News

Flexible and Affordable Bridging Loans: An Ideal Refinancing Solution for Buy-to-Let Landlords

Landlords thinking about refinancing right now face a challenging scenario, as current interest rates on buy-to-let (BTL) products are not particularly attractive to many property investors.

Despite Moneyfacts data indicating that average BTL rates have decreased compared to the beginning of the year and the same time last year, they are still significantly higher than the historically low rates seen in recent years.

The prospect of locking in these rates becomes even less appealing when considering the potential for rates to drop in the coming months. In our opinion, this situation underscores the importance of brokers placing greater emphasis on bridging loans and short-term finance options.

What the future may hold

While predicting mortgage rates with certainty is impossible, the outlook for buy-to-let (BTL) products becoming more competitively priced is promising. Inflation is gradually decreasing, albeit slower than desired, but it is moving in the right direction. Consequently, there is an expectation for a base rate cut in the near future, likely not in June during the general election campaign but possibly in August or September.

As we approach this potential shift, swap rates are anticipated to decline, which should lead to more attractive long-term pricing for landlords and investors. The main challenge is determining the best course of action in the interim.

Bridging loans offer competitive pricing and flexibility compared to traditional BTL

Bridging loans have long been valued by investors needing to act swiftly on purchases, but they are especially advantageous in today’s market conditions.

Currently, the pricing of bridging loans is comparable to traditional buy-to-let (BTL) deals, yet they provide significantly more flexibility. Landlords are not locked into long-term agreements or pressured to adjust rents to meet Interest Coverage Ratio (ICR) tests. Instead, they can utilise a bridging loan for up to a year, with the option to refinance into standard BTL products when more favourable rates are available.

Moreover, this approach allows landlords to restructure their portfolios without incurring additional charges. They can sell underperforming assets while on a bridging loan without facing exit fees, a common issue with regular BTL products.

Recently, many investors have been leveraging bridging loans in this manner. This trend underscores the necessity for brokers to have a comprehensive array of financing options available for their investor clients, ensuring they can support any planned endeavours with suitable financial solutions.

Additionally, bridging lenders should consistently emphasise the versatility of these products, helping brokers fully understand how they can best meet their clients’ needs.

Bridging Loan Activity Remains Robust Amidst Growing Demand for Business Financing

Recent findings from Bridging Trends indicate that contributor gross bridging lending hit £196.2 million in the first quarter of 2024, underscoring the increasing appetite for additional business funding among entrepreneurs.

Quarter 1 2024 key points:

  • Gross Contributor Lending: A 0.4% increase
  • Business Financing Demand: Doubled from previous periods
  • Second Charge Bridging Loans: Achieved a three-year peak
  • Regulated Bridging Deals: Rose to pandemic-era levels

The reported bridging loan transactions for quarter 1 2024 held steady at £196.2 million, a continuation of the momentum seen in quarter 4 2023’s £195.5 million.

Trends in bridging finance utilisation: Quarter 1 2024 Overview

During quarter 1 2024, the primary use of bridging finance was for acquiring investment properties, representing 21% of the total loans, slightly down from 24% in quarter 4 2023. Notably, business funding demand saw a significant rise, almost doubling from 8% in quarter 4 2023 to 15% in quarter 1 2024, its highest point since quarter 4 2021. This surge is likely a result of business owners pursuing stability and growth opportunities.

Preventing chain breaks was the second most common reason for securing bridging finance in quarter 1, with its share increasing to 19% from 16% in the prior quarter.

Increasing bridging loan demand due to home purchase delays

With prolonged home purchase processes and the risk of chain breaks, more homeowners are opting for bridging loans to secure their desired properties. This led to regulated bridging loans comprising 51% of all bridging loans in quarter 1 2024, up from 44.2% in Quarter 4 2023, the highest since Quarter 3 2020’s 53%.

Data from Knowledge Bank shows that regulated bridging was the top search criterion for UK bridging loan brokers in quarter 1. This increased preference for regulated bridging likely contributed to the decrease in the average monthly interest rate from 0.91% in quarter 4 2023 to 0.89% in quarter 1 2024.

There was also a notable rise in borrowers using bridging finance to leverage equity in their assets. The demand for second charge bridging climbed to a three-year high of 21.3% in quarter 1, up from 11.6% in quarter 4 2023 and nearing quarter 1 2021’s 22.2%.

