Bridging Loan Activity Up 40% Year on Year, Despite Lockdown Restrictions
2021 is projected to be a potentially prosperous year for the bridging sector, with activity having already reached record highs despite lockdown restrictions.
That is according to Shawbrook Bank’s newly published Bridging Market Bulletin, which indicates the highest volume of bridging applications ever recorded for the third quarter of 2020. In addition, the market’s return to strength after the initial national lockdown brought a huge 40% increase in bridging loan completions for the same period.
The figures from Shawbrook reflect the predictions of many analysts and economists, who expected to see a major uptick in activity due to the easing of lockdown restrictions and the impending deadline of the government’s temporary stamp duty holiday.
Particularly due to the limited time available to secure funds before the March 31 deadline, more movers and buy-to-let investors than ever before are considering fast-access funding like bridging loans.
Bridging finance activity acceleration
Speaking on behalf of Shawbrook Bank, sales director Emma Cox expressed optimism about the way the bridging sector is headed going into 2021.
“It’s been a difficult time for the property market, and of course the current landscape has left many facing challenges, especially within the bridging space, where some lenders had to halt business in this area for a period of time during the height of the pandemic,” she said.
“It is positive to see many of these lenders recently return to the market, and as our report shows, to see that the housing market is moving again.”
Miss Cox also stated with confidence that the up tick in bridging finance activity is not attributed exclusively to the temporary stamp duty holiday or the release of pent-up demand on the sector. She instead believes that interest among investors in general will continue to fuel the market’s performance even beyond the March 31 deadline.
“Whilst some of this activity in the bridging market will no doubt be down to the release of pent-up demand—something that Rishi Sunak’s stamp-duty holiday will further support—we are also seeing an uptick in investors looking at alternative strategies to sure up investments,” she said.
“The use of bridging to carry out refurbishments and conversions, as well as to aid chain breaks due to elongated sales processes, is an essential funding option that can support lucrative investment opportunities”.
“We recently announced revised pricing across our bridging range, with rates now starting at 0.5% for both regulated and unregulated products, in order to show our continued appetite to aid brokers in making the most of these opportunities.”
“The bridging market has demonstrated remarkable resilience throughout this year, and as much as we may face more challenges towards the end of 2020 and into the early parts of 2021, we believe this adversity may create opportunities for investors and brokers, which Shawbrook plans to continue to support as much as possible”.
Bridging Finance Plugs the Growing Gaps in High Street Lending
Increasingly, the UK’s biggest banks are becoming more reluctant to do business with a growing number of applicants. Mortgage underwriting processes are becoming more complex, and self-employed applicants are facing excessive scrutiny, meaning those unable to access large deposits need not apply.
Little wonder, therefore, that so many are taking their business elsewhere and seeking the support of specialist lenders away from the High Street.
Bridging finance is a booming sub-sector of the industry. While high-street lenders continue to tighten the screws, bridging loan specialists are relaxing their lending criteria, increasing maximum loan-to-value ratios, and even welcoming applicants with poor credit.
The fact that bridging loans can take days to arrange (as opposed to months with a conventional mortgage) is another major point of appeal for many applicants, and many mortgage lenders are now taking much longer to process applications than pre-pandemic.
Flexibility, affordability, and accessibility
Bridging finance has the capacity to effectively reverse almost every complication associated with sourcing traditional high-street loans. Typically secured against the applicant’s property, bridging loans can be offered at a monthly rate of interest of less than 0.5%.
When repaid over the course of months rather than years, bridging finance can potentially be more cost-effective than a traditional mortgage or secured loan.
The speed and simplicity of bridging finance are likely to appeal to those looking to beat the looming stamp duty suspension deadline, potentially fuelling another major spike in activity.
It is highly likely that we will start to see even more people using bridging loans to buy the properties they want quickly and take advantage of the stamp duty holiday. This demand will increase while mainstream lenders are unable to meet the needs of borrowers in the timeframes they require, particularly for higher-value properties where the savings could be up to £15,000.
Other industry watchers have noted a significant increase in the number of applicants using bridging finance to secure properties, subsequently switching to longer-term mortgages to repay the balance more gradually.
