Exploring the Different Exit Strategies for Bridging Loans

Bridging loans have ballooned in popularity over recent years due to their flexibility and the fast approval process that comes with them. This has made bridging finance the preferred choice for property buyers and investors. These short-term loans serve as a lifeline for those who need quick funds to bridge the financial gap during property transactions. Although gaining a bridging loan can be relatively easy, it’s crucial to have a well-thought-out exit strategy to ensure a smooth transition when the loan term ends; this is usually anywhere up to 12 months.

Conventional mortgage refinancing

One of the most common exit strategies for bridging loans is to secure a traditional mortgage to replace short-term financing. This option works best when the borrower anticipates that they will have improved their creditworthiness and property value during the bridging loan term. Conventional mortgage refinancing offers longer repayment periods and lower interest rates, providing you with financial stability for the future.

Property sale

Selling the property is another exit strategy that borrowers often employ. This approach is suitable for individuals who initially acquired the property solely for investment purposes or when circumstances change and the property is no longer needed. By selling the property, borrowers can repay the bridging loan in full. Any remaining profit can be reinvested in other ventures.

Cash reserves

Borrowers who have access to liquid assets or cash reserves can use them to pay off the bridging loan. For those who are in this situation, this is the best option. This option avoids additional debt and the potential stress associated with finding alternative financing. By using cash reserves, borrowers can swiftly clear the loan, allowing them to focus on their property goals without unnecessary financial burden.

Refinance with a new bridging loan

In some cases, borrowers may find that they need to extend their bridging loan due to unforeseen circumstances or delays in their exit plans. In such situations, refinancing with a new bridging loan can be an option. This approach provides borrowers with more time to complete their exit strategy, although we strongly advise you to carefully assess the costs and terms of the new loan.

Equity release

If the property has appreciated significantly in value during the bridging loan term, borrowers may consider an equity release as an exit strategy. Equity release allows homeowners to access a portion of their property’s value while continuing to live in it. This option enables borrowers to pay off a bridging loan and access funds for other purposes without selling the property outright.

What Banks Do Inheritance Loans?

It is far from uncommon to require third-party financial support to meet what can often be quite ludicrous inheritance tax (IHT) requirements. The issue is that, until this bill is settled, heirs and beneficiaries are essentially locked out of their owed assets.

Precisely where an inheritance loan can help, but how exactly does such a facility work, and where can they be accessed in the UK?

Inheritance loans: the basics

An inheritance loan is a bespoke financial product designed to help beneficiaries access some of their owed funds early while waiting for the distribution of inheritance via probate. The maximum loan amount issued is based on the value of the expected inheritance, which also acts as a form of security for the loan.

The lender will assess the value of the inheritance and request supporting documentation, such as a will or probate documents, before providing the loan. Maximum loan sizes are usually capped at 60% to 80% of the total combined value of the owed assets, while interest and borrowing costs are agreed upon in advance and fixed.

Inheritance loans are a popular and surprisingly accessible solution that lets you access what is rightfully yours without waiting for full settlement of the estate. Something that can sometimes drag on for months or even years.

Do banks do inheritance loans in the UK?

Several major banks in the UK provide inheritance loan facilities or advisory services, including Barclays, HSBC, Lloyds Bank, and Metro Bank. They all have distinct application processes, eligibility criteria, and probate loan packages designed to cater to different customer needs, some of which are offered in an advisory capacity only.

Barclays offers their help and support via their wealth planners, experienced advisers who guide beneficiaries through the process. HSBC offers bereavement support and inheritance tax advice (for account holders who meet certain financial requirements), while Lloyds Bank and Metro Bank also offer bespoke inheritance-related support for their customers.

However, it’s worth noting that while these major banks offer some form of support, it doesn’t necessarily translate to the best deals. Probate loans from major banks often come with high rates of interest and elevated borrowing costs. Moreover, the process of organising an inheritance loan with a major can be time-consuming and complex.

