Having been rejected for a mortgage, our client was now looking for a bridging loan to buy a new residential property before his current one sold. The loan was to be secured on the purchase property only, as it was of enough value to borrow the loan required and because the client’s current first charge lender would not allow a second charge consent on the current residential. The rest of the purchase price was made up of savings.

UK Property Finance has access to all the main premium rate lenders in the market, which also allows us access to many special rates starting at below 0.4%.

“This was no ordinary house”

The client was looking to exit the loan by mortgaging his purchase property. However, the finance was not available at this stage due to the client’s lack of the first full year’s accounts from his new business venture. The mortgage had been declined, leaving him short of time to complete the purchase of his desired property. This was no ordinary house, as was soon revealed; it was once owned by the client’s parents and was where he had spent much of his childhood. The considerable sentimental value to our client spurred the team to find a resolution.

“The dream team quickly assembled into action”

Indeed, due to the time taken before contacting UK Property Finance, the vendor had now threatened to pull out of the sale if completion did not occur within one week. We were told of the urgency during our very first contact with the client and following an initial fact-finding process.

The dream team quickly assembled into action and instantly provided a quotation for the client’s requirements. The client wanted to proceed, so within 2 hours we had obtained an agreement in principle at the most competitive rate in the market. UK Property Finance also negotiated with the lender to allow an automated valuation, which would make the process much quicker. The team immediately created the finance pack and uploaded it to the document collection company, which met the client at 8 p.m. that evening, by upgrading to a premium service. By the time we opened for business at 8 a.m. the next morning, the finance pack had already been scanned and emailed back, so it could be rapidly submitted to the lender.

By liaising closely with the lender, who lost no time in completing the underwriting and automated valuation, this enabled an offer to be received on the same day of submission. The offer also went to the lenders and the client’s solicitors, who had been warned about the urgency of the case. Even with some minor delays, UK Property Finance continually chased this regulated bridging loan to complete within a week of initial client contact. Continued support for our client meant UK Property Finance could arrange a mortgage for the client to repay his bridging loan within 3 months of funding.

UK Property Finance is not just a bridging loan specialist and can offer many different lending solutions. To find out how we can support you, please contact us at 0116 402 7982.

In the world of property transactions, bridging loans play a crucial role in bridging the financial gap between the sale of one property and the purchase of another. These short-term loans are typically secured against the property being purchased and are designed to provide temporary funding until the borrower can secure long-term financing.

Calculating a bridging loan can seem like a complex process, but understanding the key factors involved can help you make informed decisions and ensure a smooth transaction. This comprehensive guide will delve into the intricacies of bridging loan calculations, providing you with the knowledge you need to navigate this financial aspect of your property purchase.

Factors affecting bridging loan calculations

Several factors influence the calculation of a bridging loan, including:

1. The loan amount: The loan amount is a major determinant of the overall cost of your bridging loan. The higher the interest payments and associated fees, the larger the loan amount.
2. The loan-to-value ratio (LTV): The LTV represents the percentage of the property’s value that is covered by the bridging loan. LTV limits are typically set by lenders, and a higher LTV may result in a higher interest rate.
3. The loan term: The loan term refers to the length of time you borrow money. Longer loan terms typically result in higher interest rates.
4. Interest Rate: The interest rate is the percentage of the loan amount that you pay as interest over the term of the loan. Bridging loan interest rates can vary depending on the lender, your credit history, and the loan’s overall risk.
5. Fees: Bridging loans may incur fees in addition to interest, such as arrangement fees, valuation fees, and legal fees.

Calculating the gross loan amount

The gross loan amount is the total amount you will repay, including the principal loan amount and the accumulated interest. It is calculated using the following formula:

“Gross Loan Amount = Net Loan Amount + Interest Charges”

Calculating interest charges

Bridging loan interest can be calculated in two ways:

• Monthly interest: Interest is calculated and paid monthly based on the outstanding loan balance.
• Rolled-up interest: Interest is accrued and added to the principal loan amount each month, increasing the outstanding balance and the overall interest charges over the loan term.