However, emphasis was placed once again on the importance of factoring all borrowing costs into the equation when arranging bridging finance.
Often, bridging loans come with an arrangement fee of up to 2%, which on a £500,000 loan would be £10,000 of the £15,000 stamp duty savings.
There would also be survey and legal costs to arrange the bridge, which are in addition to the costs that would be needed for the loan term.
Borrowing Money against Your Business: The Options Available
Comparatively, few businesses get by without borrowing money. Ranging from the smallest start-ups to the largest multinational conglomerates, on-hand capital is rarely enough to leverage major growth and development opportunities.
Financial products and services for businesses are in short supply, though in all instances they have their unique pros and cons. Listed below are pointers as to why it is important to consider all available options before deciding which lending stream suits your business, your budget, and your objectives.
Borrowing from a mainstream lender
Most major high-street banks offer a variety of loans and other financial products for businesses. As a general rule of thumb, borrowing from a mainstream lender means submitting a convincing application with robust evidence of strong financial performance. How much you can borrow (and whether you will qualify in the first place) is established on the basis of your firm’s turnover, financial position, future projections, and so on. Your own experience and business acumen may also be taken into account, making mainstream lenders a less-than-ideal option for smaller and newer businesses.
Business bridging loans
Bridging finance can be ideal in instances where the funds are needed as quickly as possible. Depending on the size of the loan required and other key factors, a bridging loan can be arranged and accessed within 48 hours. In addition, bridging loan eligibility is assessed nearly exclusively on the basis of security, aka collateral. Specialist lenders are often willing to consider all types of properties and assets that would not be considered eligible by most mainstream lenders. Bridging finance is designed to be repaid within a matter of months, typically on the basis of a monthly interest charge of less than 0.5%.
Commercial property loans and mortgages
It may be possible to secure a mortgage or similar loan against a commercial property that is under your ownership. The amount you can borrow will be determined by the equity you have in your property, i.e., how much of the existing mortgage you have paid off. Commercial property loans can open the door to affordable monthly repayments, though they can be comparatively costly long-term and are typically available exclusively to those with a strong credit history.
Invoice factoring
This can be a surprisingly accessible, affordable, and flexible solution for small and large businesses alike. Invoice factoring essentially places a middleman between the business and its clients. When an invoice is issued by the business, the invoice factoring service immediately pays a proportion of its value, typically around 75%. When the client pays the balance of the invoice at a later date, the business collects the remaining 25% minus the costs of the service. Invoice factoring can be great for both avoiding and dealing with temporary or long-term cash flow issues.
Peer-to-peer borrowing
Lastly, P2P borrowing enables businesses to access competitive loans for all purposes directly from investors. P2P lending platforms eliminate the middleman from the equation, enabling those lending money to businesses to offer small and large sums of cash with much lower overall borrowing costs. P2P borrowing is also a viable option for applicants with a poor credit history, which may not be a key eligibility factor with some P2P lenders.
To learn more about the most competitive business borrowing options available or to discuss your requirements in more detail, contact a member of the team at Bridgingloans.co.uk for an obligation-free consultation.
These Easy DIY Changes Could Add £30,000 to your Home’s Value
Adding big money to the value of your home does not have to mean spending big money on big changes. Major structural alterations and extensions are all well and good, though they are beyond the realm of possibility for most.
Making the most of your home’s potential without going to extremes is all about focusing on what matters most too prospective buyers. Get it right, and some real estate experts suggest you could add up to £30,000 to the value of your home.
In particular, there are three simple yet effective modifications to focus on, which collectively can make a huge difference.
Strategic painting
Ask any home staging specialist, and they will tell you the same: painting all of your interiors in neutral colours is the way to go. It is always advisable to create something like a blank canvas, upon which prospective buyers can visualise their own ideal interiors.
Of equal importance is making sure your front door and porch/entrance are in flawless condition. A fresh coat of paint is essential to giving the best possible first impression.