Finding a better deal

In most cases, a more beneficial option is to seek out specialist lenders via an independent broker. Experienced brokers combine extensive knowledge of the sector with strong relationships with specialist lenders, enabling them to access deals that are not available on the High Street.

By comparing the rates, fees, and terms from an extensive panel of lenders, they can help secure the best possible deal, ultimately saving you money and time.

Importantly, an independent broker can also provide you with the objective advice you need to make an informed and confident decision. Something that is of great importance when dealing with matters as significant as inheritance and probate.

How it works

Though all lenders impose their own application policies, the same basic principles apply in all instances.

Here’s a step-by-step look at how the probate advance application process works:

  • Eligibility assessment: You contact a probate advance provider via a broker who assesses your eligibility based on the value of your inheritance.
  • Paperwork and verification: If you qualify, the provider will then complete some paperwork and verify your inheritance details.
  • Flexible funding: Once approved, you receive the funds. The amount can vary, but it’s typically about 60% to 80% of your expected inheritance.
  • Repayment: The advance is repaid, plus fees, from your inheritance’s proceeds once the estate is settled.

The benefits of probate advance

Choosing a probate advance to deal with the complexities of probate can be beneficial in many ways:

  • Fast access to funds: You won’t have to wait through the lengthy probate process to access a portion of your inheritance.
  • No credit check: As the advance is secured against your share of the inheritance, your credit score is not a factor in approval.
  • No monthly payments: You pay back the advance in full only when the estate is finally settled.
  • Low risk: You know you are due a windfall in the near future, so there is little to no risk you will be unable to repay your debt.
  • Predictable costs: All fees and charges are fixed in advance, so there are no surprise costs later on.

In summary

Irrespective of your preferred provider, a major bank or a specialist lender, it is essential to perform due diligence before applying. Understanding the terms and conditions of your inheritance loan is paramount to making an informed decision, which is again where the input of a skilled broker can prove invaluable.

For more information on inheritance loans or to arrange an obligation-free quotation, contact a member of the team at UK Property Finance today.

What Is an Inheritance Tax Loan?

Dealing with the death of a loved one can be challenging enough, and having to decipher complex tax terms and procedures can make it even more overwhelming. One such concept that may surface during this time is the inheritance tax (IHT) levied on the deceased’s property that is passed on to beneficiaries.

You may find yourself in a position where, despite being owed a significant sum by way of legally entitled inheritance, you lack the on-hand funds to meet your own inheritance tax requirements, which can feel like something of a dead end but can be resolved quite simply (and affordable) with a bespoke financial solution.

Understanding current IHT thresholds                                                     

The inheritance tax threshold, or “nil rate band”, is currently £325,000. If the value of the estate, including the value of any assets given away or sold at a reduced price within the last seven years before death, is below this threshold, there will be no IHT payable.

However, if the deceased’s estate worth exceeds the £325,000 threshold, the portion exceeding the threshold is taxed at a rate of 40%. These high tax rates often put pressure on beneficiaries, especially if the majority of the estate’s value is tied up in non-liquid assets, like property. This is why many find it difficult to pay IHT, leading them to seek alternative funding options.

What are inheritance tax loans?

This is where an inheritance tax loan comes in. It is essentially a loan taken out to pay the inheritance tax due on an estate. These loans are generally short-term and are repaid once the estate’s property is sold off or other funds become available.

The main point of appeal with this type of funding is that it ensures the prompt settlement of the IHT bill, avoiding any potential penalties for late payment. Moreover, it buys time for the inherited assets to be retained and/or sold at a later date for their full value, instead of selling them off in a rush (at a potentially lower price) to reconcile tax debts.

Of course, being able to access the estate you are legally entitled to early is also a huge benefit. The issue has traditionally been (albeit somewhat ironic) that the more you are owed, the more difficult it is to meet your own tax obligation to complete the probate process.

How IHT loans work

When you apply for an IHT loan, a lender essentially offers funds secured against the inherited assets. The assets you will be inheriting are used as collateral against the loan, which technically means that the lender has the right to repossess them if you do not repay your debt as agreed.

