When it comes to securing quick and flexible financing for property transactions, bridging loans emerge as a valuable tool in the financial toolkit of investors and homeowners. However, understanding the cost implications of such loans is crucial for making informed decisions. In this blog post, we explore the question, “How much does a typical bridging loan cost?”
Breaking down the costs
One of the primary costs associated with bridging loans is the interest rate. According to BridgingLoans.co.uk, interest rates for bridging loans are typically higher than those for traditional mortgages. Rates can vary and are influenced by factors such as the loan amount, loan-to-value (LTV) ratio, and the borrower’s credit profile. It’s essential for borrowers to carefully review and understand the interest rates offered by different lenders to determine the overall cost of the loan.
Bridging loans often come with arrangement fees, which are upfront charges for setting up the loan. These fees can vary between lenders, and BridgingLoans.co.uk advises borrowers to consider the arrangement fees along with other costs when assessing the overall affordability of the loan. Some lenders may also charge exit fees, payable when the loan is repaid.
Property valuation is a crucial step in the bridging loan process. Lenders typically require a professional valuation to assess the property’s worth and determine the loan amount. While borrowers are responsible for covering this cost, the valuation is an essential part of the overall cost structure and should be factored into budget considerations.
Legal fees: Legal fees are another component of the cost of a bridging loan. Borrowers are generally responsible for their legal representation and may also need to cover the lender’s legal fees. Working with a solicitor experienced in property transactions is advisable to ensure a smooth and efficient process.
Exit strategy costs
A well-defined exit strategy is key to a successful bridging loan transaction. Borrowers need to consider the costs associated with their chosen exit strategy, whether it involves selling the property, refinancing with a traditional mortgage, or another method. Understanding these costs in advance can help borrowers plan for a seamless repayment process.
While bridging loans offer a valuable solution for those in need of short-term financing, it’s essential to grasp the full scope of associated costs. By considering interest rates, arrangement fees, valuation fees, legal fees, and exit strategy costs, borrowers can make informed decisions that align with their financial goals.
BridgingLoans.co.uk serves as a valuable resource for individuals seeking information on bridging loans. For personalised advice tailored to your specific circumstances, consulting with financial experts and leveraging the insights provided by BridgingLoans.co.uk can help you navigate the financial landscape and unlock the potential benefits of bridging finance.
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.
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.
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.
The recent raft of Bank of England interest rate hikes and subsequent mortgage rate increases came as no real surprise. Quite the opposite, as it had been common knowledge for some time that the historic lows the UK had become used to were on borrowed time.
Today, we are looking at a picture where millions of mortgage payers have found themselves struggling to make ends meet. Having signed up for ultra-low-interest fixed-rate deals some time ago, they have now been switched to standard variable-rate products with much higher rates of interest.
Elsewhere, you have those who are struggling to qualify for new mortgage loans in the first place, something that is not just affecting everyday home buyers but is also having a major impact on the property purchase decisions of BTL investors.
Meeting ICR requirements
Increasingly, BTL investors are finding it difficult to meet the interest cover ratio (ICR) set by major lenders as a key aspect of their eligibility requirements. This is where the interest payments on a buy-to-let mortgage are compared with projected rental income.
Typically, BTL lenders have a minimum ICR requirement of around 145%. Unfortunately, this means that the recent interest rate hikes (and the prospect of further hikes to come) mean that BTL investors must now produce evidence of higher projected rental income on the properties they plan to purchase.
Something that inherently means hiking monthly rents and potentially making their properties less attractive to prospective tenants could also be completely out of the question in some scenarios, such as a property with a reliable long-term tenant already in place that you would like to hang onto.
Bridging the gap
Over the past couple of years, investors looking to pick up BTL homes with high potential have been demonstrating greater interest than ever before in bridging finance. Bridging loans work in an entirely different way from conventional mortgages, in that they are strictly short-term solutions.
A bridging loan is a secured loan issued over a term of up to 12 months and, in many instances, can be arranged within a few working days. The loan is secured against assets of value (usually residential or commercial property), and the funds raised can be used for any legal purpose.
All of this has made bridging finance particularly attractive to investors in search of more flexible and accessible options than conventional BTL mortgages. With a bridging loan, there are no minimum ICR requirements whatsoever, and you do not need to provide any evidence of a background in property investments.
