Bridging Finance for Non-Standard Property Types: Tips and Advice

While some properties on the market will be regarded as “standard” and eligible for a traditional mortgage, others may be regarded as “non-standard” and require the use of alternate methods of funding. In this blog post, we’ll explore what non-standard property types are and how bridging finance can be used to purchase them.

What are non-standard property types?

A non-standard property type is any type of property that does not fit into the typical mould of what most people consider to be a “standard” property.

This can include things like:

  • Unconventional construction methods: Properties that have been built using non-traditional construction methods, such as timber frame, modular, or steel frame construction
  • Unique properties: Properties that have unique features or designs, such as converted churches or lighthouses.
  • Uninhabitable properties: Properties that require significant repairs or are otherwise unliveable are classified as uninhabitable properties.
  • Non-traditional use properties: Properties that are being transformed but are not generally used for residential reasons, such as warehouses or factories.

The problem with non-standard properties is that, depending on their particular characteristics, they might not be eligible for conventional mortgage financing.

What is bridging finance?

Bridging loans are more often than not used to “bridge the gap” when you are purchasing a new home and your current one hasn’t yet been sold. Bridging loans are frequently used for this purpose, and they can also be used while you wait for a more conventional kind of funding, like a mortgage.

Bridging finance for non-standard property types

Bridging finance can offer a flexible source of capital that can be adjusted to match the individual needs of the borrower.

This is one advantage of employing it for non-standard property types. This is essential for non-standard properties because they could have special qualities that call for specialised financing.

Before you make a decision on obtaining bridging financing for non-standard property types, here are some tips and pointers to help you navigate the process:

Work with a specialist lender

It is a good idea to use a specialised lender who has experience financing non-traditional property types. This is crucial when it comes to these types of properties. A specialist lender will be better able to offer specialised financing options since they will have a better awareness of the hazards connected with non-standard properties.

Consider the risks

Non-standard properties come with unique risks that traditional lenders may not be willing to take on. Before pursuing bridging finance for a non-standard property, it’s important to carefully consider the risks and ensure that you have a plan in place to mitigate them.

Be prepared to pay a higher interest rate

Bridging finance typically comes with a higher interest rate than traditional mortgage financing. This is particularly true for non-standard properties, which are considered to be at higher risk. Be prepared to pay a higher interest rate when securing bridging finance for a non-standard property.

Have a plan in place for repayment

When securing bridging finance for a non-standard property, it’s important to have a plan in place for repayment. This could entail selling an existing property, arranging longer-term financing or paying off the loan with the proceeds from the sale of the new property.

How to Successfully Use Bridging Loans for Property Developments in Rural Areas

Property development in rural areas presents a promising business opportunity. The rising demand for new housing and commercial properties in these regions has created a need for flexible financing solutions like bridging loans. Bridging loans offer short-term financing options specifically designed to support property development projects in rural areas. In this article, we will explore effective strategies for utilising bridging loans in rural property developments.

Gain market understanding

Before embarking on a property development project in a rural area, it is crucial to have a complete understanding of the market. Rural areas often have distinct property characteristics and demand patterns that may differ from urban areas. Take the time to analyse the demand for specific property types, such as farmhouses, cottages, or commercial spaces, and assess their market values. This knowledge will enable you to evaluate the feasibility of your project and determine the finance that you may require.

Identify suitable properties

Your next step is to identify suitable properties for your development project. Explore various sources, such as estate agents, auctions, or private sales, to find properties that align with your goals. Assess the condition of these properties and consider any potential renovation or construction costs. This assessment will help you calculate the necessary bridging finance amount accurately.

Develop a comprehensive business plan

Your business plan should encompass a detailed financial analysis, a construction timeline, and market research. By carefully outlining these aspects, you can determine the exact amount of bridging finance needed and devise an effective repayment strategy.

Apply for a bridging loan

It’s time to apply for a bridging loan! You can choose to approach a bridging loan provider directly or enlist the assistance of a broker like UK Property Finance to help you find the best rates and terms. Your application will be evaluated based on the property’s value and your ability to repay the loan.

