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When Is A Bridging Loan A Better Choice Than A Secured Loan Or Mortgage?

Technically speaking, bridging loans are secured loans in their own right. However, there are basic differences between a bridging loan and conventional secured loans. Bridging loans are used for a shorter period and do not require monthly payments, whereas traditional secured loans do require monthly payments and on average are taken over a much longer term. Term loans are loans requiring monthly payments over a set period or term.

All loans secured against land or property in the UK are classed as ‘mortgages’, a legal agreement between the lender and the borrower where the lender takes a legal charge on the title of the borrower’s security in return for the loan. This basically means that the security cannot be legally sold or refinanced until the secured loan is repaid in full, at which time the lender’s charge is removed from the title register.

Depending on requirements and personal preferences, you may find that either a bridging loan or a traditional secured loan is more suitable for your needs.

Traditional Secured Loans

The most common and conventional type of secured loan is a standard residential mortgage where a borrower uses the loan to help fund the purchase of a property in which they intend to live. In this case, the lender would have a priority or first charge over the property title and payments would be made monthly and over an agreed term until the loan plus generated interest are repaid in full. Once owned and prior to the initial secured loan being repaid, additional borrowing, if needed, can either be arranged via a remortgage or an additional secured loan known as a second charge loan. A second charge loan is also listed on the title register but ranks in importance lower than the first charge loan.

Secured loans are considered minimal risk to lenders as the lender has an insurance policy in the form of a legal charge over the borrower’s property or land assets. If the loan is not repaid in full and on time the lender will then have the option to take possession of the security, which can then be sold to recoup the loan monies owed. Following a repossession, the first charge lender receives payment in full before the second charge lender receives any payment from funds remaining. The borrower remains liable for any shortfall following the sale.

Organising a conventional secured loan can be complex and time-consuming. In the case of a mortgage or similar property loan, it could be several weeks or months before the underwriting process is complete. In addition, you may find yourself subject to extensive credit checks and scrutiny. Even though you are providing security in the form of land or property asset(s), your credit report could still impact your eligibility of obtaining a traditional secured loan or prevent you from accessing market-leading secured loans, as monthly payments are required with this type of loan and the lender will be worried about your track record of paying back.

Bridging Loans

Bridging loans were once niche financial products but are now slowly but surely gaining traction with both consumers and commercial borrowers. The primary difference between bridging finance and a traditional secured loan is the speed and simplicity with which the bridging funds can be released and that regular monthly repayments, unlike traditional types of secured and term loans, are not required.

Some specialist UK bridging lenders are very flexible when it comes to credit history. Even with those lenders that take a harsher line on poor credit, provided a suitable explanation can be given, it is often not the deal breaker it would be with more traditional types of secured finance, especially those requiring monthly payments. Provided the loan is satisfactorily covered by the security on offer, the security type is agreeable to the lender and the repayment vehicle or exit method to repay the loan is feasible, then all loans are normally considered. This enables much quicker and easier underwriting than with traditional secured or term loans.

When Bridging Loans Are Better?

Given the above, several common scenarios dictate when bridging loans may be preferable to conventional secured loans or term loans. A few examples would be:

  • The borrower’s security is not considered acceptable by conventional lenders. Bridging specialists tend to be far more flexible by way of eligible assets and property. They will consider land, partly completed properties etc., as security. Whereas traditional secured loans or terms loans are generally only considered for fully completed properties. One exception to this rule would be a self-build mortgage.
  • Any instance where the funds are required quickly, such as purchasing a property at auction.
  • When the borrower would prefer to repay the loan in full as quickly as possible, rather than spreading the repayments over several years. Bridging loans tend to be arranged for shorter periods than are available with traditional secured loans or term loans and can often be repaid prior to the end of the agreed period without penalties.
  • If the borrower’s credit history excludes them from conventional secured loans, requiring monthly payments.
  • If a borrower’s provable income would not service repayments of a secured or term loan.
  • All cases where the borrower’s application has already been rejected (perhaps repeatedly) elsewhere.
  • When significant sums of cash are needed quickly, such as to cover urgent expenses or for rapid repairs/alterations to a property or to pay tax bills.

To conclude, bridging finance is generally quicker and easier to arrange than traditional secured term finance. However, depending on the circumstances, both bridging loans and conventional secured loans can represent exceptional value for money.

Source: Shout Out UK

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Bridging loans grow in popularity amongst property investors

Bridging loans have become increasingly popular amongst property investors keen to expand their portfolios, new data has revealed.

The latest ‘Bridging Trends’ report revealed for the second consecutive quarter, this type of finance was most commonly used to purchase investment property.

According to the data it contributed to 25% of all lending during Q2 2019, up from 22% in the first quarter of the year.

