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Closed and Open Bridging Loans – What’s the Difference?
It’s usually not until you make the decision to apply for a bridging loan that you discover just how many different types of bridging loans there are. Commercial loans, residential loans, second-charge bridging loans, and so on. Not to mention the often misunderstood concept of “open” and “closed” bridging loans.
Nevertheless, it is important to understand the key differences between the two if you are looking to take out a bridging loan for absolutely any purpose.
Closed bridge
In the simplest of terms, a closed bridging loan indicates a transaction where the borrower establishes a planned and defined exit strategy before the loan has even been taken out. Or, to put it another way, the borrower knows exactly when and how the funds will become available to repay the balance of the loan, in accordance with the requirements established during the application. In most instances, bridging lenders insist on knowing exactly when and how the balance of the loan will be repaid; hence, most bridging loans are considered closed bridges.
Open bridge
By contrast, some lenders are happy to offer somewhat more accommodating loans in the form of open-bridging loans. In this instance, the borrower is not able to provide a concrete repayment roadmap, usually because the funds are in very short supply. As such, they may have had insufficient time to think carefully about the specifics of the repayment aspect.
In terms of when open bridging loans are provided, it could be that the borrower already has some kind of strong working relationship with the lender or that their track record, in general, is one of flawless reliability. It could also be that the borrower has every intention of paying back the bridging loan when the property being financed is subsequently sold. They cannot provide an exact date or comprehensive overview of their repayment plans, but they nonetheless have a viable exit strategy. If the lender is confident that the borrower can repay the loan successfully, they may be willing to offer an open bridging loan.
Alternative bridging options
If bridging loans in general don’t represent an appealing or viable option, there are alternatives available. Examples include short-term asset finance, standard overdraft facilities, and so on.
In the case of short-term asset finance, it’s essentially a case of arranging secured loans by providing the required collateral. From jewellery to luxury cars to paintings to property to business assets and so on, just as long as you have assets to the required loan value, it is relatively easy to gain access to the funding you require. The application process can be comparatively simple, and interest rates and borrowing costs are typically flexible, depending on the lender you go to.
As for overdrafts and the use of general personal credit facilities, it isn’t generally recommended to fund major projects or purchases this way. The reason is that, as they’re not specifically designed for these kinds of purposes, they have a tendency to be both restrictive and expensive.
If you’re looking to explore the various options available to you, it’s advisable to speak to an independent broker with a wide-reaching network of mainstream and independent lenders.
For more information on any aspect of conventional or alternative financial products, get in touch with the BridgingLoans.co.uk customer support team today.
Estate Agents Struggle to Adopt New Anti-Money Laundering Legislation
Earlier this year, the introduction of new anti-money laundering legislation made it a legal requirement for estate agents to keep an eye out for the use of ‘dirty money’ by clients looking to purchase properties. However, the legislation was rushed in to such an extent that many estate agents are still entirely unsure as to what they should be doing and how they should be doing it.
The Fourth EU Anti-Money Laundering Directive came into effect on June 26 with relatively little fanfare. The idea being that the EU wanted estate agents to play a more active role in the detection and prevention of money laundering activities taking place across the UK property industry. But for reasons that haven’t been (and perhaps never will be) explained, the usual 21-day window prior to the legislation being implemented didn’t happen. Instead, estate agents were given just 24 hours to get on-board with the legislation.
Which was, suffice to say, nowhere near long enough.
As it’s an EU-wide measure, it’s been a case of individual governments ironing out their own policies to ensure compliance. And as the UK remains a member of the EU for the time being at least, it’s now a fully enforced UK law too.
The problem being that many estate agents have, quite understandably, interpreted the whole thing as a huge burden and additional responsibility they may struggle to cope with. In reality, economists and experts have stated outright that there’s no reason for panic whatsoever. And nor do most estate agents need to take any kind of drastic action, or even alter their typical operating methods to a significant degree.
Instead, the new legislation is being pushed as an opportunity for estate agents to take their overall compliance and diligence to a higher level – predominantly through common sense and logic. The only real difference being that estate agents will now be required to ask a series of more probing and intrusive questions than before, to identify any signs of suspicious behaviour or potentially illegal financial activity.
Which for the time being may come across as awkward and difficult, though will eventually become second nature. A standard part of the process for thousands of estate agents all over the country. Questions will need to be asked regarding savings and debts, financial commitments, salary/income and so on. Just as banks are required to both note and report any signs of suspicious activity, it’s simply the same being brought over to estate agents. With such vast sums of dirty money already being tied up and laundered in the UK property market, the time has apparently come to clamp down on its prevalence.
Not just here, but across the UK in general.
Whether the legislation sticks or remains in its current form when the UK leaves the EU in a few years remains to be seen. For the time being though, estate agents have little choice but to get on-board with the new rules.
