs involved with Development Finance?

There are various costs applicable to borrowing via property development finance, however, these will vary between lenders. Typically, this type of finance will be subject to;

• Facility fees – Or otherwise known as arrangement fees are calculated as a percentage of the total value of the loan.
• Interest – Interest can be charged monthly or annually, however in comparison with standard mortgages, the interest rates are higher due to the short-term nature of the financial product. Although, as already discussed, the flexible way that interest is charged is likely to be cost-effective compared to other methods of borrowing.
• Exit fees – A fee payable on repayment of the loan is common. This fee can be calculated in different ways, either as a percentage of the value of the monies borrowed, or the total value of the project.
• Broker fees – Broker fees will often vary between companies.

It is always best to check the terms of lending upon receiving an offer to compare such fees. Again, a specialised broker will be best placed to assist with the comparison of offers between lenders, ensuring that the most favourable terms are selected.

Other project costs to be aware of when investigating developing property

All development projects will incur other costs that will need to be factored into a business plan needed for the application process. These will include;

• Valuation fees – As with most property transactions, a valuation will be required and there will be charges for this.
• Legal fees – The cost of any legal advice throughout the project as well as charges to undertake the legal transaction of the property will need to be considered.
• Monitoring fees – Due to the nature of development finance, lenders will usually need to monitor the progress of the project. All costs attributed to monitoring are to be paid by the borrower.
• Transaction fees – Lenders will typically charge each time an instalment payment is paid to the developer throughout the project for both the administration and the banking fees.

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How is property development finance repaid?

Either at the end of the term of the loan or beforehand, if desired, the development loan would be repaid. Often repayment would involve one of the following;

• Sale of the property – Upon completion of the sale, the property development loan would be settled in full.
• Refinance – There would be a range of refinancing options available to be considered at the end of the initial finance duration period, depending on; the circumstances of the borrower, the plans with the development property and the timeframe of such plans. For example, the developer may choose to rent out the property at this stage, and therefore a landlord type of finance may be sought for a longer term of borrowing.

How much can you borrow with a bridging loan?

The exact amount you can borrow will depend on a variety of factors, one of the major considerations being the purpose of the loan.

For example, if you are borrowing against a residential property, it may be possible to borrow up to 80% of the property value. The lower the loan to value (LTV), the lower the interest rates, with some lenders offering interest rates at 50% LTV.

For non-residential properties, such as commercial properties and land, it may be possible to borrow up to 70% LTV.

This means that if the property is worth £100,000, the maximum you could borrow (including your existing mortgage) would be £70,000.

Choosing a Bridging Loan

Before researching the market to commence comparing various bridging loans, a few key facts will be required about the loan and properties that will be involved.

• The ideal amount to be borrowed – Typically, lenders will offer bridging loans between £5,000 and £10 million.
• The value of the owned property – The value of the currently owned property will impact how much that can be borrowed and the loan rates available.
• The duration of time the loan is required – Best estimations are used to map out how long the additional funds are required for, for example, the timing of a housing purchase chain and the required legal process. As discussed above, the duration of the loan will define the type of loan needed.
• The equity owned within the property – The level of equity and whether there is a mortgage currently on the property will affect how much additional funds can be borrowed.

Property Development Finance Summary

Property development finance can be a highly attractive form of short-term, cost effective borrowing due to the flexibility offered via the terms of the lending.

For most developments requiring finances of £25,000 and above, development finance may be the most suitable type of loan, however as with all large financial decisions through impartial financial advice should be obtained before committing.

In addition, as with all secured borrowing, the property and security deposits are at risk should repayments not be made.

The use of a specialised broker is highly recommended to ensure that the chosen financial product is the most competitive available and that all terms are fully understood.

Give us a call on 01925 906 210 or get in touch for advice that is personal to you and takes your credit history into account. That way you will know where you stand in the development finance market and we can guide you on your route to securing a suitable loan.

Construction or development loans are types of financial products to be used to build a new property or to develop existing properties.