If you have sufficient assets of value to cover the costs of the loan and a workable exit strategy (how the loan will be repaid), this is often all that matters to bridging loan specialists.
This can help BTL property investors bridge the gaps in the services being provided by mainstream lenders. With a bridging loan, a buyer can purchase a high-potential BTL property in any condition and conduct the renovations and improvements necessary to bring it up to scratch. Interest then accrues at a rate as low as 0.5% per month, giving the investor plenty of time to work out their next step.
When the agreed loan term ends, the bridging loan can be refinanced onto a longer-term facility, such as a BTL mortgage. Or if rates are still far from agreeable, the property can be sold to generate significant capital gains and repay the loan in full.
Essentially, bridging finance is about giving investors welcome breathing space, during which they can think carefully about their longer-term decisions.
The latest official figures from HM Revenue & Customs (HMRC) indicate that residential transactions in the UK grew by 29% annually to reach 110,850 in October 2022. Meanwhile, non-residential transactions in the UK for October were down by 5% compared to the same time last year, totalling 9,940 transactions.
In its online publication, HMRC stated that current monthly property transaction levels are similar to those recorded at the end of 2019, prior to the COVID-19 crisis.
Key details published by HMRC include the following:
- The provisional non-seasonally adjusted estimate of UK residential transactions in October 2022 is 110,850, 29% higher than October 2021 and 3% lower than September 2022.
- The provisional seasonally adjusted estimate of UK residential transactions in October 2022 is 108,480, 38% higher than October 2021 and 2% higher than September 2022.
- The provisional non-seasonally adjusted estimate of UK non-residential transactions in October 2022 is 9,940, 5% lower than October 2021 and 3% lower than September 2022.
- The provisional seasonally adjusted estimate of UK non-residential transactions in October 2022 is 10,110, 1% lower than October 2021 and 2% higher than September 2022.
However, some experts have said that the figures quoted are not in line with the ‘economic reality’ of the bigger picture the UK is facing right now.
“On the frontlines, it’s now a very different story,” commented Lewis Shaw, founder of Teesside-based Riverside Mortgages.
“The phones have stopped ringing, buyers are holding off, and with the World Cup and Christmas upon us, most people have decided to sit tight and wait until next year.”
“That said, I still think the doom-mongers will be proved wrong and that a reduction of 10% to 15% in asking prices merely takes us back to pre-COVID levels, and as long as you’re able to negotiate a price reduction along the chain, I’d say most people should get on with it as it becomes a zero-sum game.”
A gradual return to normality
Speaking on behalf of mortgage broker Coreco, managing director Andrew Montlake said that even though the data published by HMRC does not take into account the economic turbulence of the past couple of months, transaction levels are indeed beginning to head back to some level of normality.
“The fact that the mortgage market has now stabilised and that rates are not set to peak as high as we thought has brought some confidence back into the market, despite the predicted long recession that lies ahead,” he said.
“After two years of surreal house price growth, some froth had to come off the market, and that will drive transaction levels rather than destroy them.”
Elsewhere, chief executive at later life lending platform Air, Stuart Wilson, said that the figures came as no real surprise to those who have been monitoring activity on the UK real estate market.
“Rising interest rates and soaring inflation have all contributed to a challenging climate; however, the robustness of the UK housing market should not be underestimated,” he said.
“Indeed, UK residential transactions have shown their typical stability in recent months and have remained at levels comparable to late 2019, before the pandemic.”
“While economic data like this is an indication of market trends, we should not lose focus on the reality faced by advisers and their clients every day.”
“Advisers need to be actively seeking to speak to clients about their options and helping them to understand that it is less about the headlines and more about what is right for their individual circumstances now and in the future.”
Time is ticking for landlords to get on board with the government’s new minimum energy efficiency ratings, set to come into force by April 2025. At this point, it will be a legal requirement for all rental properties in the UK to have an EPC energy rating of C or higher.
Those who fail to meet the new requirements face heavy fines and will be legally barred from allowing tenants to reside on their properties.
Even so, research conducted by Shawbrook suggests that around 70% of UK landlords still have properties in their portfolio with an EPC rating of D or lower. Worse still, almost four in ten (38%) of landlords have portfolios that consist exclusively of rental properties with a D rating or less.