For more information on alternative, intelligent financial solutions for property purchases and investments, get in touch with the UK Property Finance team today.
Government Assistance Doing Little to Help Smaller Builders
An industry study has revealed that despite ongoing efforts from the government to boost the sector, SMEs in the construction industry are struggling to access funding. Housing supply has been a firm priority point for the government for several years now, as affordable inventory in the UK continues to dwindle. Nevertheless, the inability to access funding is making it difficult for smaller housebuilders to make any real difference to the bigger picture.
The report, published last week by the Federation of Master Builders, detailed how more small and medium-sized builders are facing problems accessing funding this year than they were in 2016. Whereas around 50% pinpointed difficult access to funding as a significant roadblock last year, this has now increased to 54% for 2017.
“Almost a decade after the financial crisis, access to finance for small house builders is getting worse instead of better,” commented Brian Berry, chief executive of the FMB.
The details of the report paint a picture of an ongoing governmental push to improve and expand the housing sector that simply isn’t working. Several schemes and policies have been rolled out over recent years, one of which is the £3 billion Home Building Fund, which was created specifically to assist this part of the sector.
According to the Housebuilders’ Federation, approximately 12% of British homes were built by SMEs last year, equating to around 20,000 properties. Over the past 25 years, the number of SME housebuilders operational in the UK has declined by around 80%. While it had been expected that things would begin to show signs of turning around following the financial crisis, evidence would seem to suggest this simply wasn’t the case.
As of 2015, no more than around 1 in every 8 homes built across the country was the work of SMEs, suggests a report published by the HBF. If things were taken back to their 2007 standards, this would result in around 25,000 more annual home developments from this part of the sector alone.
Back in February, the government published a white paper affirming its commitment to the SME construction sector, though the inability to access funding continues to stand in the way of many.
“The White Paper quite rightly emphasises the need to diversify the housebuilding sector, so it is less reliant on a few large house builders. To do this, we need the government to make good on its proposals to improve the availability of small sites and speed up the planning process for small sites,” Mr Berry stated.
In turn, a growing number of developers have begun turning to alternative financial products and solutions, development-bridging loans, having seen a significant spike in popularity. Intelligent financial solutions tailored to the needs of the property sector are becoming an important lifeline for hundreds of businesses up and down the country.
For more information on bridging loans and alternative financial solutions for property development and construction, get in touch with the UK Property Finance customer service team today.
Secured Loans for Commercial Property Acquisitions
Contrary to popular belief, owning and operating a viable business does not necessarily mean that major banks and lenders are willing to lend a helping hand. Increasingly, banks are becoming so selective with who they will and will not support that businesses at all levels looking to expand sometimes find themselves facing a brick wall.
Of course, it’s understandable that growing and ongoing economic uncertainty makes it difficult for conventional lenders to know where and how their own money is best invested. Nevertheless, this doesn’t help those in the business world who desperately require expansion and development capital in order to allow their businesses to grow, evolve, and succeed.
The alternative?
In instances where traditional lenders are unable or unwilling to help, the alternative is to consider a secured business loan. Regardless of what it is that has been standing in the way of obtaining financial support from a conventional lender, there’s every chance a secured loan could be the answer.
The reason is, that just as long as you have the required collateral to secure the loan, that’s really all there is to it. Assuming you own and operate a business of some kind, this will usually mean that you have a variety of assets that can be put up as collateral. From commercial or residential property through business equipment to vehicles and even intellectual property, loans can typically be secured in a wide variety of ways.
The benefits of secured loans
While conventional financial products and services have their own unique place in the market and value, secured loans have the potential to benefit modern businesses in a multitude of ways.
These include:
- Speed: For example, it is usually possible to get hold of the capital required by way of a secured loan much faster than any comparable approach to commercial financing. Even in the case of relatively large sums, payouts are extremely prompt.
- Simplicity: Quite the opposite of conventional commercial loans, the application process for a secured loan can be comprehensively simple. Once again, it generally all comes down to the simple proviso of being able to provide the required collateral.
- Qualification: In order to qualify for a typical business loan, it is usually necessary to provide extensive evidence of the company’s current performance, have a strong credit record, and generally meet a wide variety of demanding criteria. With a secured loan, just as long as you have the required collateral to cover the value of the loan, very little else matters.
- Flexibility: Loans that are secured with collateral also tend to be considerably more flexible when it comes to things like repayment periods and so on.
- Borrowing Costs: Depending on the nature of the loan and from where it is obtained, a secured commercial loan can also be comprehensively more affordable than a comparable traditional financial product.
With such a wide variety of options to choose from, it pays to speak to an independent broker or financial adviser before deciding which way to go. In any case, any business on the lookout for financial support for property acquisition purposes would be wise to consider the benefits of a secured loan.