The average loan-to-value (LTV) ratio edged up to 60% in quarter 1, from 59.3% in quarter 4 2023. The average time to complete a bridging loan remained at 58 days, and the average loan term has been steady at 12 months for ten consecutive quarters.

For more details, check out the Bridging Trends from quarter 1 in 2024 infographic at www.bridgingtrends.com.

Bridging Loans for Retirement Planning: Unlocking Property Wealth for Later Life

Retirement is a big milestone in life. It represents the end of years of hard work and financial planning. Many nearing retirement own property. It can be a valuable source of wealth. It can help fund their golden years. Yet, getting this wealth isn’t always easy. This is particularly significant if the property’s value depends on its sale. This is where bridging loans come in. They offer a flexible and efficient solution. It unlocks property wealth for retirement planning.

Understanding bridging loans

First, we must understand what bridging loans are. Then, we can talk about how to use bridging loans for retirement planning. Bridging loans are short-term financial options. These aim to bridge the gap between buying a new property and selling an existing one. They are usually secured by the borrower’s property. Lenders expect borrowers to repay them, often within a few months to a year.

The role of property wealth in retirement planning

For many, property is their key asset. Its value often grows. So, they build up significant equity. They can cash in on this equity. Then, retirees get cash. They use it for living, healthcare, or more income.

Using bridging loans to access property wealth

Retirees can use bridging loans to release property wealth without selling. They avoid waiting for a sale to access funds. This is useful for quick needs, like buying a retirement home or paying unexpected bills.

Retirees often use bridging loans. They use them to downsize their homes. This move unlocks equity and cuts maintenance and living costs. With the loan, they can buy a smaller home before selling their current one. Thus, it eases the transition without forcing a quick sale. This strategy can lead to better sale prices.

Another use case is property renovation. Many retirees choose to renovate their homes, they do this to improve their lives or raise their property’s value before selling. With a bridging loan, retirees can get the funds to finance renovations upfront. They intend to repay the loan once they sell the property. This can help retirees maximise their property’s sale price and wealth.

Retirees often seek extra income by using their home value. They can do this with a bridging loan. This loan lets them invest in income sources. For instance, they can invest in rental properties. They can also buy dividend-paying stocks or start a small business. This boosts passive income and secures retirement.

Now, let’s look at key factors for using bridging loans in retirement planning. Bridging loans can offer big benefits for retirees looking to unlock property wealth. But there are some key things to keep in mind:

  1. Bridging loans have short loan terms and high interest rates. This is unlike traditional mortgages. Retirees must have a clear plan to repay the loan on time. This will avoid financial strain.
  2. Exit Strategy: You must have a clear exit plan. This is true when taking out a bridging loan. This is true for selling the property, refinancing with a mortgage, or using other funds. Retirees should have a clear plan to pay the loan at the end.
  3. Financial Assessment: Before applying for a bridging loan, retirees should assess their finances. They need to ensure they can afford the loan payments and costs. This may involve consulting a financial advisor or mortgage broker. They will check the person’s financial situation and explore other financing options.
  4. Property Valuation: Lenders need a valuation of the property. It will serve as security for the bridging loan. Retirees should ensure an accurate valuation of the property. This valuation determines the loan amount and terms offered by the lender.
  5. Picking the right lender is crucial. This is true when taking out a bridging loan. Retirees should research and compare different lenders. They should find one that offers low rates, flexible terms, and great service.

Conclusion

Bridging loans can help retirees. They can unlock property wealth for retirement planning. You might be downsizing, renovating, or exploring investments. Bridging finance offers a flexible way to access equity in properties. You can do this without needing to sell right away. You do this by understanding bridging loans and understanding the key factors. These include loan repayment, exit strategy, and lender selection. With proper planning and guidance, bridging loans can help retirees. They can use them to tap into their property wealth and enjoy a comfortable and secure retirement.

How Does a Bridging Finance Loan Differ From a Bank Loan?

Individuals and businesses often seek solutions tailored to their specific needs. Two common options are bridging finance loans and bank loans. While both serve as sources of funding, they differ significantly in their terms, purposes, and application processes. In this comprehensive guide, we’ll delve into the distinctions between bridging finance loans and bank loans, helping you determine which option aligns best with your financial objectives.