Once the loan is approved, which can be as fast as a few working days, you can use it to pay your IHT bill, and the debt is later repaid when the inherited asset (usually property) is sold or from other funds.

Applying for an IHT loan

While it is possible to apply for an IHT loan directly with a lender, doing so is not always the best option. In terms of both getting the best deals and lightening the load for yourself, it is always best to seek independent broker support.

A broker can help you navigate the complexities of IHT loans, putting their knowledge and contacts within the industry to good use and making the process as smooth and simple as possible. Your broker will guide you every step of the way, helping relieve at least some of the pressure of your financial responsibilities during an already difficult time.

For more information or to discuss the potential benefits of inheritance tax loans in more detail, contact a member of the team today.

Top Considerations for Choosing the Right Bridging Loan Term

Bridging loans have the potential to be a flexible, affordable, and accessible solution when you need a short-term financial boost in a hurry. Once typically associated with commercial borrowers and strict business applications, recent years have seen more everyday borrowers consider these fast-access funding solutions than ever before.

But while it can be comparatively straightforward to apply for and receive a bridging loan, it is not a facility to take out without careful forethought. Careful consideration of several key factors is essential to ensuring you make the right decision, one of which is the most appropriate term for your bridging loan.

It’s possible to take out a bridging loan over a period of anything from a couple of weeks to around 18 months. Interest and borrowing costs are typically ‘rolled up’ into the final loan balance, with no monthly repayments required in the interim.

The question is, how do you know what bridging loan term is right for you? More importantly, what are the most vital considerations you need to factor in prior to deciding when you will pay your lender back?

Six essential bridging loan term considerations

  1. The strength of your exit strategy

A core component of any bridging loan is the exit strategy, i.e., how and when you plan to repay the loan. Whether it’s the sale of a property or expected income from a business or inheritance, a solid exit strategy reassures lenders about your repayment capabilities. However, if your exit strategy isn’t set in stone or fails to generate the expected revenues when that time comes, a longer term may be essential to enable you to raise the money needed to repay your loan.

  1. Monthly interest payable

Considering the interest payable each month on your bridge loan is vital. You will typically find that while the monthly interest rates on a longer-term bridging loan are lower, what you end up repaying is significantly higher. It’s the same with almost all types of personal and commercial loans: longer repayment terms equate to higher overall borrowing costs. In addition, lenders often show preference to borrowers who intend to repay their loans as quickly as possible, which are considered lower-risk transactions.

  1. Penalties for missing deadlines

Missed or late payments can result in penalties that can significantly impact your total repayment, along with your credit rating. A shorter bridging loan term might sound appealing initially due to the potential to make savings, but it’s important to consider your repayment capacity before committing. You’ll have a fair amount of freedom when it comes to determining your own preferred repayment date, but the last thing you want is to realise subsequently that you did not give yourself enough time.

  1. Issues that could affect the ability to repay

Unexpected issues such as market downturns, property sales that fall through, or business performance problems could affect your ability to repay. Assessing these potential risks in advance is essential; all potential outcomes should be considered where your exit strategy is concerned. Ideally, you should be looking to choose a bridging loan term that provides something of a buffer in the event that you face any unexpected yet inevitable issues along the way.

  1. Potential savings with prompt repayment

Where possible, it’s worth placing emphasis on the potential savings of repaying as soon as possible, with a shorter term. Though this means less time to come up with the full balance and a potentially higher monthly rate of interest, the total amount you pay will always be lower when you repay your loan as promptly as possible. Again, you need to ensure you allow yourself a realistic period of time to raise the funds needed to repay your debt.

  1. Early repayment options without penalties

Repaying earlier than agreed can save you a substantial amount in interest payments and overall borrowing costs. However, not all bridging loan providers offer penalty-free early repayments. Check directly with your provider to confirm if this is an option. Depending on your lender’s flexibility, you could potentially choose a longer-term bridging loan, but with the aim of repaying it earlier if doing so proves to be feasible.

