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7 Reasons Why a Bridging Loan is Ideal in Property Development
Property development financing is available in a variety of forms to suit most requirements and budgets. Increasingly, bridging loans are being sought by property developers across the UK to fund large and small projects.
But what is it about the bridging loan that makes it such a popular choice? Why are more investors choosing bridging loans over conventional property development finance than ever before?
Here are some reasons:
- Bridging loans are fast: Bridging loans are one of the fastest-access lending streams available for property developers. From application submission to provision of the funds, it can take as little as 3 to 5 working days, making it an ideal option when time is a factor.
- Bridging loans are flexible: Most bridge loans are tailored to suit the exact requirements and budget of the borrower. Along with flexible repayment terms, it’s also possible to qualify for a bridging loan with a poor credit history, due to bridging finance being far more flexible than more traditional mainstream loans and because monthly payments are rarely required.
- Bridging finance can be used for almost anything: Although most often used for a property purchase, a bridging loan can be used for almost any legal purpose. In addition, it’s also possible to secure a bridging loan against almost any type of property or land, provided it covers the total cost of the loan with sufficient excess.
- Competitive borrowing costs: Bridging loans are short-term loans designed to be repaid within a matter of months rather than years. Interest rates start at below 0.5% per month, coupled with minimal overall borrowing costs. Early repayment is also usually an option with bridging loans without facing heavy penalties or levies.
- Auction property purchases: One of the most common applications for bridging loans in the property development sector is for the purchase of auction properties. The funds required to purchase a property at auction can be made available quickly, with the loan subsequently being repaid in one lump sum when the property is sold or refinanced.
- Purchasing uninhabitable properties: Many mainstream lenders will only issue loans against properties that are considered habitable at the time of the application. With bridging finance, it is possible to secure a loan against an uninhabitable property with the intention of renovating or redeveloping it.
- No deposit is required: Another benefit of bridging finance is that no physical deposit is often required to set up the loan, as additional security can be used to cover this. Eligibility is determined primarily by the value of the property or land used to secure the loan.
For more information on the benefits of bridging loans as a form of property development finance, contact a member of the team at UK Property Finance anytime.
How Bridging Finance Can Benefit New Business Start-ups?
New business start-ups in the UK are increasingly turning to alternative lenders to help fuel their growth and development. Bridging finance in particular is growing in popularity among the small to medium enterprise (SME) community within the UK.
Certain major banks and lenders consider new business start-ups “high-risk” so they are reluctant to provide finance. This means that despite employing close to 16 million people in the UK and contributing 47% of the total annual turnover for the private sector, new businesses are gaining little access to traditional conventional funding.
In fact, less than 40% of SME companies reported successfully receiving loans from major banks and lenders.
The flexibility of bridging finance
Companies unable to obtain mainstream finance can be helped by the bridging finance sector. Bridging finance is a specialist type of borrowing that secures short-term loans against existing assets. Bridging loans are rarely dependent on income, as often no monthly payments are required, but they are dependent on the equity within the security asset(s) and the strength of the exit, i.e., how the loan will be repaid at the end of the chosen term. Bridging finance is designed to be repaid within a matter of months; however, depending on the situation, the loan can be taken over several years.
For smaller businesses in particular, the immediate benefits of bridging finance are relatively obvious:
- Bridging finance is typically available from £10,000 upwards.
- From application to completion, it can take as little as a few days to access the money needed.
- The most competitive monthly interest rate for a bridging loan is less than 0.5% per month.
- Bridging finance specialists will not automatically discount applicants with an imperfect financial track record or credit history.
- Bridging loans can be used for almost any legal purpose.
- A growing SME, for various reasons, can often need significant funds quickly.
Even when eligibility on the high street is no problem, there are advantages to bridging finance that make it a better option than conventional business loans.
An example of bridging finance in action
A new business start-up is growing faster than expected and has received an influx of sales way beyond its current capacity and infrastructure. The new company needs to expand and develop quickly, recruit new staff, upgrade to larger premises, and purchase new equipment.
The company applied for bridging finance of £200,000 to be repaid at the end of a six-month term. The money was received within a week, and the upgrades were immediately initiated, enabling the new business start-up to operate at a much higher volume. Over £500,000 in sales revenues was generated over the subsequent six months, way beyond the amount needed to repay the £200,000 loan, interest, and fees, and now the company is in a position to handle the increased business volume without any further additional costs.