Our Investment Policy Outlined
BridgingLoans.co.uk was established to offer borrowers spanning the entire spectrum affordable, accessible, and fully responsible financial solutions. We have several potential advantages over and above conventional loans, one of which is that there is no requirement whatsoever for a positive credit history. In addition, self-employed applicants are welcome, and repayment options are kept as flexible as possible.
As these types of loans are secured using a wide variety of assets, qualification criteria can be significantly simplified. In terms of what types of borrowers could find value and convenience in a secured loan, our products and services are suitable for both business and domestic purposes alike, or whenever typical unsecured loans are unsuitable.
Just a few examples of the types of loans we target include:
- Equipment finance: We may finance the purchase of industrial manufacturing machinery, agricultural equipment, marine vessels, aircraft, and various other vehicle types. These loans may be offered in the form of hire-purchase contracts, equipment leases, or structured in other ways, by the preferences and requirements of the borrower. These loans will be secured in most instances against the respective equipment. These kinds of loans will be offered to businesses, non-profit organisations, government institutions, and various other borrowers for key equipment purchases of all sizes.
- Property development: We will also be targeting property development loans, ranging from small-scale residential requirements to much larger commercial and industrial development projects. In such instances, the property in question will be used as security for the loan.
- General commercial loans for businesses: Secured loans can also be of unique value as commercial loans for a multitude of business purposes. These kinds of loans are typically secured against a wide variety of business assets, which may include business premises, machinery and plant, intellectual property rights, and various other assets.
- We strive to remain as open and flexible as possible when it comes to the security required to obtain your loan and consider all borrower circumstances individually and uniquely.
- Debt consolidation: In addition, another common use for secured loans is for debt consolidation purposes. Both in professional and domestic instances alike, an affordable secured loan taken at the right time can be not only liberating but also bring about enormous immediate and long-term cost savings. The idea of consolidation is that the borrower takes any number of existing debts and combines them into a single loan with the lowest possible rate of interest. Once again, with no credit history being required in most cases, secured loans can often prove far more accessible as debt consolidation products than typical unsecured loans.
For more information on any of our products or services or to discuss your eligibility for a secured loan, get in touch with our customer service team today.
Longer Mortgages = Bigger Problems, Bank of England Warns
The Bank of England had waded into the rather heated debate regarding the long-term mortgage products many lenders are now offering. There’s been a distinct rise in the number of banks and building societies offering 30-year and 35-year mortgage repayment. Though supposedly to help bring down the monthly costs of repayment, the BOA warned that longer mortgage terms do little other than “store up problems for the future”.
One of the biggest issues highlighted in the report was the way in which longer mortgage repayment periods could have a huge impact on the pension savings of borrowers. By extending mortgage repayments into old age, it becomes necessary to meet them with retirement funds, which may already be stretched to their limits.
But what was interesting was how the report didn’t highlight the way in which longer mortgage repayment periods also mean massively higher overall interest payments for the borrower.
In the UK, mortgages have been offered with a standard repayment period of 25 years for several decades. However, as house prices continue to rise, borrowers have been seeking realistic ways of bringing down their monthly mortgage bills in order to get on the housing ladder. In response, banks are now routinely offering repayment periods of up to 35 years. But in doing so, the overall costs payable by the borrower skyrocketed.
Take, for example, a smaller loan of £100,000, charged at a rate of 4.5% with an initial charge of £500. Over the course of 25 years, monthly repayments would be around £556, and the total amount payable would be £167,250. By contrast, up to a 35-year mortgage, while monthly payments are reduced modestly to £473, the total amount to repay increases to £199,250, an increase of £32,000 and double the amount borrowed.
In the case of a larger loan, say £400,000, with the same interest rate and fee, the change is even more dramatic. If paid back over 25 years, you’d be looking at £2,223 per month and a total repayment amount of £667,500. Over the course of 35 years, monthly repayments come down to £1,893, but the total repayment amount increases to £795,550, a hike of nearly £130,000.
But it’s not just in the UK that this is happening, either. In most countries where wage growth is being outpaced by house price inflation, longer mortgages are being offered to bring monthly repayment amounts down. It’s particularly prevalent in Sweden and Japan, where mortgages are available with repayment terms of more than 100 years.
As far as the Bank of England is concerned, those considering signing a long-term mortgage today need to think very carefully about tomorrow. Lower monthly repayments are all well and good, but not if they make it difficult to get by in later life. Plus, the longer the mortgage term, the longer the period during which your home is at risk of repossession if you fall behind on your payments.
UK Reaches Highest Remortgaging Level Since 2009
In addition to a recent surge in the number of first-time buyers taking out new mortgage products throughout March 2017, recent figures have strongly indicated that the number of existing homeowners applying for a remortgage is also on the increase. In fact, LMS, one of the UK’s leading conveyancing firms, has just published a report suggesting that remortgaging hit an eight-year peak during February this year.