Is Bridging Finance the Best Solution To Avoid Chain Breaks?

Broken property chains are the ultimate nightmare scenario; they are also an all-too-common reality. Research suggests that as many as 30% of all property sales in the UK fall through before completion.

But there is an accessible and flexible way to avoid chain breaks, in the form of bridging finance. For those able to qualify, bridging loans represent a convenient and cost-effective alternative to watching a potential property purchase fall through at the worst possible time.

Why do property chains break?

Property chains can collapse at any time for a broad range of reasons, which include:

  • The seller decides they no longer want to sell their home.
  • Buyers are pulling out of their planned purchase decision.
  • Mortgage applicants are being denied funding by their lenders.
  • Buyers are gazumped by a competing bidder with a higher offer.

Irrespective of the cause of a broken property chain, the consequences remain the same. When the sale of your current home suddenly falls through, you find yourself in a position where you can no longer afford to buy your next home.

At this point, you could be forced to watch your dream home slip through your fingers unless you take decisive action.

Bridging loans for chain-break finance

Increasingly, homeowners looking to opt out of perilously fragile property chains altogether are looking into the potential benefits of bridging loans. Bridging finance provides property owners with the opportunity to leverage the value they have tied up in their current home in order to buy their next home for cash.

The loan is then repaid when their previous property sells, effectively ‘bridging’ the gap between buying and selling.

Here is how the facility works in practice:

  • A couple looking to relocate currently owns a home with a value of £500,000.
  • They find a home they would like to buy in their dream location for £400,000.
  • An application for a £400,000 bridging loan is submitted against their current home.
  • The lender approves their application, and the funds are transferred within a few days.
  • The couple moves into their new home, and their previous home remains on the market.
  • A few weeks or months later, when their previous home sells, the loan is repaid in full.
  • In the meantime, interest accrues at a rate as low as 0.5% per month.

Bridging finance effectively works like a short-term mortgage, wherein funds are raised against the value of the borrower’s home and repaid at a later date. What makes the difference with a bridging loan is that the facility can be arranged in a few working days, and the full loan balance is repaid within a few months.

How much can you borrow with chain break bridging finance?

The amount you can borrow will be determined by the equity you have built up in your current home, along with the maximum LTV your lender is willing to offer. Most lenders cap their maximum LTVs at around 80%.

This would mean that if you have £500,000 equity in your home, you would be able to borrow 80% of this, or £400,000. Your general financial circumstances may also be taken into account by your lender, which could influence the maximum loan size you qualify for.

Who is eligible for chain break bridging finance?

As a specialist type of secured loan, eligibility for chain-break bridging finance is determined largely on the basis of available security. If you have established sufficient equity in your current home (or have other assets of value you could use as security), you have a high chance of qualifying.

This applies even if you have imperfect credit or cannot provide comprehensive proof of income, as many specialist lenders are willing to work with ‘subprime’ applicants.

Even so, it is advisable to consult with an independent broker to discuss both your eligibility and the options available before applying. Your broker will be able to pair your requirements with an appropriate lender to ensure you get an unbeatable deal while advising on the alternative options available where applicable.

Bridging Loans for Property Portfolios: Managing Multiple Transactions

Building and managing a property portfolio is an exciting venture for investors seeking long-term returns. However, expanding a property portfolio often involves managing multiple transactions simultaneously, which can be financially challenging. Introducing a game-changer: bridging loans. Today, we embark on a journey to uncover the remarkable potential of these financial instruments in empowering investors to conquer the intricate realm of managing multiple property transactions within their portfolios. In this blog post, we’ll delve into the depths of bridging loans and discover the myriad ways in which they can serve as valuable allies for astute investors seeking seamless navigation through the intricate landscape of property portfolio management. Brace yourself for insights that will revolutionise your investment strategy! From leveraging funds for acquisitions to optimising cash flow during refinancing, let’s delve into the world of bridging loans and discover how they can streamline the management of property portfolios.