As things currently stand, landlords are able to let out properties to tenants with a D rating or higher. But as this is considered insufficient to support the UK’s ambitious energy-efficiency goals for the next decade, all rental properties will be legally required to have a minimum C rating in England and Wales by April 2025.
On the whole, the UK is aiming for a sizeable 80% reduction in overall emissions by 2050.
Average costs are increasing
The longer private landlords wait to make the necessary improvements to their properties, the higher the likelihood they will face higher costs to do so. It is currently estimated that the average cost of bringing a D (or lower)-rated property up to a C standard is around £2,000. But as material and labour costs continue to increase, these costs are almost certain to rise over the course of time.
Among landlords who still have an active mortgage, almost 80% own at least one property that does not meet the upcoming C rating requirement. Given the time required to organise and conduct what can often prove to be the extensive renovations required to bring a property up to scratch, landlords are once again being urged to take action as soon as possible, rather than waiting until the last moment.
“It’s likely that efficiency standards will become tougher in the future, which is just one of the reasons that landlords should take note of these proposals and start making a plan,” warned Emma Cox, Managing Director of Real Estate at Shawbrook.
“Landlords should know that they are not alone in this. Lenders, including Shawbrook, are working hard to help drive awareness of regulatory change, support creative product options, and offer practical support to customers and partners.”
“Standard products like bridging finance can also play a role in securing the future of the sector.”
“During such a challenging period for the UK in general, we remain committed to bringing together all industry stakeholders to develop the conversation around EPC and to make real progress towards our shared goals”.
The most energy-efficient property improvements
With government incentives available for a limited time only, landlords stand to make considerable savings on a wide range of energy-efficient home improvements by acting early.
Some of the most popular improvements landlords already make to their less energy-efficient homes include the following:
- More efficient insulation.
- Larger windows and doors.
- Draught exclusion.
- Double or triple glazing.
- Solar panels.
- Upgraded lighting.
- Rainwater harvesting.
- Heating, recovery, and ventilation systems.
- Smart boilers and heating systems.
- Appliance upgrades.
With bridging finance, such upgrades can be funded with a fast-access, short-term loan designed for prompt repayment after six to 18 months.
The term ‘secured loan’ is used in reference to any type of loan that is secured against the borrower’s assets. A typical example of this would be a mortgage, which is secured against the applicant’s home.
But this is just one of many different types of secured loans available, some of which can be secured against a much broader range of valuable assets. From homeowner loans to secured commercial loans to bridging loans, asset ownership can open the door to a long list of secured lending products.
Who can take out a secured loan?
Flexibility and accessibility are two of the biggest points of appeal for secured loans. If you own your own home or a business property, you are almost guaranteed to be eligible for a secured loan.
The amount you can borrow will be determined by how much equity you have tied up in your home or other assets. Lenders typically restrict their secured products to a maximum LTV (loan to value) of 90%.
This means that if you have £200,000 equity in your home, you may be able to borrow up to £180,000.
How can I get a good deal on a secured loan?
Irrespective of the type of secured loan you apply for, the key to getting a good deal lies in adopting a proactive approach.
Specifically, the five tips and guidelines below could help you secure a competitive deal from a top-rated lender:
- Never pay broker fees: Working with an established broker can simplify the process of getting a great deal on a secured loan. However, the only brokers worth doing business with are those that do not impose fees on the applicant. The whole point of working with a broker is to get a better deal, so it makes no sense to work with a broker and ultimately end up paying more. If broker fees are payable, apply elsewhere.
- Borrow at a lower LTV: The tendency among secured loan applicants is often to apply for the maximum sum they can borrow. While it can be tempting to take out a loan larger than you need, this can also pave the way for elevated borrowing costs. Lower LTVs almost always mean significantly lower interest rates and, in some instances, reduced fees. Always remember that secured loans are paid as financial products, meaning that the more you borrow, the more you can expect to pay in return.