As with any financial products, there are risks to the lender however these are amplified where first-time developers are concerned and therefore sometimes new developers can find it tricky to obtain finance to commence new projects.

Even experienced developers can sometimes face challenges when securing finances for projects depending on a range of factors linked to the project, personal circumstances or the market conditions.

What is a Construction Loan and what are the application criteria?

Construction or development loans are short term, secured lending products that have been created for the purpose of funding the development of the property. The type of property can include residential houses, commercial property or industrial buildings.

Should the borrowing be required for the initial purchase of the site or plot, the maximum amount that can be loaned is typically between 50%-60% of the purchase price of the property.

Sometimes lending of up to 100% of the build costs can also be applied for, providing that the total amount requested is within 60-70% of the gross development value.

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The application process for development finance will usually vary between lenders and requests are often analysed on a case by case basis. The lender would need to review the business plan of the development including the estimated costs including the stages at which the funding is required to be released.

The lender will also require information on the applicant’s personal circumstances, financial background and experience within the building and construction industry.

The lender would analyse all of the information provided within the application and undertake the usual background and credit checks as required when applying for any financial product.

The application process can involve ongoing requests for additional information throughout the analysis phase and therefore can become a lengthy, complex and time-consuming process. Developers often find using a financial broker beneficial as the broker can provide assistance with the application, which is sometimes known as loan packaging.

If an application is successful, an agreement in principle can be issued.

At this stage, further investigations are undertaken including a site visit to ensure project viability and an independent valuation of the project is forecast. Should the findings of these investigations be sufficient, a formal loan offer and terms can be issued.

The legal process would then take place for both parties, followed by the completion of the loan and the first drawdown payment.

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Read our related quick help guides: 

• Bridging loans for property development.
• A guide to bridging loans brokers.
• Bridging loan examples.
• Alternatives to bridging loans.
• Development finance.
• Construction loans.

What is loan packaging?

As briefly mentioned, the assistance that an expert financial broker can provide during the application process of a construction loan is known as loan packaging. This process will include ensuring that the lender has sufficient information to make a decision on the borrowing request, which will often include a business plan and timeline of the proposed project summarising:

• The purchase costs of the land plot and or current building.
•  The detailed costs of the building work to be undertaken during the development project.
• Detailing all of the additional costs that will be required throughout the project such as; finance costs including interest, exit fees and any broker or arrangement fees, the costs of insurance, costs of paying any utilities or council tax during the project plus any professional fees for advice or services.
• Full disclosure of any possible legal issues that may arise during the project.
• A thoroughly costed exit plan advising how the financing will be settled at the end of the term of loan. Often an exit strategy involves either the sale of the property or refinancing.

The process may require regular communication between the lender and applicant representative while the lenders undertake thorough due diligence of the applicant and project itself. Therefore, the use of a specialised broker to manage the progress and respond to queries directly is highly recommended.

How does a Construction Loan work once approved?

Following an offer from a lender, the finances will be released at set stages throughout the project. The duration of the stages will be agreed in advance and will depend on the type of project itself, however, they could be for example:

• Stage 1 – Purchase of the land or existing property.
• Stage 2 – The development stage, which would often be split down further into stages depending on the nature of the building project.
• Stage 3 – Sale of the property and settlement of the construction loan.

The number of drawings from the total loan value would be agreed upfront and also have an agreed schedule to match the planned programme of works.

There will be some degree of flexibility of the duration of the stages, especially as even the best-made plans can easily go off the rails during the project due to external elements such as the weather or materials or labour resourcing issues.

However, the overall maximum duration of the loan will be set out within the application and lender’s offer.

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What are the Advantages of Construction loans?

The main benefit of a construction loan is that it allows borrowers to have access to larger sums of money than traditional borrowing methods.

The flexibility available with this type of finance is also a major benefit to developers, both with the ability to plan and fund the project in stages, but also to provide a method of keeping the costs of borrowing as low as possible. The costs are kept low due to the fact that interest is only charged when monies are drawn.