Expanding your property portfolio

Unlocking a realm of possibilities, bridging loans offer a pivotal advantage to property portfolios by seamlessly providing short-term financing to facilitate acquisitions. Be it the addition of captivating residential properties or the allure of lucrative commercial ventures, bridging loans effortlessly bridges the gap between purchase and securing long-term financing, setting the stage for your portfolio’s flourishing success. This allows you to act quickly and seize investment opportunities without delay.

Unlocking equity for portfolio growth

As your property portfolio expands, you may encounter situations where you need to access equity from existing properties to fund new acquisitions or property developments. Opening the doors to flexibility and boundless opportunities, bridging loans present a dynamic solution, acting as a seamless bridge between the sale of one property and the acquisition of another. By harnessing the value of your existing assets, you can unlock the true growth potential of your portfolio, propelling it to new heights of success and prosperity. Embrace the power of bridging loans and embark on a journey towards portfolio expansion like never before.

Optimal cash flow management

Managing multiple transactions within a property portfolio can place a strain on your cash flow, especially when there are gaps between property sales and purchases. Bridging loans can alleviate this financial burden by providing short-term liquidity. By securing a bridging loan, you can maintain a steady cash flow and ensure smooth operations within your portfolio, avoiding missed opportunities or financial setbacks.

Portfolio refinancing

In some cases, property investors may seek to refinance their portfolio to optimise their financial position. This can involve consolidating existing loans or accessing better interest rates and terms. Bridging loans can serve as a tool during this refinancing process, allowing investors to access immediate funds while the new financing is being arranged. This ensures a seamless transition and avoids potential disruption to on-going property management activities.

Tailored solutions for portfolio management

Every property portfolio is unique, with its own set of objectives, challenges, and opportunities. The beauty of bridging loans is their flexibility, as they can be customised to meet specific portfolio management needs. Whether you require a loan with a specific term, require interest-only payments, or need a higher loan-to-value ratio, bridging loan lenders can often accommodate these requirements, providing tailored solutions for your portfolio management needs.

Managing multiple property transactions within a portfolio requires careful financial planning and strategic thinking. Bridging loans offers property investors a versatile tool to navigate the complexities of portfolio management. From facilitating acquisitions to optimising cash flow and enabling portfolio refinancing, bridging loans can provide the necessary flexibility and liquidity to support the growth and success of your property portfolio. By leveraging the benefits of bridging loans, investors can confidently pursue their property investment goals while efficiently managing their portfolio’s transactions.

Renovating Old Structures: Bridging Loans for Historical Conversions

Transforming historical buildings is a thrilling and demanding venture that calls for exceptional skills and expertise. While it results in a remarkable metamorphosis that conserves a fragment of the past, it also necessitates considerable financial investment. That’s where bridging loans come into play, a popular funding alternative for property conversions.

This article delves into the intricacies of bridging loans for property conversions, with a specific focus on the conversion of historical buildings.

Understanding bridging loans

Before delving into the specifics of employing bridging loans for property conversions, it’s vital to grasp their essence. Bridging loans are a short-term financing solution that enables borrowers to swiftly secure funds, typically within a matter of weeks. These loans commonly bridge the gap between property purchases and long-term financing or cover the expenses of renovations and other outlays. Secured against the property itself, these loans empower lenders to sell the property in the event of a loan default, recouping their investment.

Bridging loans for property conversions

Historical buildings possess an unmatched allure and charisma that contemporary structures cannot emulate. Converting such buildings to serve new purposes necessitates meticulous planning, reflection, and a substantial financial commitment. Herein lies the value of bridging loans, as they provide rapid access to funds that can be used for conversion expenses.

One of the advantages of employing bridging loans for property conversions lies in their adaptability to the borrower’s specific needs. For instance, the loan structure can encompass the property’s purchase cost as well as renovation or repair expenses. Furthermore, bridging loans can be tailored to offer repayment flexibility, which proves advantageous for lengthy conversion projects.

When contemplating a bridging loan for a historical property conversion, it is imperative to collaborate with a lender well-versed in this domain. Converting historical buildings mandates a unique set of skills and knowledge, including an understanding of preservation and restoration techniques, along with adherence to local regulations and requirements.