This is a typical daily scenario where traditional funders were unable to help, but a specialist lender stepped in to arrange the money needed. The now-growing new start-up greatly benefited from a simple and cost-effective bridging loan. The eligibility was assessed only on the basis of the borrower’s security asset along with evidence of a viable ‘exit strategy’ and not on the current or historic income of the business. The firm’s exit strategy was its clear plan for increased sales following cash input from the bridging loan.
Independent broker support
As a new business start-up or SME, it can be difficult to access affordable funding when needed. In addition, taking on any debt during the crucial early days requires careful consideration.
We recommend speaking to an independent broker, such as UK Property Finance, before deciding which path to follow. Whether it is bridging finance or another type of secured property finance loan, comparing the market holds the key to ensuring you get the best possible deal.
Bridging Loans: Secured Loans When Time Is Critical
Bridging loans are a specialist type of secured loan that can be particularly useful in time-critical situations. Secured loans in general can be quicker and easier to arrange than unsecured personal loans, but the underwriting process can still be lengthy in the case of larger secured loans, such as mortgages.
Speed is one of the reasons bridging loans have become the go-to finance product for both businesses and consumers in situations where turnaround time is of great importance. When time is critical, there is perhaps no faster or more convenient option available than bridging finance.
You will need to have sufficient security to cover the loan amount, but the application and underwriting processes are generally much simpler than those of other types of secured loans.
Specific instances where bridging loans are considered the ideal alternative to a traditional secured or unsecured loan include:
Fast property purchases
One of the most common applications for bridging finance is purchasing properties at a bargain price before your competition. Whether commercial or consumer, getting a great deal on a property often means snapping it up quickly while the opportunity exists. Instead of waiting months for a traditional mortgage application to be approved, bridging loans can be paid out within a matter of days.
Buying property at auction
The same also applies to properties that go under the hammer at auction, which can often be purchased for well below their market value. The only proviso is that you rarely have more than 28 days to pay for the property in full. This timeframe is often out of the question with traditional mortgages but perfectly possible with a bridging loan.
Urgent business expenses
Businesses can face unexpected outgoings and/or higher-than-expected costs. Unfortunately, these unexpected costs often arrive at the worst possible time. There are countless applications for bridging loans in a business environment, i.e., urgent tax payments, critical business equipment replacements, etc.
Avoiding repossession
The importance of urgent action to avoid repossession needs no explanation. The prospect of losing your home or business property can be a terrifying prospect, but bridging finance can be used to quickly rectify the problem. Bridging finance can be used to repay repossession debts, enabling the owner to retain full control of the property and its destiny.
Probate and inheritance tax problems
Time can also be a factor when it comes to probate and inheritance tax issues. Bridging finance can be used to meet the tax obligations, allowing the applicant to realise the inheritance.
We recommend that you always seek professional, independent advice if you have any concerns or questions regarding probate and inheritance tax issues.
Property repairs and updates
If the property where you live or let falls into disrepair, you may be legally (or at least ethically) obliged to bring it back into line. Depending on the nature and severity of the issue, immediate and extensive repairs may be necessary. In this case, a bridging loan could be an ideal short-term solution for correcting problems before they are allowed to deteriorate further.
Buy-to-Let purchases
Bridging finance can also be perfect for extending a buy-to-let property portfolio. If and when the perfect property is found at the right price, rather than missing out on the investment opportunity of a lifetime, one or more of your existing properties or even the new property can be used as security for bridging finance, enabling you to purchase and expand your portfolio within a matter of days.
Bridging Loans Are the Buy to Let Investor’s New Top Choice
It’s not uncommon for buy-to-let investors to set their sights on properties in need of repairs and refurbishment. The reason being that, as competition for such properties is relatively low, they can often be picked up at rock-bottom prices. After which, the repairs and refurbishments can be performed at an equally low price before turning a profit on the property by letting it out to tenants.
Unfortunately, targeting properties in need of renovations or refurbishments can lead to problems with financing the purchase. This is because the vast majority of traditional lenders will only issue mortgages against properties that are considered habitable at the time of the application. Even if you can demonstrate your intention and capacity to renovate the property after the purchase, you’re unlikely to qualify for a traditional mortgage.
In addition, landlords often seek to expand their buy-to-let property portfolios by purchasing homes at auction. Some are in need of repair; others are perfectly habitable. In both instances, however, it is usually necessary to pay the full purchase price of the property (and any additional fees) within 28 days, sometimes sooner. Needless to say, this is nowhere near enough time to organise a traditional mortgage.