Construction Loans Summary

Construction finance is a short-term, cost-effective and flexible type of borrowing that is suitable for a range of development projects. Such financial products are rarely found on a typical high street and therefore are usually applied for and accessed via a specialised broker.

Specialised brokers have access to a wider market of financial products and varied specialist lenders and therefore can assist in obtaining the most competitive borrowing terms and interest rests.

As with all secured borrowing, the property and security deposits are at risk should repayments not be made and therefore any investment decisions should be fully considered before committing, along with the consequences should developments not go to plan.

Give us a call on 01925 906 210 or get in touch for advice that is personal to you and takes your credit history into account. That way you will know where you stand in the construction loans market and we can guide you on your route to securing a suitable loan.

Bridging loans can provide a solution to secure that perfect property quickly before there has been an opportunity to sell other property.

Throughout this article, we will explore bridging loans in more detail, including running through a few examples of how this type of loan can be used in various scenarios.

What is a Bridging Loan?

A bridging loan, also known as gap finance, is the financial term commonly used to describe a method of short term secured finance that funds a property purchase whilst the sale of other assets is still in progress.

A bridging loan enables the property transaction to take place, without delay by applying the equity owned within a current property as a deposit towards another property. The result is that the client owns multiple properties while further transactions are proceeding.

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What are the Differences Between a Bridging Loan and Standard Mortgage?

Duration

The short-term nature of a bridging loan, that provides the flexibility required in certain circumstances is the major difference between a standard mortgage. Most standard mortgages have a repayment duration of up to 35 years, whereas a bridging loan usually will typically have repayment terms of between 12 and 24 months.

Speed

Often a lender’s decision on a bridging loan application will be received within a few days, which is substantially quicker than the response from a standard mortgage application.

This speed in the approval process can provide flexibility and aid decision making for purchasers. One example of where the speed of approval can be crucial is when a property chain breaks down by a buyer pulling out. In this scenario, the ‘upward chain’ of the purchase could be salvaged by the use of a bridging loan.

Deferring interest

The repayment of interest can be delayed on bridging loans until the end of the loan period. If this option is selected, the interest would be payable at the end of the bridging loan term, along with the principal amount.

This option can provide significant cost savings during the term of the loan compared to a standard mortgage, where this option is not usually available. However, a consideration is that if the interest repayment is postponed, the total amount borrowed must include the interest total due.

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Loan to value rates

There is often higher loan to value lending available via a bridging loan compared with a standard mortgage. Typically, a bridging loan’s terms could offer a loan to value rate of up to 80%, offering increased flexibility with financing.

Exit strategy

With a standard mortgage, the principal value is paid off throughout the duration of the loan, however with a bridging loan an exit strategy is required to map out a plan to pay off the loan. Due to the short-term nature of a bridging loan, an exit strategy will need to be proposed during the application process, detailing a plan of how the loan will be repaid at the end of the loan.

Property type

High street lenders will not offer finance against properties with certain characteristics such as; properties without functional kitchens and bathrooms or properties with structural concerns, however, the criteria for bridging loans are often more flexible and therefore may be an option should the property type be an issue upon a standard mortgage application.

Read our related quick help guides: 

• Bridging loans for property development.
• A guide to bridging loans brokers.
• Bridging loan examples.
• Alternatives to bridging loans.
• Development finance.
• Construction loans.