Incredibly, a study carried out by Sellhousefast.uk found that a beautifully painted blue front door alone can add up to £4,000 to the value of a property. Pops of colour like these can work a treat, perfectly complementing the neutral interiors within.
Pristine presentation outdoors
Be mindful of the fact that more prospective buyers than ever before are focusing heavily on gardens and outdoor living spaces. With the painful memories of lockdown still firmly in the minds of most, the freedom to relax and unwind outdoors at home is becoming a top priority.
This means doing whatever it takes to get your gardens, patios, decking, and so on in order. It also means arranging viewings at the right time of day, when your outdoor spaces are basking in beautiful sunshine.
Weed your garden, mow the lawn, and make the whole thing as presentable as you possibly can. Repair or remove anything that isn’t in ideal condition, and prominently present comfortable seating and outdoor dining furniture.
De-clutter intensively
Last but not least, comprehensive decluttering is essential, indoors and out, with the intention of presenting your home as something of a blank canvas for would-be buyers.
The more clutter you have about the place, the more difficult it becomes for visitors to picture themselves living there. They are more likely to focus on your chintz and trinkets than your home and its interiors in general.
If necessary, fork out for a self-storage unit for a few weeks and remove everything that does not need to be there. A small price to pay will improve both the appeal and the potential market value of your home.
Finance Options for Buying an Uninhabitable Property
Most major banks and high street lenders are unwilling to finance the purchase of uninhabitable properties, which is unfortunate given how investors and other home buyers often set their sights on “fixer-uppers.”
Properties in a poor state of repair often sell for less than their true potential market values, so what types of financing options are available for purchasing uninhabitable properties?
Uninhabitable properties defined
Different lenders have their own unique interpretations of what “uninhabitable” means.
Most will exclusively, however, lend against properties that:
- Are in a good state of general repair.
- Can be considered safe to inhabit in their current condition.
- Have a functional bathroom and kitchen.
- Are secure and in structurally sound condition.
- Have reliable electricity and a central heating system.
- Do not have issues with infestations.
It is not uncommon for the opinions and perspectives of prospective buyers to differ from those of the lender. What you consider to be a perfectly viable property with huge investment potential may be viewed as a major risk and therefore unacceptable by a conventional bank.
Securing the finance needed may mean setting your sights away from the High Street and considering the alternative options available.
Traditional loan alternatives for an uninhabitable property
When a traditional property loan or mortgage is out of the question, a bridging loan represents an accessible and affordable alternative, particularly when it comes to the purchase and subsequent renovation of uninhabitable properties.
With bridging finance, the vast majority of established lenders are willing to lend against a wide variety of property types, including those considered uninhabitable. Unlike a mortgage, a bridging loan is typically repaid within a period of one to 18 months, often when the renovations have been completed and the property has been sold or transferred on to a longer-term mortgage product.
One of the most appealing aspects of bridging finance is that when the funds borrowed are repaid promptly, overall borrowing costs can be highly competitive. Often charged at less than 0.5% per month, a short-term bridging loan can be exponentially more affordable than a conventional mortgage.
How is bridging loan eligibility determined?
Eligibility for a bridging loan is assessed primarily on the viability of the property used to secure the loan. Additional factors such as income level, financial status, and credit history may be taken into account, though these are typically secondary considerations.
Importantly, applicants are expected to have an acceptable ‘exit strategy’ in place. This means providing evidence as to how and when they intend to repay the loan, such as when the renovations are complete and the property is subsequently sold.
Bridging finance can also be useful in time-critical situations, such as when looking to purchase a property at auction. Depending on your requirements and the strength of your application, it is possible to secure the funds you need within a matter of days.
For more information on any of the above or to discuss finance options for purchasing uninhabitable properties in more detail, contact a member of the team today.
Bridging Loan Popularity Soaring Among Senior Borrowers
Bridging finance has been growing in popularity across the UK for some time. But what is particularly interesting is how more senior borrowers (of retirement age and older) are taking an interest in bridging loans than ever before.
Despite the fact that seniors are considered more financially savvy and asset-rich than their younger counterparts, they are often rejected by major lenders for even the simplest financial products. The reason is that, as their long-term earning potential is lower and they may have no formal proof of income, they fail to meet the most basic checks carried out by mainstream lenders.