Additional considerations

Apart from the factors mentioned above, other considerations may influence bridging loan calculations:

• Your exit strategy: The lender may consider your exit strategy, which refers to the plan for repaying the bridging loan, such as refinancing or selling the property.
• The property type: The type of property being used as security may affect the interest rate and LTV limits.
• Your credit history: Your credit history plays a significant role in determining the interest rate and the lender’s willingness to provide a bridging loan.

Seeking professional guidance

Bridging loan calculations can be complex, and it’s always advisable to consult with a qualified financial advisor or bridging loan specialist. They can help you understand the various factors involved, compare different loan options, and ensure you secure the most suitable bridging loan for your specific needs.

In conclusion

Bridging loans can be a valuable tool in facilitating smooth property transactions. Understanding the factors involved in bridging loan calculations empowers you to make informed decisions, choose the most appropriate loan option, and negotiate favourable terms with lenders. By consulting with experienced professionals, you can navigate the intricacies of bridging loan calculations and maximise the benefits of this short-term financing solution.

While a bridging loan can be a useful tool for certain types of financing needs, it may not always be the best option for everyone.

Here are a few reasons why you might consider an alternative to a bridging loan:

• High interest rates: Bridging loans can have high-interest rates and fees compared to other types of loans, which can make them more expensive over time.
• Short-term nature: Bridging loans are typically designed for short-term financing needs, such as covering the gap between the purchase of a new property and the sale of an existing property. If you’re looking for longer-term financing, such as for a home renovation project, you may want to consider other options that offer more flexibility and lower interest rates.
• Risky nature: Bridging loans can be risky, as they are secured against the property being sold. If you are unable to sell the property or the sale falls through, you could be left with a significant amount of debt that you are unable to repay.
• Other options available: There are many other financing options available, such as home equity or secured loans, personal loans, and credit cards, that may offer more favourable terms and be better suited to your individual needs and financial situation.

Ultimately, it’s important to carefully consider your financing options and choose the option that best meets your needs and budget. Be sure to compare interest rates, fees, and terms carefully when considering different types of loans, and work with a reputable lender to ensure that you’re getting a good deal.

What are the other options?

Remortgaging your property

Remortgaging your property is one way to get financing by borrowing against the equity in your home. Essentially, remortgaging means taking out a new mortgage on your property while paying off your existing mortgage.

Here are the steps you need to take to get financing by remortgaging your property:

• Assess your current mortgage: Before considering remortgage, you should review your current mortgage agreement to see if there are any early repayment charges or exit fees. This will give you an idea of whether it is worth remortgaging and whether you will save money by doing so.
• Determine the value of your property. You will need to have your property valued to determine its current market value. This will help you to understand how much equity you have in your property, which is the difference between the value of your property and the outstanding mortgage amount.
• Shop around for remortgage deals. Once you have assessed your current mortgage and determined the value of your property, you can start shopping around for remortgage deals. Consider factors such as the interest rate, term, fees, and any additional benefits such as cashback or free valuations.
• Apply for a remortgage: Once you have found a suitable remortgage deal, you will need to apply for it. The lender will review your application, credit history, and affordability and may require additional documentation such as proof of income and identification.
• Pay off your existing mortgage: If your application is successful, the new lender will pay off your existing mortgage, and you will start making payments on the new mortgage.
• Use the released equity: If you have sufficient equity in your property, you can use the released equity to finance a variety of needs, such as home improvements, debt consolidation, or investing in a business.

It’s important to note that remortgaging comes with its own risks, such as increasing your debt or monthly payments, and should be approached with caution. It’s important to seek independent financial advice before making any decisions.

Taking out a secured loan

Secured loans and bridging loans are two different types of financing options that are often used for different purposes. A secured loan is a loan that is backed by collateral, such as a house or a car, while a bridging loan is a short-term loan that is often used to bridge the gap between the sale of one property and the purchase of another.

If you are looking for a financing option that offers lower interest rates and longer repayment terms, then a secured loan may be a good alternative to a bridging loan. With a secured loan, you can borrow a larger amount of money and spread the repayment over a longer period of time. This can help you manage your cash flow more effectively and avoid the high-interest rates and fees associated with a bridging loan.