Bridging Loan Examples: 

Example 1 – Buying a House with a Bridging Loan

It has become more commonplace within recent years for bridging loans to be used to fund the purchase of a house, due to the benefits of this type of finance, such as:

• Speed – A bridging loan can usually be arranged promptly and therefore the property purchase can often complete quickly. The property chain can often treat purchasers using bridging loans as cash buyers and therefore can be favoured above other contenders that need to sell the property first, before proceeding.
  An example of where the speed of a transaction is crucial is at a property auction when an investor would require access to funds quickly to fund deposits so they do not miss out on the property lot. Other scenarios when the speed of a property transaction may be beneficial include; investment purchases or the funding of business ventures, tax bills or divorce settlements.
• Flexibility – Bridging loans lenders are specialised and therefore often have different borrowing criteria to high street lenders. As such, potential borrowers with a less than perfect credit score, or those fluctuating incomes could be granted access to this type of loans, secured against the property value.
  Bridging loans can also be used to break a mortgage chain providing increased flexibility of the timing of further property purchases.
• Variety -Bridging loans can be applied against both residential and commercial property types, including building plots without planning permission, therefore providing quick access to funding for a variety of investment opportunities.

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Example 2 – Downsizing with the use of a Bridging Loan

Within a downsizing scenario, the property owners may require a slower-paced property hunt, either to undertake renovations on the property that will be sold or to provide extra time to search for the perfect smaller property. Therefore, a bridging loan could finance the gap between the sale of the larger property, to fund the downsized purchase.

With a longer timeframe available, the market can be scoured for the best lending rates available.

Example 3 – Relocation

A property relocation may sometimes be needed for a variety of reasons such as a work opportunity or family commitments, however often timings can be challenging. In these circumstances, sometimes a new property is required to be purchased for the relocation purpose before currently owned property is sold. A bridging loan can be an ideal solution to finance the move whilst the original property is put on the market.

How much does a Bridging loan Cost?

The interest costs on bridging loans can seem fairly high, typically around 0.4% – 1.5% a month, however the duration of the loan must be considered to calculate the overall costs.

There are also additional charges to be taken into consideration such as arrangement fees, and sometimes exit fees applied by the lender. As with a standard mortgage, legal fees, valuation costs and bank transfer fees will also be payable.

Bridging Loan Examples Summary

As with any financial transaction, there will be pros and cons of the options available, and therefore it is recommended that advice is sought from an independent mortgage advisor to review the entire situation as well as the applicants’ personal circumstances.

Specialist brokers often have access to the entire financial market and can therefore provide a wide range of quotes from a wide variety of bridging lenders.

Give us a call on 01925 906 210 or get in touch for advice that is personal to you and takes your credit history into account. That way you will know where you stand in the development finance market and we can guide you on your route to securing a suitable loan.

Development loans, also known as bridging finance, are short term loans that can be utilised to build a new property or to develop existing properties, for a range of purposes including residential houses, commercial property or industrial buildings.

Development finance is a type of secured lending, typically available at values of £25,000 and above.

This type of financial product is available, depending on the circumstances of the applicant, even if they are a first-time developer, and the duration of development finance is often between 12 and 36 months.

Read our related quick help guides: 

• Bridging loans for property development.
• A guide to bridging loans brokers.
• Bridging loan examples.
• Alternatives to bridging loans.
• Development finance.
• Construction loans.

Usually, there are no early repayment charges applicable on development loans, and therefore this type of finance can be a flexible and cost-effective source of finance for developers or investors.

Should the finance be required for the initial purchase of the site or plot, the maximum amount that can be borrowed at this stage is usually between 50%-60% of the purchase price of the property.

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Development finance for purchasing the site would usually include criteria that the site was already subject to suitable planning permissions required for the development.

In addition, developers can sometimes borrow up to 100% of the build costs, providing that the total amount is within 60-70% of the gross development value.

The lender would usually review build cost borrowing on a case by case basis and provide any additional terms as required. Funds are available to the developer in stages and interest is usually only charged on the funds that are drawn.

What are the Advantages of Development Finance?

The main benefit of development finance is that enables borrowers to have access to much larger levels of money than traditional borrowing methods.

Also, this type of finance is available on a range of properties that traditional mortgages would not be, such as unhabitable buildings.

As previously mentioned, the flexibility available with development finance is a major benefit to investors, both with the ability to plan and fund the project in stages, but also to provide a method of keeping the costs of borrowing as low as possible.

The costs are kept at a minimum as interest is only charged when monies are drawn but also as there are fewer repayment restrictions, enabling the finance to be repaid quickly.