According to the businesses compiling the data, bridging finance was being used by property investors who needed to move swiftly to capitalise on opportunities while prices were low.

Kit Thompson, director of short term lending and development at Brightstar Financial, said: “There continue to be opportunities for property investors to grow and diversify their portfolio and bridging finance provides a fast and flexible form of funding that enables them to leverage their capital and make the most of these opportunities.

“This is a trend we expect to see continuing well into the future.”

Other uses for bridging

According to the report, a traditional chain break was the second most popular use for bridging finance in the second quarter – this contributed to 18% of lending.

Borrowers were also using bridging loans for business purposes – this area of lending went up from 12% in the first quarter to 18% in Q2.

Dale Jannels, MD, at impact Specialist Finance, said: “I’m not surprised that chain break finance was the second most popular reason for obtaining bridging finance in the last quarter.

“We’re in uncertain times and this uncertainty transfers into property transactions also.

“Customers are also being gazumped and looking for short-term finance assistance to speed up the purchase of their dream property.  Add in the complexity of many property transactions and the high-street lender will say no, yet short-term finance might get them over the initial line.”

Impact Specialist Finance and Brighstar Financial are among a number of businesses which provide figures for the Bridging Trends report. The others are MT Finance, Clever Lending, Complete FS, Enness, Positive Lending, Pure Commercial Finance, Y3S, and UK Property Finance.

Lending figures

According to the report bridging growth stabilised in the second quarter, with bridging loan volume transacted by contributors hitting £184.82 million, a £500,000 decrease on the previous quarter (£185.32m).

Average LTV levels increased by 1.55% in the second quarter to 52.85%. The average monthly interest rate in Q2 was 0.79%, representing an increase of 0.05% on the previous quarter.

The number of regulated loans transacted by Bridging Trends contributors decreased from 38.3% in Q1 2019 to 37.5% in Q2 2019.

Second charge loan transactions, meanwhile, saw a slight increase in Q2, up from 18.3% in the previous quarter, to 18.7%.

The average term of a bridging loan remained at 12 months while the typical completion time on a bridging loan application in the second quarter increased by four days to 44.

Gareth Lewis, commercial director at MT Finance said: “Now that Boris Johnson has been announced as the new PM and has made Brexit top of his to-do list, this should help give the market the certainty it needs.

“If the rumours of a stamp duty overhaul are true, we expect the change to ease the pressures of regulation and excessive taxation on UK property investors. It will be interesting to see what happens over the coming months, but hopefully the sector can look forward to buoyant growth.”

By Kate Saines

Source: Mortgage Finance Gazette

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Bridging Loans – Why You Need Them, When You Need Them & How To Apply For One

When utilised properly, bridging loans are among the most effective commercial finance products. We try to answer a few burning questions about such loans in this post.

If you operate in the property market, you already know that time is of utmost importance. A good deal can become unreasonably expensive if you can’t close it in time. Worse yet, someone else is almost always ready to swoop in and steal the deal from you.

In short, if you can’t move at a rapid pace, you’ll only make things difficult for you.

But then again, it’s never easy to get property deals worth hundreds of thousands of pounds through without having some time to think, consult with people and arrange for funds. The last part – that of raising money – eventually turns out to be the bottleneck.

Breaking that bottleneck so that investors, developers, landlords and regular buyers can ‘realise’ their dream deals is the prime focus of all bridging finance products.

Before We Start – A Quick Look At What Bridging Finance Really Means

There are quite a few myths that regularly float around bridging loans, especially amongst first-time borrowers. For now, we will just try to clear the air by defining what bridging loans are.

What Are Bridging Loans?

Bridging loans are short-term loans taken (usually) by commercial entities to help ‘bridge’ the gap between required funding and available (or soon to be available) funding.

It’s common for people in the property market to use the terms ‘bridging loans’ and ‘short-term loans’ interchangeably – but that’s not always correct. An easier way to differentiate between the two is this: all bridging loans are short-term loans, but not all short-term loans are bridging loans.

Example

Let’s say you are a property developer. You already have an active project that’s nearing completion. You expect it to complete within next 10 months. For now, you’ve come across a good buy to let opportunity that you don’t want to miss out on. The only problem is, the seller wants you to make an initial deposit of £200,000. You already have active development finance on your project, so you know it’ll be tough to get a buy to let loan.

In this case, a bridging loan can be the most ideal way out. You can, for instance, take a six-month bridging loan with a fixed interest rate. This loan will cover the initial deposit for your new project – and can be paid back once the active project gets completed (i.e. your exit strategy will hinge on the competition of your active project).