Another advantage of a secured loan is that the interest rates are typically lower than those of an unsecured loan or a bridging loan because the lender has the security of your collateral. This means that you may be able to save money over the long term by choosing a secured loan instead of a bridging loan.

However, it’s important to remember that a secured loan also carries the risk of losing your collateral if you are unable to make the payments on time. So, it’s important to make sure that you can afford the repayments before taking out a secured loan.

In summary, if you are looking for a financing option that offers lower interest rates and longer repayment terms and you have collateral to secure the loan, then a secured loan may be a good alternative to a bridging loan.

Personal unsecured loan

A personal unsecured loan is a type of loan that does not require collateral to secure the loan. Instead, the lender will assess your creditworthiness based on your credit score, income, and other financial factors. A bridging loan, on the other hand, is a short-term loan that is typically secured against a property or other assets.

There are several reasons why a personal unsecured loan may be a good alternative to a bridging loan:

• Lower interest rates: Personal unsecured loans typically have lower interest rates than bridging loans. This is because the lender is taking on less risk by not requiring collateral. As a result, you may be able to save money on interest charges by choosing a personal unsecured loan instead of a bridging loan.
• Longer repayment terms: Personal unsecured loans also typically offer longer repayment terms than bridging loans. This can make it easier for you to manage your cash flow and repay the loan over a longer period of time.
• No risk of losing collateral: With a personal unsecured loan, you do not have to put up any collateral to secure the loan; this means that you do not have to worry about losing your property or other assets if you are unable to repay the loan.
• More flexible: Personal unsecured loans are also typically more flexible than bridging loans. You can often use the funds for a wider range of purposes, and the loan application process is often faster and simpler.

Overall, if you do not have collateral to secure a loan or if you want to avoid the risk of losing your collateral, a personal unsecured loan may be a good alternative to a bridging loan. It’s important to compare interest rates and repayment terms from different lenders to find the best option for your needs.

Let-to-buy mortgages

A let-to-buy mortgage is a type of mortgage that allows you to convert your existing home into a rental property while you purchase a new home to live in.

This can be a good alternative to a bridging loan for several reasons:

• Avoid paying two mortgages: With a let-to-buy mortgage, you can avoid paying two mortgages at the same time. This is because you can use the rental income from your existing property to help cover the mortgage payments while you move into your new home. This can be a more cost-effective solution than taking out a bridging loan, which can be expensive and have high-interest rates.
• No need to sell your existing property: With a let-to-buy mortgage, you don’t have to sell your existing property in order to purchase a new one; this can be beneficial if you want to keep your existing property as an investment or if you are unable to sell it quickly enough to finance the purchase of your new home.
• Longer repayment terms: Let-to-buy mortgages typically have longer repayment terms than bridging loans, which can make the monthly repayments more affordable. This can be helpful if you are on a tight budget or if you are worried about your ability to make the repayments on a bridging loan.
• Lower interest rates: Let-to-buy mortgages also tend to have lower interest rates than bridging loans, which can save you money over the long term. This is because let-to-buy mortgages are usually longer-term mortgages while bridging loans are short-term loans.

Overall, a let-to-buy mortgage can be a good alternative to a bridging loan if you are looking to purchase a new home while keeping your existing property as an investment. It can help you avoid paying two mortgages at the same time and provide you with a more affordable and longer-term financing solution.

Asset refinancing

Asset refinancing is a financing option that involves using existing assets, such as equipment, machinery, or property, as collateral for a loan.

This can be a good alternative to a bridging loan for several reasons:

• Lower interest rates: Asset refinancing typically offers lower interest rates than bridging loans. This is because the lender has the security of your existing assets, which reduces the risk of default.
• Longer repayment terms: Asset refinancing also typically offers longer repayment terms than bridging loans. This can make it easier to manage your cash flow and repay the loan over a longer period of time.
• There is no need to sell assets. With asset refinancing, you do not have to sell your assets in order to secure the loan. This can be beneficial if you want to keep your assets for future use or if you are unable to sell them quickly enough to finance the purchase of a new property.
• More flexibility: Asset refinancing can also be more flexible than bridging loans. You can often use the funds for a wider range of purposes, and the loan application process is often faster and simpler.