Combined with the increasingly restrictive lending criteria of major banks for buy-to-let landlords, all of the above places prospective investors in a tricky position.
A flexible and accessible alternative
This is precisely why bridging loans are fast becoming the new top choice for buy-to-let investors. A dynamic and flexible type of secured lending, bridging finance goes far beyond the limitations of traditional high-street mortgages.
For one thing, most bridging finance specialists are uninterested in the condition of the property. Even if it is in a pretty sorry state of repair, it has no real consequence for the lender. Instead, the only thing that matters is the borrower’s capacity to cover the loan with acceptable collateral. This may be provided in the form of the property being purchased or any other property currently owned by the applicant.
Likewise, bridging finance can be uniquely convenient and accessible for purchasing buy-to-let properties at auction. Irrespective of how much money is needed, it can typically be organised and transferred to the applicant within five working days. Again, it’s simply a case of the applicant putting up the necessary collateral to cover the loan. The nature and condition of the property being purchased are of no real interest to the lender.
What matters most with a bridging loan are two things: collateral and a viable exit strategy. By exit strategy, this means a clear and validated method of gaining access to the money needed to repay the loan on the agreed date. It’s possible to take out a bridging loan without an exit strategy, but this may, depending on the lender and the loan, result in higher overall borrowing costs.
Speaking of which, the potential value for money of a super-short-term bridging loan also appeals to buy-to-let investors. In many instances, it’s possible to borrow significant sums of money for less than 0.5% per month. Just as long as the loan is repaid quickly (in accordance with the agreement of the lender), overall borrowing costs can be kept to absolute minimums.
The importance of comparing the market
Now more than ever, the importance of comparing the market in full cannot be overstated. Particularly when considering buy-to-let investment opportunities, it is essential to consider as many deals as possible from as many lenders as possible.
The quickest and easiest way is to take your case to an independent broker, who can compare deals from a panel of specialist lenders on your behalf.
Bridge the Gap to Own a Holiday Home
The housing situation for most would-be buyers in the UK right now is pretty bleak. Particularly for first-time buyers, millions of whom face the prospect of never owning their own home.
But what’s interesting is how, at the opposite end of the spectrum, individuals interested in buying second homes (or holiday homes) are increasingly setting their sights overseas. Given the inevitable complications of buying abroad, why are there more Brits than ever before considering international property investments?
The overseas property market
For most, the primary motivating factor is affordability. In some regions, average property prices have plummeted by as much as 70% over recent years alone. As a result, Brits buying abroad are able to make their budgets stretch considerably further than they would at home.
What’s more, the desire to snap up bargain properties while the opportunity exists is prompting a growing number of borrowers to consider more immediate short-term loans.
Florida has become an appealing investment prospect for more British homebuyers than ever before. Primarily due to sub-prime issues, average house prices in several attractive regions across Florida have fallen by more than 70%. Over in Spain, research suggests there are currently more than 700,000 unsold holiday homes, which are plummeting in value all the time. In addition, average house prices in several key coastal regions have fallen by around 50%.
For some, the appeal lies in the prospect of purchasing an attractive overseas property to let out. For others, it’s a case of being able to pick up a dream holiday home at a bargain price. Or perhaps a second home to eventually move to for permanent residence during retirement.
No matter how extensive or limited their budget may be, would-be buyers are finding overseas investment opportunities near irresistible.
Local mortgage complexities
One of the biggest obstacles standing in the way of overseas property ownership tends to be arranging finance. For obvious reasons, getting a local mortgage from an overseas lender can be far more complex than organising a mortgage at home. Lending criteria and eligibility in general differ significantly from one lender to the next, as do interest rates and borrowing costs.
For most, it’s a case of hiring a local lawyer and/or real estate expert to represent them in their absence. All of which means further costs and complications. It can also be a time-consuming process, which isn’t ideal when the intention is to secure a bargain property while the opportunity exists.
Bridging loans to purchase overseas homes
This is perhaps why bridging loans have become a popular choice among Brits buying abroad. With so many quality properties being sold for exceptionally low prices, it’s very much a case of first come, first served. Procrastinating for as little as a few days could see the property of your dreams being snapped up by someone else.
Traditional mortgages (at home and abroad) have a tendency to take several weeks to arrange. With a bridging loan, the money needed to pay for a property outright can be accessed in as little as three days. Just as long as the applicant has sufficient collateral to cover the cost of the loan, the application process can be surprisingly simple.