Here’s how the numbers would typically work out for such a case:

  • The market value of the property to be used as security: £400,000
  • Maximum LTV offered by the lender: 80%
  • Maximum amount that can be borrowed: £320,000
  • Actual amount borrowed: £250,000
  • Initial deposit to be made: £50,000
  • Balance bridging loan amount: £200,000
  • Applicable interest rate:5% per month
  • Loan term: 12 months
  • Payable interest: £1,250 per month

Why Are Bridging Loans Used? Who Are They Aimed At?

There’s really no limit to the number of reasons people and businesses use bridging loans for.

Even though, at Commercial Finance Network, our bridging finance services focus on the property market, it’s important to note that bridging loans are used across all industries and sectors. They may take different names and forms, but the idea remains the same.

Bridging loans are aimed at people who are looking to enter the property market via any of the regular channels (buy to let, convert, develop or invest). Essentially, if you are a property developer, landlord or investor, you can and should use bridging loans as a viable financing option.

Here’s Why Bridging Loans Are Popular

  • Easy To Get: Bridging loans are easier to get if you have your business and personal credit history in good health. Even when you don’t, lenders on our panel might be interested in your application. You can get a loan for an amount as high as £200,000.
  • Fast: There’s no need to waste time. When you work with an industry-leading whole of market broker like Commercial Finance Network, you get a decision on your bridging loan application within 24 hours. More importantly, we make sure that the lender releases the funds to you swiftly.
  • Flexible: Bridging finance is incredibly flexible. It’s just a short-term loan, but can well be extended up to 12 months, should you feel the need to. Moreover, most lenders are willing to offer interest-only repayments (subject to the viability of your exit strategy).
  • Cheap: Bridging loans we broker come with lower-than-market interest rates. Some of our lenders offer interest rates as low as 4% per month. It should, however, be noted that bridging finance is more expensive than long-term mortgages.

When Should You Consider Applying For A Bridging Loan?

Bridging loans are a specialty commercial finance product. Therefore, to make the most of what they have to offer, you need to know and understand when they are a good option.

Here are some common scenarios that are tailor-made for bridging loans:

Buy To Let Projects

Buy to let projects are well served by bridging loans – especially when your existent credit line/loan is fully invested in another active project.

Residential/Commercial/Mixed Use Development

Development projects, more often than not, end up stretching your budget too thin. There are a million fronts to fight on, and it’s not at all uncommon for developers to run out of money. Such situations – before the project starts or is already in progress – can be taken care of using a customised bridging loan.

Conversions/Refurbishment Projects

If you want to undertake conversion/refurbishment projects, you can take out a bridging loan to cover the costs.

Important: Know What Your Exit Strategy Is!

Bridging loans are incredibly useful when your back is against the wall. That, however, doesn’t mean that they can replace conventional, long-term financing options.

A bridging loan is best viewed as a temporary arrangement – one that saves the day.

Therefore, before you get into a bridging loan contract, it’s important for you to know how you’re going to exit. Common exit strategies include:

  1. Selling the property (being used as security)
  2. Getting a more robust, long-term development finance package or buy to let loan
  3. Placing a mortgage on your new property

Bridging Loans Timeline

A traditional mortgage would take weeks to ‘realise’. Bridging loans, thankfully, are faster.

When you work with us, we make sure that you get a decision from lenders within 24 hours. Once you decide to go ahead with a particular quote, the lender will proceed with the valuation of your property and assessment of your credit file. Everything said and done, a commercial bridging loan can go through within a matter of days.

Finally, How To Apply For A Bridging Loan?

If you don’t want to involve a broker in the process, you can approach lenders directly. This, however, is an approach fraught with risks. When you aren’t familiar with the lender’s approval criteria, you always have a very high chance of getting multiple applications turned down. This puts a dent in your credit score, making it even more difficult for you to get approved.

Such hassle can be avoided with ease, and for a very reasonable cost by working with a leading whole of market broker like Commercial Finance Network. We have on board a panel of UK-wide specialist lenders who are known to offer low interest rates and high flexibility of repayment.

Applying for a bridging loan is easy – just complete this form or call us on 03303 112 646 to get started.

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Bridging loan figures suffer slight fall but outlook is positive

Bridging lending has fallen slightly during the first quarter of the year but strong competition and signs of average loan size increases indicate a market which is on an ‘upward trajectory’.

That’s according to the latest figures from West One which has released its Bridging Index showing gross annual bridging lending reached £5.5 billion in Q1 2019.

This was a slight decrease of 2.6% on the previous quarter, which yielded a high of £5.7 billion. But West One said it was always going to be challenging to maintain this powerful growth trajectory.

What’s more, according to its estimates, the average loan size increased by 11% through the quarter, compared to Q4 2018, which was the highest performing quarter of last year.

Trends: ‘Bridge-to-let’

As well as releasing lending figures, the West One Bridging Index also analysed trends within the market. It said competition had been maintained thanks, in part, to the wealth of new bridging products to enter the market.

