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Bridging Mortgage
Within the formal written offer of a bridging loan, the loan is often referred to as a mortgage. The reason for this is that there are many similarities that occur between the two, and in essence, they are basically the same thing.
Bridging loans are secured as a charge on commercial and residential property or land within the UK in the same manner as a mortgage.
Some of the main differences, however, are:
- Bridging loans can be obtained without the requirement to make monthly payments, whereas with a standard mortgage, monthly payments are always required (this does not include an equity release mortgage, which is available only to those over 55). The less stringent income requirements allow bridging loans to be taken by clients who, for whatever reason, cannot show or prove the income needed to make monthly payments. Possible reasons for this lack of income proof could be because the clients are retired and are in the trap of being? cash-poor but asset-rich, the client is self-employed but without proper proof of income, the client has a minimum income, but the reason for the bridging loan will put them in a better financial situation, etc.
- The maximum term of a regulated bridging loan is 12 months (18 months for an unregulated loan), whereas with a mortgage, the standard minimum term is usually 5 years.
- Credit blips can be acceptable for bridging finance, provided a suitable exit route is proved, whereas only very minimal adverse credit is acceptable for mortgage finance, and only with a very small selection of lenders.
- Mortgages are virtually always taken on a 1st charge basis and on one property, whereas bridging finance is much more flexible and can be attained as either a 1st, 2nd, or 3rd charge and on multiple properties if required.
- Bridging finance, in certain circumstances, can be used for the purchase or refinance of partly completed and/or defective properties as well as land with or without planning, whereas a mortgage, with the exception of niche products such as self-build mortgages, is virtually always used for the purchase or refinance of fully habitable properties, which include those having kitchens and bathrooms.
- Bridging finance is often used for a wider range of loan sizes, starting at L10,000 and with no limits, and also for a much wider range of uses and scenarios.
The main consideration of any lender before allowing a client to take out a bridging loan is how the money will be repaid. Only if lenders are fully satisfied that the exit route is genuine and plausible will they allow a loan to commence.
Development Finance – Bridgingloans.co.uk have the experience
The last six months have seen a marked upturn in lenders’ willingness to fund property development deals, from small refurbishment projects to multi-million-pound new-build developments. At Bridgingloans.co.uk, we have been able to take full advantage of this volume increase due to our expertise in the marketplace.
Recently completed deals have highlighted just what issues can arise:
- On a small barn development, it was found at the 11th hour that the client’s insurance did not cover her for the full risks involved, and the lender would not draw the funds. Solution: We introduced our specialist development insurance broker, who quickly assessed the problem and provided the cover required in a timely manner to enable drawdown.
- During the valuation stage of a mill purchase in the North of England, the valuer identified a potential environmental risk and (quite rightly) requested a specialist report. The client looked around and obtained quotes in excess of L2,000. Solution: Through our network of specialists, we quickly identified the most appropriate local environmental specialist who completed the report in less than 10 days and at a fraction of the costs previously quoted.
- We were approached by a local property developer who wanted to reinstate the build of a site mothballed back in 2008. His issue was that his existing bank was on the verge of appointing receivers due to the dormant position on the site. Solution: BridgingLoans.co.uk were able to source a lender who agreed to both the take-out of the bank and provide the development finance and funding required. In addition, we maintained constant contact with the existing bank, which ensured the receivership was put on hold, which allowed the refinancing to take place.
In each case above, the ability to quickly identify and resolve the issues enabled the loan process to continue and lead to the completion of the case.
Through the experience of the team, we can quickly resolve the majority of issues that invariably happen during any development deal and reassure the clients that we can help overcome the problems. For both first-time and experienced developers, this added value makes ukpropertyfinance.co.uk the ideal choice.
Large Bridging Loans
UK Property Finance has today completed one of its largest bridging loans to date. The multi-million-pound funding was required to purchase a large repossessed new-built office block complex in the centre of a major UK city. Our client, a recently formed offshore limited company, had a successful bid for the property at auction some 2 weeks prior to our contact and managed to purchase it at less than 1/3 of the marketed asking price being requested prior to the property being repossessed.
Since paying the required 10% deposit, our client has come to realise that he had been strung along for 2 weeks by his long-term and previously trusted mortgage broker, who was unable to locate the balance of the funds needed to complete the purchase in the 28-day time frame required, despite being so confident at the beginning that he could do so. Our client now understood that he needed focused and specialist help to prevent a default on the purchase agreement, a possible loss of his deposit, and, more importantly, a loss of his bargain property.
A trusted family business acquaintance, bridgingloans.co.uk, had been recommended to our client due to our no-nonsense reputation of being open and honest at all times and always doing the utmost to do what we say. After an initial telephone conversation, we located a lender who agreed to supply the funds required for the purchase in the timeframe needed and at an excellent rate, which was much lower than what our client had been quoted previously and seen advertised elsewhere. We emailed the basics of the deal back to our client, including details of a substantial discount we had managed to negotiate in the arrangement fee, and as such, the client subsequently gave us the authority to act on his behalf.