Recommended reading: Guide to Bridging Loans Brokers.

What are the costs involved with Development Finance?

There are various fees applicable to development finance, however, these will vary between lenders. Typically, this type of finance will be subject to:

• Facility fees – Or otherwise known as arrangement fees are calculated as a percentage of the total value of the loan.
• Interest – Interest can be charged monthly or annually, however in comparison with standard mortgages, the interest rates are higher due to the short-term nature of the financial product.
• Exit fees – A fee payable on repayment of the loan is commonplace. This fee can be calculated in different ways, either as a percentage of the value of the monies borrowed, or the total value of the project.
• Broker fees – Broker fees can vary in amounts but also between different charging methods. Some brokers receive a commission from lenders on successful loan applications and therefore do not charge clients directly, however, others will set a fixed fee for their services.

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Other costs will also need to be factored into a business plan including:

• Valuation fees – As with most property transactions, a valuation will be required and there will be charges for this. Where the valuation for a development differs, is that an assessment will be made, projecting the valuation of the completed development project.
• Legal fees – Any legal advice throughout the project as well as undertaking the legal transaction of property that has been developed will need to be paid for.
• Monitoring fees – Due to the nature of development finance, lenders will usually need to monitor the progress of the project. All costs attributed to monitoring are borne on the borrower.
• Transaction fees – Lenders will typically charge each time an instalment payment is paid to the developer throughout the project for both the administration and the banking fees.

What is the Application Process of Development Finance Loans?

Due to the specialised nature of development finance, brokers are often used to research the market, provide advice and compare lender offers.

Following this initial stage, an application would be submitted to the selected lender. An application for development finance would include details of;

• The applicant including their current financial circumstances.
• Details of other assets to be used security.
• A documented proposed exit strategy.

The lender would then review an application in its entirety and undertake the usual credit checks. If successful, an agreement in principle can be issued.

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At this stage, further investigations are undertaken including a site visit to ensure project viability and an independent valuation of the project is forecast. Should the findings of these investigations be sufficient, a formal loan offer and terms can be issued.

Any legal elements would be taken care of next, followed by the completion of the loan and the first drawdown payment.

How is Development Finance Repaid?

Either at the end of the term of the loan or beforehand, if desired, the development loan would be repaid. Often repayment would involve one of the following;

• Sale of the property – Upon completion of the sale, the development loan would be settled in full.
• Refinance – There would be a range of refinancing options available to be considered at the end of the initial finance duration period, depending on; the circumstances of the borrower, the plans with the development property and the timeframe of such plans. For example, the developer may choose to rent out the property at this stage, and therefore a landlord type of finance may be sought for a longer term of borrowing.

Development Finance Summary

Development finance is a short-term, cost-effective and flexible type of loan suitable for a range of development projects. Such financial products are rarely found on the high street and therefore are usually accessed via a broker.

As with all secured borrowing, the property and security deposits are at risk should repayments not be made.

Give us a call on 01925 906 210 or get in touch for advice that is personal to you and takes your credit history into account. That way you will know where you stand in the development finance market and we can guide you on your route to securing a suitable loan.

What is a bridging loan?

A bridging loan, otherwise known as gap finance, is the term used for a short term a financial product that provides funds to enable a purchase to take place while a sale is still in progress.

Bridging loans are often seen within the property industry for funding the purchase of a property or to develop property before other assets are sold.

Bridging loans are also commonplace at property auctions where access to deposit funds promptly is highly important so that bidders do not miss out on any lots that they are interested in.

Other reasons that bridging loans may be required are business ventures or a divorce settlement.

Bridging loans are short term secured finance, often with terms to settle within a year, and can be arranged on both residential and commercial assets.

Technically, a bridging loan utilises the equity within a current property as a down payment towards other property, resulting in two (or more) properties being owned while the sale is going through.

Bridging loans are a method of secured lending and therefore to apply for a loan, a procession of a high-value asset is needed.