Purpose and flexibility

Bridging finance loans:

  • Bridging finance loans are primarily short-term financing options designed to “bridge” temporary funding gaps.
  • They are commonly used in property transactions, such as buying a new property before selling an existing one or funding property development projects.
  • Bridging finance loans offer flexibility in terms of repayment schedules, often accommodating varying needs and circumstances.

Bank loans:

  • Bank loans encompass a wide range of financing options, including personal loans, mortgages, and business loans.
  • These loans typically have longer repayment terms and are suitable for various purposes, such as purchasing assets, expanding businesses, or covering personal expenses.
  • Bank loans may involve stricter eligibility criteria and longer approval processes compared to bridging finance loans.

Speed and accessibility

Bridging finance loans:

  • One of the key advantages of bridging finance loans is their quick turnaround time.
  • They are designed to provide expedited access to funds, often within a matter of days or weeks, making them ideal for time-sensitive transactions.
  • Bridging finance lenders typically focus on the value of the underlying assets rather than the borrower’s credit history, which can streamline the approval process.

Bank loans:

  • Bank loans, particularly traditional mortgages and business loans, may involve more extensive documentation and verification processes.
  • While banks offer competitive interest rates and terms, the application and approval timelines are often longer compared to bridging finance loans.
  • Borrowers may need to meet stringent credit requirements and provide collateral to secure bank loans, which can pose challenges for some individuals and businesses.

Interest rates and costs

Bridging finance loans:

  • Bridging finance loans typically carry higher interest rates than traditional bank loans due to their short-term nature and higher perceived risks.
  • Lenders may also charge additional fees, such as arrangement fees and exit fees, which contribute to the overall cost of borrowing.
  • However, the convenience and speed of bridging finance loans may outweigh the higher costs for borrowers in certain situations.

Bank loans:

  • Bank loans often offer lower interest rates when you compare bridging finance loans, especially for borrowers with strong credit profiles.
  • While banks may also levy fees and charges, these costs are usually more transparent and predictable, allowing borrowers to assess the affordability of the loan.
  • Additionally, banks may offer incentives such as interest rate discounts for loyal customers or those with significant deposits or investments.

Repayment structure and exit strategies

Bridging finance loans:

  • Bridging finance loans typically have flexible repayment structures tailored to the borrower’s needs and circumstances.
  • They may offer options such as interest-only payments during the loan term, with the principal repaid in full upon the sale of the underlying property, or refinancing.
  • Borrowers are expected to have a clear exit strategy in place to repay the loan, whether through property sale proceeds, refinancing with a traditional bank loan, or other means.

Bank loans:

  • Bank loans generally follow a predetermined repayment schedule, with fixed or variable interest rates and monthly installment payments.
  • The repayment term may span several years or even decades, depending on the type of loan and the amount borrowed.
  • Banks typically require borrowers to provide detailed financial projections and collateral to mitigate repayment risks, ensuring that they can honour their repayment obligations over the loan term.

Conclusion

While both bridging finance loans and bank loans serve as valuable sources of funding, they cater to different financial needs and circumstances. Bridging finance loans offer speed, flexibility, and accessibility, making them well-suited for short-term transactions and urgent funding requirements. In contrast, bank loans provide lower interest rates, longer repayment terms, and structured repayment schedules, making them suitable for long-term financing needs and larger-scale investments. By understanding the key differences between these financing options, borrowers can make informed decisions based on their specific goals and preferences.

Martin Lewis: Your Money Man for Every Financial Situation

Martin Lewis is a household name in the UK when it comes to personal finance. His website, Money Saving Expert (MSE), is a treasure trove of information and guidance on navigating the complex world of money matters. But what exactly can you learn from Martin Lewis on bridging loans and all the other types of finance? Buckle up, because we’re diving deep into the financial topics he tackles and how his advice can empower you.

Mastering the Basics: Savings and Everyday Banking

One of Martin Lewis’ core strengths is his focus on financial fundamentals. He demystifies savings accounts, explaining the difference between easy access and fixed-rate accounts and helping you choose the one that aligns with your goals. He also sheds light on current accounts, with insights on overdrafts, fees, and switching incentives to maximise your banking benefits.

Debt Management: From Credit Cards to Mortgages

Martin Lewis doesn’t shy away from tackling debt. He offers clear advice on managing credit cards, including balance transfer offers and 0% interest periods, to help you repay efficiently. When it comes to mortgages, he empowers you with knowledge on fixed-rate vs. variable-rate deals, helping you secure the best mortgage for your circumstances.