Overall, asset refinancing can be a good alternative to a bridging loan if you have existing assets that you can use as collateral. It can provide you with lower interest rates, longer repayment terms, and more flexibility than a bridging loan. However, it’s important to remember that asset refinancing also carries the risk of losing your assets if you are unable to make the payments on time. So, it’s important to make sure that you can afford the repayments before taking out an asset-refinancing loan.

For the first time this year, average bridging loan interest rates increased slightly in Q3. But rather than adversely affecting the sector’s popularity and performance, data from Bridging Trends indicates quite the opposite. In the face of adversity, the UK’s bridging finance sector enjoyed its strongest quarter on record in terms of gross contributor lending.

Compared to Q2, quarterly performance increased by a huge 30% in Q3; a total of £214.7 million in bridging loans was transacted across the UK, up from £178.4 million in Q2. This is the highest combined contributor lending total recorded since 2015, when Bridging Trends was launched.

(Click to enlarge).

Of equal significance, the Bridging Trends report also showed a major shift in how bridging loans are being used by UK borrowers. For the first time, preventing a property chain break became the top use for bridging finance, accounting for a full 22% of all transactions (up from 21% in the previous quarter).

This bucked the trend of the five prior consecutive quarters when purchasing investment properties was the most common use for bridging finance.

“Following the base rate rises we’ve seen throughout this year and mortgage interest rates increasing across the industry, it’s no surprise that chain break bridging is the biggest use of funds for the quarter,” said Stephen Watts, Bridging & Development Finance Specialist at Brightstar.

“Borrowers that have had mortgage products withdrawn from them with little or no notice or have lost their sale due to their buyers no longer fitting mortgage affordability criteria would then turn to short-term funding solutions to ensure their purchase can still go through as planned. It will be interesting to see how this impacts next quarter’s data.”

Attributed largely to the growing uncertainty that continues to plague the UK economy, the use of bridging finance for investment property purchases plummeted from 24% in Q2 to 16% in Q3.

Interest rates are up slightly

Meanwhile, the average monthly interest rate payable on a bridging loan increased slightly for the first time, up from 0.69% in Q2 to 0.73% in Q3. However, this seemingly had no impact whatsoever on overall bridging activity, which reached a new record high between July and September.

There was also a slight increase in the average loan-to-value level of bridging products issued in Q3—up from 56.2% in Q2 to 59.6%. Regulated bridging loans accounted for 45.2% of all transactions, up slightly from 43.3% in the previous quarter. Average completion times increased slightly to 60 days in Q3 (an increase of three days compared to Q2), which may be a reflection of the record demand for bridging finance also recorded during this period.

While average interest rates continue to hover close to previous record lows, experts believe that further increases over the coming months may be all but inevitable.

“Considering the volumes we have seen in Q3, bridging finance clearly continues to be a useful tool for homeowners and investors alike. What has been interesting is the drop-off in bridging being utilised for investment purchases, which is likely due to buyers taking stock of the current market. While it’s too early for us to really feel the impact of September’s mini-budget, I expect this will be more visible in Q4,” said Gareth Lewis, Commercial Director at MT Finance.

“As predicted in Q2, interest rates have started to slowly rise to 0.73%, but it is worth noting they are virtually on par with Q3 in 2021 (0.72%). What comes next remains to be seen, but I would not be surprised if interest rates continue to rise and investors remain cautious.”

At a growing pace, bridging finance is becoming a force to be reckoned with in the UK’s specialist lending market. Providing rapid access to significant sums of cash for just about any purpose, bridging loans take convenience, flexibility, and accessibility to an entirely higher level.

But even at this stage, the true versatility of bridging finance isn’t what you’d call common knowledge. You may associate bridging loans with fast-paced property purchases, but how about a bridging loan for VAT?

For commercial property investors and developers, an affordable bridging loan to pay VAT can provide a welcome lifeline at a critical juncture.

What is a bridging loan for VAT?