As a viable and cost-effective alternative, short-term lending is attracting the attention of seniors in record numbers. Issued primarily or exclusively on the basis of security, short-term loans like bridging finance can be quicker, easier, and less stressful to arrange.
Popular uses for bridging finance
Seniors (and those over 50) are generally considered to be more financially experienced than all younger demographics. Therefore, they are able to see the potential value of bridging finance that goes far beyond any comparable mainstream loan.
While bridging finance can be used for almost any purpose, several common trends have been identified in the spending patterns of seniors taking out such loans.
The most prominent of which are as follows:
- Purchasing a second or even third home to be fixed up and subsequently sold for profit.
- Buying a property at auction (to renovate or relocate to) at a price well below its market value.
- To cover the costs of extensive home repairs or renovations before relocating or downsizing.
- Buying flats or houses to let out to tenants to generate long-term, regular income.
- Taking advantage of investment opportunities (shares, forex) under the advisement of experienced traders.
- Home improvements before relocating.
Perhaps the single most popular use for bridging loans among seniors is carrying out home improvements and alterations before relocating. Whether you are downsizing or looking to upgrade to a superior property, it simply makes sense to get the best possible price for your current home.
Quite often, a few enhancements here and there (funded by a bridging loan) can significantly boost the property’s market value, enabling the loan to be repaid in full and making a generous profit when the sale closes.
Seniors often make the decision to move to more desirable locations or simply wish to be closer to family and friends upon reaching retirement. If the property proves difficult to sell for a decent price due to its state of repair, strategic use of bridging finance really could make all the difference.
Independent broker support
If you are considering bridging finance for any purpose and would like to ensure you get the best possible deal, independent broker support is essential. An established broker can conduct a whole-of-market search on your behalf while ensuring your requirements are met with an appropriately affordable and flexible deal.
For more information or any of the above or to discuss bridging loan applications in more detail, contact a member of the team at Bridgingloans.co.uk today.
Using a Bridging Loan for Property Development
Bridging finance is a short-term loan, typically arranged within a matter of days and repaid after a period of one to 18 months. As the name suggests, bridging loans are designed to ‘bridge’ financial gaps when significant sums of money are needed for urgent purchases or investments over the short term.
When might bridging finance be useful?
As a property investor or developer, there are instances in which a bridging loan could be the ideal financial product. Examples of these include the following:
- Buying a property at auction with the intention of renovating and selling it at a profit
- Using bridging finance to cover various project expenses, subsequently repaying the loan when the property is sold or refinanced
- Any property development business encountering a period of limited cash flow could use a bridging loan to ‘bridge’ this temporary shortfall.
Bridging loans can also be secured against all types of properties (including dilapidated and uninhabitable properties), which major banks may refuse to finance.
What is the difference between a closed bridging loan and an open bridging loan?
The difference between open and closed bridging loans is whether the borrower has an exit strategy in place. If you know exactly when and how you will be repaying your loan, you can apply for a closed bridging loan with a fixed repayment date. If there is still some uncertainty as to your repayment plan, you can apply for an open-bridging loan with no exact fixed repayment date.
Closed bridging loans often have more competitive rates of interest and lower overall borrowing costs.
When does it need to be repaid?
An agreed-upon repayment date for the loan will be agreed upon with the lender during the application process. Typically, property development bridging finance is repaid when the property being financed is sold, let out, or moved onto a longer-term loan or mortgage.
How much does it cost?
Interest rates and overall borrowing costs vary in accordance with the requirements of the borrower and the policies of the lender. Monthly interest rates on competitive property development bridging finance start at less than 0.5%. The quicker you pay back your loan, the more you save.
Who is eligible?
Eligibility is assessed on the basis of the applicant’s current financial position, property development track record, and the nature and viability of the proposed project. The property they wish to secure the loan against will also be considered, as will their credit history and income level.