Breaking down the figures, the actual number of remortgage applications that were processed and approved this February reached a staggering 44,000, which is a record high when comparing all the previous months, covering an entire period stretching way back to January 2009. With a yearly increase averaging an impressive 35% per annum, it seems that property owners across the UK are unable to resist the temptation of remortgaging in order to lower their monthly payments, increase their borrowing terms, and release additional funds for home improvements, among an entire host of other similarly valid reasons.
However, although the remortgage sector and first-time buyer markets have experienced a notable increase in activity, it seems that traditional mortgage borrowing is entering a minor slump, with the number of conventional mortgage applications falling by a total of eight percent in February. This means that, in February alone, remortgage lending represented around forty per cent of all mortgage borrowing, which is a six-year record.
Explaining the popularity of remortgaging products
So, what are the main reasons for this substantial turnaround and considerable surge in the number of remortgage products being applied for? According to industry experts and a wide cross-section of UK economists, the average homeowner is deciding to switch providers as a means of saving money by taking advantage of the significantly low interest rates that are now attached to secured borrowing.
Another reason for the current trend is the fact that most lenders have indicated that the low mortgage rates available at present are not going to last forever, with many lenders already announcing expected increases in the coming months.
In the words of Andy Knee, who is currently chief executive at LMS, “February enjoyed the biggest boom in recent remortgaging history. Remortgage transactions rose to their highest level in eight years as homeowners took advantage of continued low rates and the opportunity to lower monthly repayments.”
“Meanwhile, inflation has risen to 2.3% and real wages are starting to fall. The consequence is that homeowners will have less in their pockets come the end of the month. Remortgaging can help alleviate a potentially difficult financial situation; for example, one in five reduced their monthly repayments by remortgaging in February,” he hastened to add.
Switching products now, before it’s too late
Since March this year, the economic climate has entered a slightly worrying phase of minor instability and unpredictability. With this in mind, the time to take advantage of the currently low mortgage rates by means of switching lenders or remortgaging with an existing provider with the aim of getting a better deal is in the here and now, before the opportunity to seize such a competitive deal passes by completely.
And The Winner Is? UK Property Finance Receive a Nomination for the 2017 Best Bridging Broker Award!
The team at UK Property Finance has always measured its success in terms of satisfying the needs of its loyal customers as opposed to simply making a quick buck. Since the second we started in this business, we’ve always tried (and succeeded) to do things differently while offering streamlined, easily accessible, and highly flexible finance to borrowers at any level in the property investment and real estate development sectors.
When you are constantly out on a limb, forever doing your utmost to please your customers with every financial package you broker while delivering a superb level of service that your competitors would never dream of providing, it’s always nice to receive a little recognition for your efforts and the support of your peers. This is precisely why we are so unashamedly proud and completely over the moon to have been nominated for the ‘Best Bridging Broker’ title at this year’s internationally revered Bridging & Commercial Awards, a ceremony that pinpoints and celebrates the best performers across the entire spectrum of alternative finance providers in the UK.
2017 bridging and commercial awards
“Bridging & Commercial is proud to announce the shortlisted nominees for the 2017 Bridging & Commercial Awards, in association with Titlesolv. The top brokers, lenders, and individuals in the bridging, commercial, development finance, peer-to-peer, and specialist banking markets have been shortlisted and are now in the running to win one of the industry’s most prestigious awards.” – Bridging and Commercial
At a time when banks, building societies, and most other mainstream lenders are tightening their belts and turning an increasing number of borrowers away, we have been busily providing practical, alternative property development finance solutions for individuals and commercial developers at all levels of experience and with portfolios of all manner of shapes and sizes. First-time buy-to-let landlords, new-build housing developers, and those who purchase and renovate properties at auction have all used our services to provide an essential lifeline that enables them to flourish and succeed in a world where the main finance providers of yesterday are seemingly unwilling or genuinely unable to help.
Our unrivalled commitment to offering intelligent and highly bespoke property financing for our diverse cross-section of enormously varied clientele has resulted in our company name being shortlisted for the 2017 Bridging & Commercial Awards as one of the country’s leading bridging loan brokers. With the voting stage now completed (the judges’ final decision was made earlier this month, on May 18th), we now find ourselves waiting, with a true sense of excitement and trepidation, for the official results to be delivered on June 8th at The Hurlingham Club.
(You can find out more about the event and the complete list of nominees at the following link: http://www.bridgingandcommercial.co.uk/article-desc-11886_B&C-Awards-2017-shortlist-announced.)
Whatever the outcome, the team at UK Property Finance is already overjoyed and celebrating!
Regardless of whether we win or lose, the fact that we have been nominated in the first instance is a worthwhile award in itself and one that we are extremely proud to have received!