Bridging loans can range from £5,000 to £10 million and a decision from a lender can be sought quickly, usually within twenty-four hours.

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What are the costs of a bridging loan?

Typically, interest on bridging loans can be fairly high.

The interest rate offered will depend on a number of factors including:

• Total amount of the bridging loan.
• Equity available within other assets.
• Duration of the loan.
• Overall personal financial circumstances of the applicant.

There will also be additional charges such as an arrangement fee and in some circumstances, exit fees applied by the lender. Some lenders also apply bank transfer fees and administration fees, therefore a thorough read of the fine print is very important to ensure all additional costs are known before committing.

Read our related quick help guides: 

• Bridging loans for property development.
• A guide to bridging loans brokers.
• Bridging loan examples.
• Alternatives to bridging loans.
• Development finance.
• Constructions loans.

In addition, there will be other standard costs associated with asset purchases such as valuation and legal fees.

All associated fees should be known before an application is submitted. Most fees will be on a one-off basis, whereas interest is applied monthly.

The repayments can include the monthly repayment of interest or the settlement of the interest due can sometimes be delayed until the end of the term, however, either way, the interest costs will accumulate for the duration of the loan. Therefore, the longer the loan is outstanding, the more it will cost.

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Sourcing a Bridging Loan via a Specialised Bridging Finance Broker

One method of sourcing a bridging loan is to use a specialised bridging finance broker. Specialist brokers often have access to the whole financial market and therefore can provide quotes from a wide variety of bridging lenders.

By searching a wide range of lenders who will be offering an array of financial products, the best prices and terms can be found for every personalised situation.

A specialist broker will have insight into the market conditions and be able to advise the success rate of an application being accepted with which lenders.

Brokers also provide in-depth, knowledgeable advice from initial enquiry through to completion, assisting applicants to navigate a competitive market as well as guiding them through the application process.

In addition, if an applicant has any additional personal factors such as bad credit history, or any other concerns with the property purchase, the broker’s specialist advice can be invaluable.

As bridging loans are a short-term finance solution, the exit strategy will need to be identified and planned from the beginning of the process.

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Brokers can also assist with any further financial transactions required, keeping everything simplified and under one roof.

Brokers can also explore alternative options to a bridging loan such as a second mortgage or a remortgage on the current property, as well as personal loans (either secured or unsecured), providing independent advice on the options available.

Brokers can provide pros and cons for options such as the speed of bridging loans is a strong advantage, allowing transactions to proceed quickly.

Bridging loans are also flexible however the downside can be the cost of the interest and fees, especially if the duration of the bridging loan is likely to be more than a couple of months, as the interest is applied monthly.

Brokers can also simplify the process for applicants, explaining everything in everyday terms to applicants. Also, often there is a lot of information to source for an application, and traditionally this would require a lot of form filling, however by the use of automated electronic systems, this can be avoided.

The final benefit of using a broker is that often the specialist professional will liaise with the other parties involved such as solicitors, ensuring that any administration issues are handled promptly which can speed up the overall process.

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Costs of using a Broker

The costs of using a specialist broker can vary. A common approach is for the broker to take a commission from the lender and not charge the applicant directly. Another pricing structure that can be applied is a percentage of the loan amount.

Using a specialised bridging finance broker can save applicants both time and money, as well as relieving stress, knowing that a professional is assisting with your application.

Bridging Finance Broker Summary

As with any financial decision such as considering a bridging loan, it is best to seek independent financial advice, to read the fine print and to be aware of the consequences of the chosen financial product.

With any secured lending, there is the risk that the associated asset could be seized should repayments not be made.

At Mortgageable, we have a dedicated team of advisors that will be able to offer you help, point you in the right direction and provide you with access to some of the best bridging loan deals currently on offer.

Give us a call on 01925 906 210 or get in touch for advice that is personal to you and takes your credit history into account. That way you will know where you stand in the bridging loan market and we can guide you on your route to securing a suitable loan.