To get the best possible rate, we advised the client to secure the purchase funds required against other owned property rather than the office complex. Our client had a large portfolio of prime central London residential investments, which would be more interesting to a wider range of lenders and would give us more choice and ability to negotiate the best possible deal with the lowest fees, etc. We secured a first charge on one property and a second charge on another.
We completed all the paperwork required to transact the case and emailed this to the client. Due to the tight time frame, the client immediately completed the paperwork, emailed it back, and on the same day, we forwarded this emailed paperwork to the lender, who at the same time instructed the valuations. As the reputation and standing of bridgingloans.co.uk are so strong, the lender was able to process the case through to offer by using the emailed documents only. The case was completed just in time, and although one issue occurred during processing, we used our high-level contacts within the lender organisation to ensure that the problem was quickly and efficiently dealt with.
We will be arranging the long-term commercial mortgage finance for the client so he can repay the bridging finance as required, and also because of the performance of our team at UK Property Finance, we have been asked to look at two more bridging loan projects for the client.
Increased Involvement In Development And Renovation Finance
In the last few months, UK Property Finance has substantially increased its involvement in locating the funds needed to cater for the surging demand for development and major renovations requiring finance. UK Property Finance, which is a trading style of Penuptra Consulting Ltd., is a directly FCA-authorised and regulated business focusing almost entirely on niche area funding. The company has an enhanced reputation of being a “one-stop” financial shop where brokers and members of the public alike can, with one simple telephone call or email, access a wide range of property-related finance expertise and money. The offering includes brokering for residential, commercial, BTL, and equity release first charge mortgages, secured second and third charge loans, general insurance products, and first, second, and third charge, etc., regulated and unregulated bridging loans that can be secured on solely or a mix of land, property, or commercial units.
As part of its drive into the development funding arena, UK Property Finance has in recent months become involved in a multi-apartment, mixed-use, 3-stage development on the south coast of England. The client, a recently formed limited company where the directors have a huge amount of experience and specialise in obtaining planning permission for difficult sites and projects, agreed to a purchase price for the brownfield site, subject to eventual planning approval. They then spent the next 2 years putting in much time, effort, and money to obtain formal approval. With the planning now agreed upon, the value of the land had increased substantially, way beyond the price our client had originally agreed to pay the seller, and as such, this made the proposal very advantageous to our client, and, as you would have thought, many lenders. Our client then trawled through the normal high-street bank culprits in an attempt to locate the development finance required to complete the project before selling the already pre-sold units, but unfortunately, for one reason or another, our client was rejected.
Luckily, UK Property Finance was then recommended to our client via his local bank. Due to the increase in valuation, we submitted the case to one of our large and varied panel of commercial lenders and managed to enable the size of the purchase loan available to be based on the actual valuation of the land (with planning), not the purchase price (which was without planning). This pretty much meant that our client, who had already spent a substantial amount of time and money obtaining the planning permission, could now purchase the land without any further down payment from themselves.
The achievement of planning also increased the land value to such an extent that our client required minimal remaining financial input to complete the build prior to the properties being sold off to pre-agreed purchasers.
BridgingLoans.co.uk Once Again At The Forefront
UK Property Finance has again been at the forefront of one of the latest trends that require bridging finance instead of more traditional forms of finance to enable it to occur. The speculative trend of purchasing land without planning permission and then as quickly as possible obtaining planning permission to greatly uplift the valuation, therefore enabling the land to either be sold at a substantial profit or built out using property development finance, has seen huge growth over recent years.
Bridingloans.co.uk has had two recent cases that highlight this scenario, each of which has had entirely different outcomes:
- 1) A client wanted to purchase land without planning in Liverpool for £40,000. He had experience making similar purchases throughout the country and obtaining planning permission. This happened with this investment, and he quickly and subsequently increased the valuation fourfold, allowing the possibility of standard development finance to be obtained. At this stage, the client wanted to further increase the valuation of his investment asset by building out the properties mentioned within the planning permission, and as such, we raised the finance needed for him to complete four flats, which were sold for a large and substantial profit.
- 2) Our second client already owned a relatively low-value, unencumbered plot of land valued at £100,000. The site was close to other land that had recently been granted planning, and our client wanted to do the same and increase the value of his land. His problem, however, was that he had used all of his own available funds to purchase the land, and he also did not have the required expertise to enable him to obtain planning by himself. We raised sufficient funds to allow the client to recruit the services of suitably skilled individuals who obtained planning permission, and the land was now worth over £400,000. As our client had neither the skills to build out the properties nor the inclination to do this, he followed his initial intention, which was to sell the land once the valuation had increased with the planning. He did this with ease and made a life-changing profit on his investment.
As both cases initially started with the need to raise funds on land without planning permission, the number of lenders available for this was virtually non-existent. We, however, have very close relationships with flexible lenders dealing with the full range of products required in the UK market. As the rates we obtained were similar to those available from many bridging loan lenders on standard bridging cases, both clients managed to obtain market rates for their projects, and completion occurred in less than 2 weeks from inception. One of the clients even had previous credit issues, which we managed to get accepted.