Utilise the loan for property development

Upon approval of your bridging loan, you can start utilising the funds to initiate and progress your property development project. It is crucial to closely monitor your expenses and ensure that the project stays on track as planned. Since bridging loans typically have a short repayment period, ranging from 1 to 12 months, having a well-defined exit strategy becomes even more important.

Repay the loan

Once your property development project reaches completion, you have the option to either sell the property or refinance it with a long-term mortgage. The proceeds from these actions can be used to repay your bridging loan, including any accrued interest and fees.

In conclusion, bridging loans offer valuable financing options for property developments in rural areas. However, it is imperative to conduct thorough research and create a well-defined plan before pursuing such loans. By gaining market understanding, identifying suitable properties, developing a comprehensive business plan, and using the loan effectively for property development, you can successfully finance and execute your rural property development project.

Bridging Loans for Overseas Property Development: Unlocking Global Opportunities

At UK Property Finance, we recognise the allure of overseas property development as an enticing investment avenue. In today’s interconnected world, where boundaries are becoming increasingly fluid and international travel is more accessible than ever, individuals and businesses are eager to explore global opportunities. However, financing overseas property development projects can be complex. That’s precisely why we believe in the transformative power of bridging loans to unlock these exciting prospects on a global scale. In this blog post, we will delve into the potential of bridging loans for overseas property development and how they can assist investors in seizing global opportunities.

Understanding overseas property development

Overseas property development involves acquiring and developing properties in foreign countries. It encompasses a range of real estate projects, including residential, commercial, and mixed-use developments. The appeal of overseas property development lies in the potential for high returns, diversification of investment portfolios, and the ability to capitalise on emerging markets.

The role of bridging loans in overseas property development

Bridging loans serve as valuable financial tools for overseas property development. These short-term loans bridge the gap between property purchases and long-term financing or cover construction and renovation costs. By providing borrowers with quick access to funds, typically within weeks, bridging loans enable them to move forward with their projects promptly.

The advantages of bridging loans for overseas property development:

Bridging loans offer several distinct advantages for overseas property development ventures. They provide investors with the necessary capital to acquire land, develop properties, or renovate existing structures, even in foreign countries where securing traditional financing can be challenging.

Flexibility is a key feature of bridging loans for overseas property development. These loans can be customised to meet the specific requirements of the project, including loan duration, repayment terms, and the release of funds at different stages of development. This flexibility allows developers to adapt to the unique challenges and timelines associated with overseas projects.

Collaborating with experienced lenders

When considering a bridging loan for overseas property development, it is essential to partner with experienced lenders who specialise in international financing. These lenders possess in-depth knowledge of the complexities involved in financing projects abroad and can provide valuable guidance throughout the process.

Experienced lenders understand the legal and regulatory frameworks of various countries, assisting borrowers in navigating potential hurdles. They also offer insights into local market conditions, project feasibility, and risk mitigation strategies, empowering investors to make well-informed decisions.

Furthermore, established lenders with global networks can facilitate connections with local experts, including legal professionals, architects, contractors, and property management teams. This network of professionals streamlines the development process and ensures compliance with local regulations.

Overseas property development offers exciting global opportunities for investors and developers seeking diversification and higher returns. However, securing financing for such projects can be challenging, particularly when dealing with unfamiliar legal and economic environments. Bridging loans offer a practical and flexible solution for funding overseas property development, providing quick access to capital and tailored financing options.

To embark on bridging loans for overseas property development, it is vital to collaborate with experienced lenders who understand the intricacies of international financing. Their expertise, combined with a network of professionals in the target country, significantly enhances the success and profitability of the project.

As global opportunities continue to emerge in the property development sector, bridging loans for overseas projects are poised to play a crucial role in empowering investors and developers to capitalise on these exciting ventures. With the right financing partner and thorough due diligence, investors can turn their global property development aspirations into reality.

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.