- Improve your credit score: If doing so is viable, taking a look at your credit score with the aim of improving your profile is worth doing. Your credit score will play an instrumental role in determining how much you are charged, by way of both interest and additional borrowing costs. If your credit score is on the low side, you may need to target specialist lenders who offer ‘ subprime’ loans for poor-credit applicants. If in doubt, delay your application until you have sought advice. Remember that each declined loan application could further affect your credit score.
- Consider short- and long-term options: Interest rates and borrowing costs are also tied to the length of the loan repayment term. On one side of the scale, you have the traditional mortgage—repaid over the course of several decades, amounting to a major long-term expense. On the other hand, you have secured bridging loans, designed to be repaid within a matter of months and charged at rates as low as 0.5% per month. Always remember that the faster you repay your secured loan, the less you will pay for the facility.
- Always get multiple quotes: It is always advisable to get at least a handful of quotes from different providers before making your final decision. This will give you a good idea of the options available while helping you secure a competitive loan from a reputable lender.
What are the downsides of secured loans?
Before applying for a secured loan, it is important to carefully consider the two main drawbacks of secured lending:
- You need to own assets of value to be eligible for a secured loan.
- Your home is at risk of repossession if you do not keep up with your repayments.
Organising an obligation-free consultation with your preferred lender is therefore essential before committing yourself and your assets to a secured loan of any kind.
In the face of an unprecedented living cost crisis and a looming economic downturn, the UK’s housing sector continues to go from strength to strength. New figures released by Handelsbanken indicate unwavering optimism in both residential and commercial property among investors looking to capitalise on skyrocketing demand for affordable homes and business units.
The figures from Handelsbanken suggest that almost 50% of professional landlords (those with a minimum of four properties in their portfolios) plan to invest in one or more properties over the next 12 months. Meanwhile, 35% said they would hold their portfolios at their current levels, while just 7% indicated their intention to liquidate one or more of their assets.
Handelsbanken’s first SME Landlord Survey also revealed that more than 85% of landlords are anticipating an increase in demand for residential property rentals over the coming year. Commercial property landlords also indicated optimism for the year ahead, with 63% predicting an increase in demand for commercial units.
Interestingly, 89% of the landlords who took part in the poll said they expect average rental yields to decrease slightly within the next 12 months.
Diversification is a priority for many landlords
73% of landlords indicated their intent to diversify their property portfolios going forward. Houses remain the biggest draw for landlords planning property purchases (66%), followed by 38% who plan to buy flats, 34% setting their sights on houses of multiple occupations, and 32% planning to purchase commercial retail units.
Meanwhile, London continues to gain the lion’s share of attention from landlords planning to diversify their portfolios. 53% said they intend to buy properties in and around London, followed by 40% looking to buy into the East of England, and 22% who see the East Midlands as the most attractive location to purchase new properties.
A resilient and buoyant market
Speaking on behalf of Handelsbanken, chief economist James Sproule highlighted how even the escalating living-cost crisis is having no major impact on the buoyancy of the UK property market.
“Recent house price growth shows how property has shown its resilience against economic doom and gloom and the cost-of-living squeeze,” he said.
“Landlords are anticipating that a shortage of rental properties will help keep prices buoyant, particularly as working patterns continue to adjust to the post-pandemic world and people seek to move back to big cities, particularly in popular areas such as London, which is also seen to be better placed to ride out the next series of economic challenges and opportunities.”
“Landlords went through a tough period following the COVID-19 pandemic, with residential property transactions falling by more than half and business investment contracting. But the sector has survived and is now looking forward.”
“The 2022–23 financial year is forecast to see a further softening in residential property transactions as vendors wait for the right buyer rather than accept any perception of loss in value.”
Buy-to-let investments boom
The figures suggest that, far from a decline, the withdrawal of the stamp duty holiday and lingering economic uncertainty have actually triggered a major spike in buy-to-let investment interest. Buy-to-let remains an attractive option for newcomers and established investors alike, due to the near certainty of generous rent yields and sky-high capital gains.
This is particularly true in and around London, where the latest Zoopla Rental Index pins the average monthly rent at a huge £1,698. That is more than 15% higher than the same time last year and is expected to continue climbing.
Remote and hybrid working models are sustaining high levels of demand for rental properties with private gardens and for those in proximity to public parks. While this continues as the new norm, investors will continue to set their sights on homework-friendly homes as uniquely attractive investment opportunities.