Preserving heritage

Effecting a transformation in a historical structure necessitates a delicate equilibrium between preserving the property’s historical character and adapting it for modern usage. This endeavour poses challenges, as restrictions may govern alterations to the building. Nonetheless, with the right approach and expertise, a successful conversion can uphold the building’s historical significance while rendering it functional for contemporary purposes.

A pivotal element of a prosperous historical property conversion lies in assembling a team of experts capable of guiding and advising throughout the process. This team should encompass architects, engineers, and contractors well-versed in working with historical structures. Moreover, it is crucial to collaborate with a lender who comprehends the distinctive obstacles posed by historical property conversions, offering tailored financing solutions to suit project-specific requirements.

Converting a historical building into a new functional space is a gratifying and demanding undertaking, necessitating meticulous planning, expertise, and financial backing. Bridging loans serve as an exceptional financing avenue for property conversions, providing swift access to funds and repayment flexibility. When contemplating a bridging loan for a historical property conversion, it is essential to partner with a lender experienced in this realm and assemble a team of specialists capable of guiding and advising throughout the process. With the right approach, a successful historical property conversion can preserve the building’s heritage while rendering it relevant for contemporary purposes.

Criteria for Bridging Loans in Northern Ireland

With the support of an experienced broker, organising a bridging loan in Northern Ireland can be fairly straightforward. Even so, you still need to understand the eligibility criteria that apply to bridging finance in general before submitting an application for a Northern Ireland bridging loan.

What is a bridge loan?

A bridging loan is a specialist short-term secured loan that can be organised and accessed much faster than any comparable high-street loan. As the name suggests, bridging finance is used to “bridge” a temporary financial gap and is typically repaid within a period of one to 12 months.

With all the essential paperwork in place, a bridging loan can be authorised in as little as a few working days. This makes it an ideal facility for time-critical purchases and investment opportunities, such as purchasing properties at auction.

Bridging finance is a popular tool for property developers and investors looking to fund short-term projects as affordable as possible. With monthly interest as low as 0.5% (sometimes less), bridging finance can be hugely cost-effective when repaid promptly.

There are also no limitations placed on how much can be borrowed (based on the value of the assets used as security for the loan) or how the funds can be allocated after being received.

What are the main eligibility criteria for Northern Ireland bridging loans?

Eligibility for bridging finance is established on the basis of two main criteria:

  • Security: The applicant must be able to provide assets of value to cover the costs of the loan in the form of viable security. This usually takes the form of their home or business property they own but can also be other assets of value like business equipment, vehicles, jewellery, and so on.
  • Exit strategy: This refers to a workable and reliable plan for repaying the loan. Bridging finance is repaid by way of a single lump-sum payment at a later date, complete with interest and fees. The applicant must provide evidence that they have a robust exit strategy in place, such as the sale of a property or an owed inheritance payment.

Other than this, the qualification criteria for bridging finance are fairly relaxed. You do not need to provide formal proof of income, nor is your employment status of any major relevance.

It is even possible to qualify for bridging finance with poor credit or a history of bankruptcy. All that matters to the lender is your capacity to repay the loan in full and on time, along with the provision of security as an ‘insurance policy’ against non-payment.

What can I use a bridging loan for?

If you qualify for a bridging loan, you can use the funds for any legal purpose whatsoever. Just a few of the more popular applications for bridging loans include business financing, property investments, development financing, land purchases, auction property purchases, home improvements, property conversions, and more.

Irrespective of your requirements, it is important to ensure that you shop around to get the best possible deal on your bridging loan. This is especially true if you have any past credit issues, which may affect the competitiveness of the deal you are offered. At UK Property Finance, we work with an extensive panel of more than 300 lenders to source high-quality, low-cost bridging loans for all purposes. For more information on the criteria for bridging loans in Northern Ireland or to discuss your requirements in more detail, call anytime for an obligation-free consultation.