Of course, the key proviso with a bridging loan is ensuring you have a valid exit strategy. That being, a plan for repaying the loan in full a few months down the line Bridging loans are therefore unsuitable for buyers looking to spread the costs of their property purchase over several years, but they can be uniquely cost-effective for those able to repay more promptly.
Independent advice
With such a broad range of options available for financing an international property purchase, it’s important to seek independent advice at the earliest possible stage. Consider the available options, establish your budget, and conduct a whole-of-market search in order to ensure you get the best possible deal from a reputable lender.
Economy Growth or Slow Down?
The United Kingdom is currently facing a period of uncertainty unlike any seen since the end of the Second World War. Considering Great Britain’s entirely uncertain position in Europe and the rest of the world over the coming years, it’s almost impossible to predict what’s to come next. Nevertheless, the latest figures have painted a less than reassuring picture about the country’s economic performance.
According to the latest figures from the Office for National Statistics, the United Kingdom economy experienced growth in May after a decline in April. However, not to such an extent as to quash widespread fears of a severe slowdown to come. Specifically, the economy experienced growth of 0.3% in May, following a decline of 0.5% in April. Total growth over the three months leading up to May came out at the same 0.3%.
This would appear to be a positive result, but experts are predicting further shrinkage in the months to come. The official figures for the second quarter are not scheduled to be released until August, though they are not expected to make a particularly reassuring reading.
Carmakers return to work
One of the key factors driving the temporary economic growth record in April was the partial return to production for several major carmakers. A series of temporary factory shutdowns ahead of a scheduled March Brexit inflicted enormous damage on the UK’s vehicle production output and the economy as a whole.
This partial recovery in car production contributed to the 0.3% economic growth recorded for May, which didn’t come close to making up for the decline in the previous month. Experts insist that all such monthly figures should be taken with a pinch of salt due to their volatility and unpredictability. Nevertheless, all signs indicate a further economic slowdown over the coming months in the run-up to another scheduled EU departure.
“We project UK growth to dip to 1.1% in 2019 and to strengthen only moderately, to 1.6% in 2020. Slow growth this year reflects the drag on business investment from ongoing economic and political uncertainty relating to the outcome of the Brexit process. Our main scenario assumes an orderly exit from the EU with a transition period, with business investment and GDP growth picking up later in 2019 and in 2020. But short-term risks are weighted to the downside due to the possibility of a more disorderly Brexit.” Price Waterhouse Coopers
The value of the pound has also plummeted more than 5% against the world’s three biggest currencies in recent weeks. A decline that is also predicted to continue for some time.
Growing brexit uncertainty
Had the government gotten its way, the United Kingdom would have already been outside the European Union for some time right now. As it stands, we’re no closer to knowing what’s ahead than we were at the time of the referendum. Uncertainty has had a more drastic and wide-reaching impact on the UK’s economic performance than anyone could have predicted.
As it stands, the United Kingdom is now scheduled to leave the European Union on or before October 31. Nevertheless, we’ve got no realistic way of even knowing who will be in power at the time. Or whether Brexit will actually go ahead or not. From the biggest businesses to the average UK household, nobody is willing to make any major financial decisions while such uncertainty continues. The result of this is the sluggish economic performance we’ve seen as of late, which isn’t likely to see a turnaround anytime soon.
Do Bridging Loans Still Have A Bad Reputation?
It’s fair to say that bridging loans landed in the United Kingdom with an initially shaky reputation. For the most part, short-term loans in general have always been viewed with a certain amount of scepticism. Particularly in instances where non-payment leads to heavy penalties in a relatively short period of time.
Today, UK borrowers and financial watchdogs alike are beginning to view bridging loans in an entirely different way. Whichever way you look at it, bridging finance has the potential to provide an invaluable lifeline in a time-critical situation. Nevertheless, this doesn’t mean that bridging loans are always the most appropriate or economical option.
They are one of hundreds of unique financial products available on the UK market, with their fair share of advantages and disadvantages.
Considering all available options
Accessing the most appropriate financial products for any given requirement means considering as many options as possible. The easiest way of doing so is to contact an independent broker, who can compare the market in its entirety on behalf of the borrower.
Should it be decided that a bridging loan is the way to go, it’s important to consider all the advantages and disadvantages ahead of time. A bridging loan could prove invaluable when time is a factor, but it should never be applied for without careful consideration.