As you’ve probably figured out by now, bridging loans for VAT are short-term loans that can be used to pay the VAT on a commercial property purchase. As things stand right now, the vast majority of commercial property purchases (where the property is less than three years old) require a 20% VAT payment. The VAT must be paid on top of the price of the property at the time of its purchase, which can significantly elevate the costs of the transaction.

The more expensive the property, the greater the VAT outlay for the buyer.

Of course, commercial property buyers go on to claim this VAT back from HMRC at a later date. The problem is that, depending on the specifics of the case and application volumes at the time, it can take as long as three months for refunds to be actioned. During which time, the investor could be left somewhat out of pocket.

Loans and specialist credit facilities in general are frequently used by investors to cover VAT costs, but none have proven quite as flexible or affordable as the bridging loan.

How a VAT-bridging loan works

As with all bridging loans, a VAT bridging loan is offered as a short-term credit facility for a specific purpose. In this instance, the borrower is able to apply for a minimum of, say, £50,000 with no upper limits, secured on their existing property or qualifying assets. Applications can be processed and funds delivered in as little as five working days, after which the full balance is repaid on an agreed date. Bridging loans can be arranged over terms of anything from a few days to 18 months, in accordance with the preferences of the borrower.

The lender makes the money available as quickly as possible, the borrower uses it to pay the VAT, and the property purchase goes ahead. When the VAT is refunded by HMRC, the funds are used to repay the loan in full, along with any additional borrowing costs incurred. The quicker the loan is repaid, the lower the overall borrowing costs and the simpler the transaction in general.

Affordable short-term VAT loans

Some of the UK’s leading bridging specialists offer short-term loans with rates of interest as low as 0.5% per month. All with minimal additional borrowing costs, arrangement fees, and general levies. Just as long as the balance is repaid in accordance with the loan agreement, bridging finance can be uniquely cost-effective.

Along with near-immediate access to the funds required, a key benefit of bridging finance is the elimination of credit checks. If the applicant is able to provide sufficient collateral to cover the loan, there’s no requirement to undergo a credit check or provide proof of income. No deposits, no delays, and no unnecessary complications, ideal for covering VAT costs when time is a factor.

Just be sure to consult with an independent broker before penning your application, which will help ensure you find the best deal from an extensive panel of specialist lenders.

There are many situations where it is important to be able to secure financing in a timely fashion. In the business world, you will need to be able to act quickly in order to be able to make certain investments. You may also require funds just to cover certain operational costs while waiting for more funds to come in. If you are in need of money fast, then you might want to consider a bridging loan.

For those who aren’t in the know, a bridging loan refers to securing short-term financing. These are quick loans that allow you to receive funds quickly so that you can get by. You will then be able to take the time to secure a more permanent financing solution while paying back the short-term loan within the agreed-upon parameters. There are many benefits to bridging a loan in this fashion, but there are also negative aspects that you should consider.

Why do people use bridge loans?

One of the most common reasons that people decide to look for short-term financing solutions is that they want to make an investment. Sometimes, opportunities present themselves, and you need to be able to strike right away. Real estate investment opportunities are a good example of this. Having the ability to get the money that you need quickly is essential if you want to be able to purchase a hot property.

The pros of bridging a loan

When you need to finance something quickly, it is important that you are able to get access to the funds in a timely fashion. Short-term loans can work to get you what you need as fast as possible. There are generally two types of short-term loans that you can sign up for. There are closed loans with a fixed repayment date and open loans that have greater flexibility.
Those who need to make a quick investment or who are trying to buy a property will be able to easily access closed loans. You set up a date for repayment, and everything works out very smoothly. Open loans are more common when you have yet to figure out the details of when you can close on a property. This is a little bit more ambiguous, as you won’t know when you will be capable of repaying the loan yet, but it is good to have flexible options.

The cons of bridging a loan

Bridging a loan can be more expensive than getting a traditional loan. You will be paying for the convenience of getting the funds that you need so quickly. Bridging loans are a short-term financing option that is only to be used for specific purposes. It isn’t something that you will want to use regularly, as you’ll be paying significant amounts of interest on this loan type.