Exploring Investment Avenues: ISAs and Beyond

If you’re looking to grow your wealth, Martin Lewis provides valuable guidance on individual savings accounts (ISAs). He explains the different ISA types, from cash ISAs for easy access to savings to stock and share ISAs for long-term investments, allowing you to make informed decisions. He also explores other investment options, helping you navigate the world of stocks, bonds, and pensions.

Specialist Solutions: Bridging Loans, and More

Martin Lewis understands that financial needs can be complex. While he doesn’t directly offer bridging loans, a specific type of short-term loan secured against property, he provides clear explanations on how bridging loans work. This could help you to decide if a bridging loan is the right solution for your situation, such as buying a new property before selling your old one. He also delves into other specialist areas like insurance, travel money, and even PPI claims.

Free Resources and Tools at Your Fingertips

Money Saving Expert is a goldmine of free resources. There are eligibility checkers to help you find the best credit card deals or see if you can claim mis-sold PPI. There are also downloadable comparison tables and guides, all designed to put you in control of your finances.

Martin Lewis: Empowering You to Make Informed Decisions

Martin Lewis’ core message is clear: knowledge is power. By providing clear, jargon-free explanations and up-to-date information, he empowers you to make informed financial decisions. Whether you’re navigating everyday banking, tackling debt, exploring investment opportunities, or looking for bridging loans. Martin Lewis equips you with the tools and knowledge you need to take charge of your financial future. 

70% of Brokers Anticipate Surge in Bridging Business 2024

The latest Castle Trust Bank Pulse survey reveals that over two-thirds (68%) of brokers are gearing up to orchestrate a higher volume of bridging loans in 2024 compared to the preceding year. Among them, a notable 25% anticipate a substantial upswing in business, while 43% foresee a more modest yet promising increase.

While one in five (21%) brokers anticipates demand to hold steady, a mere 11% expresses apprehension about the possibility of bridging business levels during a downturn.

This optimistic perspective mirrors the ongoing expansion in the demand for bridging finance. The research highlights that 42% of brokers facilitated more bridging loans in 2023 compared to the previous year. Interestingly, this contrasts with the 38% of brokers who reported arranging fewer bridging loans for first-time investors over the same period. This suggests that seasoned property investors are at the forefront of propelling the escalating demand for bridging loans.

In response to the burgeoning demand for bridging services, brokers ramped up their recruitment efforts. Impressively, the survey reveals that 42% of respondents expanded their teams in 2023 to meet this growing need.

However, amidst this growth, brokers remain vigilant about potential challenges. According to respondents, the foremost concerns regarding the sustained expansion of the bridging market include persistently high bridging loan interest rates and political uncertainty. Following closely are apprehensions regarding property prices and the trajectory of the economy, underscoring the importance of navigating these factors for continued success in the sector.

The insights stem from the most recent Pulse survey conducted by Castle Trust Bank, designed to monitor shifts in sentiment and practices within the bridging landscape while capturing broker viewpoints on pertinent matters.

An array of specialist finance brokers spanning the industry participated in the survey, contributing to its comprehensive scope. Furthermore, the findings incorporate feedback from Castle Trust Bank’s esteemed panel of Pulse Partners, comprising prominent names such as Brightstar, CFP Group, Charleston Financial, Complete FS, Coreco, Karis, Propp, and Vibe Finance.

What is a bridging loan? How do they work?

Bridging loans are essential financial instruments for individuals and enterprises that are going through a transition. Whether you’re a property developer looking for money for a new project or a homeowner looking to bridge the gap between purchasing and selling a house, bridging loans provide a versatile and accessible option. In this article, we’ll look at the complexities of bridging loans, including what they are, how they function, and the crucial issues to keep in mind.

What are bridging loans?

A bridging loan is a short-term financing option designed to “bridge” the gap between the purchase of a new property and the sale of an existing one. It provides borrowers with immediate access to funds, meaning, they are allowed to proceed with property transactions without having to wait for lengthy sale processes. Bridging loans typically have a repayment period ranging from a few weeks to a few months, although some lenders may offer extensions depending on the circumstances.

How do bridging loans work?

Bridging loans are secured against property or assets, making them a viable option for individuals and businesses with valuable collateral. The loan amount is determined based on the value of the property being used as security, with lenders typically offering up to 70–75% of the property’s value.