The advantages of bridging loans
As far as advocates are concerned, the most appealing advantages of bridging loans are as follows:
- Bridging loan applications can be completed, processed, and finalised in a matter of hours. Across the board, bridging finance is exponentially quicker and easier to access than a comparable high-street loan.
- Borrowers have the option of repaying the loan in its entirety in one lump sum on a predetermined date. For some, this is preferable to the usual monthly instalment approach.
- Lenders often demonstrate a fair amount of flexibility with the collateral they are willing to accept to cover the cost of the loan. This makes bridging finance ideal for property refurbishments and redevelopment projects.
- Poor credit applicants are not necessarily counted out of the running, as eligibility is usually determined exclusively on the basis of collateral. Even if you have an imperfect credit history, you can still qualify for a bridging loan in no time.
- Bridging finance can be great for taking advantage of time-limited investment opportunities, such as purchasing properties at auction.
The disadvantages of bridging loans
As for the downsides, the following should be taken into account before applying for a bridging loan:
- There are typically no allowances for repaying bridging loans over longer periods. Loan terms usually last 6 to 24 months, maximum.
- Penalties and additional interest charges can be particularly steep in the case of non-repayment of the loan. It’s therefore important to carefully consider your financial status before applying.
- As bridging loans are secured loans, your property may be at risk of repossession if you fail to meet your repayment obligations as specified in the contract.
In terms of reputation, there will always be those who favour one type of credit over another. Nevertheless, evidence would seem to suggest that more businesses and everyday borrowers than ever before are considering or applying for bridging loans.
At the right time and with the help of a responsible lender, bridging loans can be surprisingly affordable. They can also be the only realistic option on the table in time-critical situations. If you simply cannot sit around for days or weeks on end for a bank to make up its mind, bridging finance could be the answer.
Top 10 Issues with Planning Permission Applications
For homeowners and professional developers alike, planning permission issues are anything but uncommon.
Where issues with planning permission stand between you and the successful completion of an important project, the frustration can be unbearable. Particularly in instances where planning permission is rejected on the grounds of a simple oversight or application error.
So to help future candidates with their applications, here’s a quick rundown of the 10 most common mistakes and general issues with planning permission applications:
- Justifying your project on someone else’s: Just because someone else in the vicinity has been permitted to do whatever it is you intend to do doesn’t immediately validate your application. All decisions are considered by way of individual merit, and the goalposts are being moved all the time. Hence, making too many comparisons or references to someone else’s project really isn’t the way to go.
- Submitting too much information: Leaving out important details is never advisable, but there’s also such a thing as including too much information. Applications must be complete, but they should also be as concise and digestible as possible.
- Designing before buying a plot: Planning permission applications are considered by way of the prospective project’s potential to complement its surroundings and neighbouring buildings. As a result, it’s risky to go ahead and start designing a property or building before you’ve found the perfect place for it.
- Over-egging eco claims: Environmentally friendly projects are far more likely to be given the go-ahead than their polluting counterparts. Nevertheless, if you base your application heavily on eco claims, you can expect your application to be scrutinised even more aggressively than normal.
- Altering your design after commencement: When the project is underway, you may change your mind about various aspects of the final build. Unfortunately, anything that deviates from the precise plan you submitted could result in the planning permission being withdrawn.
- Overlooking local politics: Your project may not break any formal rules, but sizeable opposition from local residents could scupper your plans. If possible, it’s a good idea to get as many people on your side as possible prior to submitting your application.
- Expecting an easy ride: Your planning permission application process may be smooth and simple, but it could also be an unmitigated nightmare. Expecting an easy ride is a recipe for disaster; it’s far better to plan for every eventuality and be ready to plead your case in minute detail.
- Entrusting substandard tradesmen: Most builders and traders in general will be happy to help in some way with your planning permission application. Nevertheless, this doesn’t necessarily mean they know what they’re doing. What’s more, their reputation and stature may have an effect on the way your application is interpreted and assessed.
- Underestimating the costs: Basic planning permission application fees aren’t particularly extortionate. However, you also need to factor in any other assessments, surveys, and reports that will need to be carried out by the council prior to approving your application. Most of which you’ll be expected to pay for, or at least heavily subsidise.
- Applying at the last minute: Last but not least, local councils typically recommend an average application processing time of up to eight weeks. Nevertheless, there’s every chance it will take significantly longer than this for all checks to be carried out and for approval to be granted. If the project you have in mind has any formal deadline whatsoever, you need to think about applying for planning permission at the earliest possible stage.