Also, if something goes wrong with your investment, you could be stuck with a costly loan and no way to pay it back. This can be a bit of a high-risk loan situation if you don’t know what you are doing. It is important to only use bridging loans to get by when you know that repayment won’t ruin you. Take all the possible outcomes into consideration before deciding to move forward.

Is this worth doing?

Bridging a loan is worth doing if you need to be able to secure financing quickly. It comes down to what options are available to you. If you have an open credit line elsewhere that you can use, then you should probably go with a more traditional financing option. Those who need to secure the money fast will find that bridging a loan can be worthwhile. You may wind up paying quite a bit of interest, but it can still be an effective means to an end.

The Council of Mortgage Lenders has again released figures showing that annual bridging lending has increased by 25% and now stands at around £2.5bn per year. Bridging loans are becoming widely accepted as a tool for accepting clients’ short-term funding needs. The main advantage of bridging loans is that they can be arranged quickly when the client’s need is particularly urgent.

Bridging finance deals are often arranged at a fast pace, so a client needs to be sure they are getting good advice. It is important that when talking to a lender, an answer can be given right away, which is why speaking to a specialist bridging loan adviser is best. The increase in prevalence of bridging leads has led to a growing number of specialist brokers for this market. Some mortgage brokers will try to service the deal themselves, while others will pass the inquiry onto a specialist.

Established in 1995, the company concentrates on bridging loans or short-term finance but also offers building and contents insurance products in the specialist landlord and commercial business sectors. The Cheval Group includes Cheval Bridging Finance Ltd., Cheval Commercial Finance Ltd., and Cheval Finance Ltd. Their pedigree is very high; all are regulated by the Financial Services Authority (FSA), and they also hold a licence to enter into consumer credit agreements.

Cheval was the first provider of bridging finance to become a member of the Council of Mortgage Lenders (CML) and was a founding member of the Association of short-term lenders.

Cheval has won two awards so far this year, most recently the 2010 Bridging Lender of the Year at the Bridging and Commercial Awards, for the second year running. It was also chosen for Best Service at the Moneyfacts Awards 2010.

Cheval has a reputation for providing fast, flexible, and reliable services. Following the announcement that they had again won the Bridging Lender of the Year Award, brokers came forward to praise and describe their experience using the company. Stories of superfast approvals and speedy release of funds, as well as a flexible approach towards applications that may have been turned down by other lenders, have all emerged.

Broker John Charcoal believe that Cheval offers an ‘easy and approachable nature’ that includes telephone contact with members of staff at all levels who respond to queries efficiently and quickly.

Interest rates from Cheval compare very well with those of other short-term loan providers, remaining competitive in a growing market. A spokesperson from Lifetime Mortgages and Finance said the group offers “good levels of flexibility in their lending approach and competitive interest rates. “They stand at the forefront of their profession.”

The group has worked hard to build good relationships with brokers and takes time to explain the products that it provides. This summer, they have been holding roadshows across the country to explain the best practices and appropriate use of both residential and commercial bridging loans. These kinds of products are complicated and have huge implications for anyone who is considering an application.

The roadshows have been very well received, and most brokers have admitted that prior to attending the presentations, they had very limited knowledge of the circumstances under which bridging loans should be used or when other products should be recommended.

The biggest client groups for bridging finance products are investors and residential buyers who are buying at auctions. In these situations, the buyer needs to complete the deal within a very short period of time, and it is often impossible to arrange a mortgage from a traditional lender quickly. The need for surveys and valuations delays the mortgage application process and could be the difference between losing or closing the deal.

Home buyers who are selling their existing home and need to complete a purchase on a new property before their own sale has gone through may also take advantage of a bridging loan to ensure that they do not lose their ideal new home. It is always recommended that customers take independent advice before taking out these high-cost products, and a well-informed mortgage broker will be able to explain the full implications as well as recommend an appropriate loan.

New products that have been launched take into account the period often now required by traditional lenders that the owner should have been in possession of the property for a minimum period of six months. Bridging loan customers can now arrange a loan that is geared toward a six-month plus agreement period with slightly lower interest rates than would traditionally have been charged by bridging finance companies. Cheval has a number of products suitable for a variety of clients and circumstances; ask your broker to find the right deal for you.