One of the distinguishing features of bridging loans is their speed and flexibility. Unlike traditional mortgages, which often involve extensive paperwork and approval processes, bridging loans can be arranged relatively quickly, making them ideal for time-sensitive transactions. However, this expedited process often comes with higher interest rates and fees, reflecting the increased risk for lenders.

Key Considerations

While bridging loans offer numerous benefits, they also come with certain risks and considerations that borrowers should be aware of:

  • Cost: Bridging loans typically have higher interest rates and fees compared to traditional mortgages, so it’s essential to factor in the overall cost before committing to a loan.
  • Exit Strategy: Lenders will want to see a clear exit strategy detailing how the loan will be repaid. This could involve selling the property, refinancing with a traditional mortgage, or other means of repayment.
  • Property Valuation: The loan amount is contingent on the valuation of the property used as security, so borrowers should ensure they have an accurate assessment to avoid any discrepancies.
  • Risk Management: As with any form of borrowing, it’s crucial to assess the risks involved and have contingency plans in place to mitigate them.

It’s important to note that while bridging loans offer a convenient financing option, individuals should seek advice from financial professionals (such as ourselves) to ensure that you fully understand the terms and implications of bridging loans. Additionally, borrowers should conduct thorough research and due diligence before entering into any financial agreement, making sure everything has been explained to you in full.

In conclusion, bridging loans can be valuable tools for individuals and businesses navigating transitional periods in the property market. By understanding how bridging loans work and considering the key factors involved, borrowers can make informed decisions that align with their financial goals and circumstances.

 

Understanding Loan-to-Value (LTV) Ratios in Bridging Finance: Maximising Borrowing Potential

Understanding loan-to-value (LTV) ratios may unleash your borrowing potential in the complex world of bridging financing, where speed and flexibility are critical. Whether you’re a seasoned property investor or a first-time borrower, understanding the subtleties of LTV ratios may help you make educated financial decisions and acquire the finance you need to capitalise on profitable prospects.

What is the loan-to-value (LTV) ratio?

At its core, the loan-to-value (LTV) ratio is a fundamental metric used by lenders to assess the risk associated with a loan relative to the appraised value of the property. It represents the percentage of the property’s value that the lender is willing to finance. For example, if a property is valued at £500,000 and the lender offers a loan of £400,000, the LTV ratio would be 80% (£400,000 divided by £500,000).

Importance of LTV Ratios in Bridging Finance

In the realm of bridging finance, where transactions often occur swiftly and timelines are tight, LTV ratios play a crucial role in determining the terms of the loan. Unlike traditional mortgages, bridging loans are typically short-term solutions used to bridge the gap between the purchase of a new property and the sale of an existing one or to facilitate property development projects. Therefore, understanding and optimising LTV ratios can be instrumental in maximising borrowing potential and minimising risk.

Maximising Borrowing Potential with LTV Ratios

  1. Property Valuation Accuracy: Obtaining an accurate appraisal of the property is essential in determining its market value. Working with qualified surveyors or appraisers who have a deep understanding of the local property market can help ensure that the valuation reflects the true worth of the property.
  2. Leveraging Equity: For borrowers with existing properties, leveraging equity can significantly impact the LTV ratio. By using the equity in one property as collateral for a bridging loan, borrowers can access higher loan amounts, thus increasing their borrowing potential.
  3. Mitigating Risk: Lenders assess LTV ratios to evaluate the level of risk associated with a loan. Lower LTV ratios generally indicate less risk for lenders, potentially leading to more favourable loan terms, including lower interest rates and fees. Therefore, borrowers should aim to keep LTV ratios within manageable limits to enhance their borrowing potential and mitigate risk.
  4. Financial Stability and Creditworthiness: Lenders also consider the financial stability and creditworthiness of borrowers when determining loan eligibility and LTV ratios. Demonstrating a strong financial standing, a reliable repayment history, and a solid credit score can improve your chances of securing higher loan amounts at favourable LTV ratios.

Conclusion

In the dynamic landscape of bridging finance, understanding loan-to-value (LTV) ratios is paramount for maximising borrowing potential and securing the funding needed to capitalise on lucrative opportunities. By leveraging accurate property valuations and equity and demonstrating financial stability, borrowers can optimise LTV ratios, thereby accessing higher loan amounts at favourable terms. Ultimately, by mastering the nuances of LTV ratios, borrowers can navigate the world of bridging finance with confidence and achieve their property investment goals.