Maximum loan-to-value ratios of 80% or more are available with residential properties, though lenders often restrict themselves to 70% for commercial properties. If you have any questions or concerns regarding your eligibility or would prefer a loan with a higher LTV, discuss this with your broker before applying.
What additional costs apply with property development bridging finance?
Additional fees and levies vary from one lender to the next. Depending on whom you work with, your property development loan could be subject to administration fees, arrangement fees, completion fees, valuation fees, legal fees, security fees, early repayment fees, and so on.
How quickly can I access the funds I need?
It is often possible to complete the application process and access the money you need within a matter of days. Bridging finance provides an ideal alternative to complex and drawn-out property loans and mortgages when time is a factor.
Accelerating the process is simply a matter of ensuring you have all the documentation you need and can verify both your credibility and the viability of your project. All of which can be simplified with professional broker support.
Can I get a property development bridging finance with bad credit?
If your project is viable, your track record is exemplary, and your credit status is sound, poor credit need not stand in the way of competitive property development finance. Some bridging lenders are more than willing to take all aspects of their applicants’ cases into consideration, rather than basing their decisions purely on credit scores. It is essential to strategically target lenders who welcome poor credit applicants.
How much can I borrow for a property development project?
Theoretically, there are no limits in terms of how much you can borrow. Bridging finance for property development is generally available in sums starting from £75,000 and up, though with no upper limits. Eligibility and maximum loan allowances are calculated in accordance with the applicant’s financial situation, requirements, and proposed use of the funds.
How can I find out more about property development bridging finance?
Whether you have decided to go ahead or are simply considering a bridging finance application, it pays to consult with an independent broker ahead of time. Along with helping you understand the various options available, an established broker can ensure your applications are submitted only to the most appropriate lenders.
For more information or to discuss the potential benefits of property development bridging loans in more detail, contact a member of the team at UK Bridging Loans today.
Using Bridging Finance to Pay Off Tax
Being hit by an unexpected tax bill is never an enjoyable experience. Businesses, investors, and property developers may find themselves facing tax obligations at a time they didn’t expect. Irrespective of the nature and extent of the bill, settling tax liabilities as quickly as possible is essential in order to avoid serious legal consequences.
When time is a factor, bridging finance can be the perfect solution to settling tax obligations in a quick, convenient, and cost-effective way.
Expecting the unexpected
Most tax bills are completely predictable and can be budgeted for. Businesses and investors are therefore expected to conduct their financial affairs responsibly in order to ensure their ability to meet their tax obligations when required.
Nevertheless, there are various instances where even the most responsible organisations and individuals encounter demanding and difficult situations. For example, anyone inheriting an estate with a value in excess of £325,000 will need to pay inheritance tax. Capital gains tax is also payable when selling capital assets, such as properties.
One of the most common instances where specialist types of bridging loans are used to cover tax payments is when a commercial property is purchased. When a business or an investor buys a commercial property, they are liable for an additional VAT payment of 20%. This could amount to tens of thousands of pounds on top of the purchase price of the property, alongside all other fees and outgoings.
Companies that are VAT-registered can reclaim this money, but not until the current VAT accounting period comes to an end. This means waiting up to three months for the VAT refund, during which the buyer must contend with a significant shortfall.
If it is likely that this 20% VAT payment would have negative implications for the buyer, they could take out a short-term bridging loan to augment it. After which, the balance on the loan could be repaid in full (plus a small interest fee) when the VAT is returned, ensuring their cash flow isn’t adversely affected for the duration.
Bridging loan eligibility
The potential benefits and applications of bridging finance are limitless. Establishing eligibility for a bridging loan can be surprisingly simple, starting with a bridging loan calculator to get an idea of the available options.
Bridging finance can be secured against almost any type of property, with no specific limitations on how much can be borrowed. In addition, a bridging loan can often be accessed within 2 to 5 working days, making it the ideal option for covering urgent outgoings and unexpected bills.
Even with an imperfect credit history, there is still every chance you will qualify for a bridging loan if you can provide security to cover the balance in full.
For more information on the benefits of using bridging finance to pay urgent and unexpected tax bills, book your obligation-free consultation today with a member of the team.