New ‘development exit’ loans to help builders transition from repaying their development facility to obtain the sales values they want to achieve have been created.

But West One said it had also noticed increasing demand for ‘bridge-to-let’ products, which enable landlords hit by tax relief changes and affordability stress tests to bring derelict properties up to scratch to add to their portfolios.

Interest rates

West One’s data also revealed bridging finance interest rates had fallen to their lowest levels, with a Q1 average of 0.95% per month.

Factors contributing to this included a stable Bank of England base rate, strong market competition and the continued interest from new entrants combined with well-funded players maintaining attractive rates.

West One said the fall in rates was also driven by the increase in regulated bridging that was priced at a lower rate of interest. This, it explained, had meant good value for borrowers, resulting in the continuing interest and performance of the sector.

Stephen Wasserman, managing director, West One Loans: “At West One, we’ve seen robust growth in our bridging service this year, which includes completing one of our largest loans.

He added: “It is positive to see the average loan size increase, too. With the ASTL reporting a record number of applications among their membership, it’s clear that bridging finance is still very much on an upward trajectory.”

By Kate Saines

Source: Mortgage Finance Gazette

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London brokers increasing their amount of international bridging

Based on observations and conversations over the past year, there appears to have been an increase in the search for international funds coming through London brokers.

A growing number of London brokers it seems, are being asked to access money by borrowers keen to do one of three things: either purchase an international property, carry out work on a property based overseas or, increasingly, release money from a property based in continental Europe in order to spend on property or business in the UK. In each of these cases there is another property that is being leveraged on a short-term basis in order to satisfy a development or business need.

There could be a number of reasons for this uplift, but it increasingly seems to be the case that if you have an international property and can’t find funds abroad then you look to London as an international finance centre. For flexible, short-term funding, London is still the place to come, even despite Brexit.

What is interesting is that the people turning to London brokers for help are not even all UK nationals, they are a number of different nationalities all of whom have property on the continent that they need to leverage on a short-term basis.

It makes sense that international brokers like Enness and Knight Frank will be approached for this business as they have international connections so may be contacted in multiple jurisdictions, but the demand seems to be wider than this with a much wider range of brokers being approached. It is not exclusive to London brokers either, but the demand does seem to be predominantly in this region.

The key reason seems to be that short-term finance is not generally available across the continent, but as awareness grows of bridging finance and how useful it is, this is increasing demand. And the key place to realise this demand is in London and the UK.

There has also been an uplift in UK business people releasing capital from properties they may own abroad in order to capitalise on business opportunities here. Many UK business people, especially developers, will have unencumbered property abroad. They are now seeing the opportunity to leverage it for their business or for property development. It is this segment of the market that is showing the greatest potential. This fast turnaround of short-term money can really make a difference to businesses needing to invest, or even needing working capital.

It is an exciting market and what that looks set to increase throughout the year as awareness of the possibilities increase, not only in the UK but across Europe.

Source: Mortgage Introducer

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Bridging market grew by 15% in 2018

Members of the Association of Short-Term Lenders (ASTL) wrote more than £4bn of bridging loans in 2018, representing an increase of 14.8% on 2017.

Figures compiled by the ASTL’s auditors from its bridging lender members for the fourth quarter of last year show an increase in the value of loans completed, outstanding loan books and applications in 2018 from the year before.

Benson Hersch, chief executive of the ASTL, said: “Our latest data survey shows continued growth in the bridging sector, with the value of loans completed in 2018 up by nearly 15% on 2017, the value of applications growing by more than 13% and the value of outstanding loan books also higher than the previous year.

“These results show that, in an uncertain economic environment, our members are continuing to provide useful, flexible finance for a whole range of purposes, and they are doing so whilst maintaining a commitment to high standards of underwriting.

“This is very encouraging and indicates a sustainable sector that is built on robust foundations.”

During this period, the value of applications increased by 13.4% to nearly £21.5bn and total loan books increased by 3.6%.

The value of loans completed for the quarter ending 31 December 2018 increased by 13.5% on the previous quarter and the value of applications increased by 0.3%, although the value of outstanding loan books decreased by 7.1% during this period.

Source: Mortgage Introducer

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Could bridging loan business surge in 2019?

A plethora of TV property programmes have over the years inspired a generation of property investors and restorers in the UK, which has given a boost to property auction houses and helped fuel an increase in bridging loan activity.

In addition, changes in buy-to-let have caused landlords to chase opportunities for better yields. Some investors have made good returns by purchasing properties at low prices and renovating them to increase the value and potentially derive attractive rental yields.

The Association of Short Term Lenders (ASTL) recently reported that bridging lending recorded a 21% increase in the 12 months to September 30th, 2018.

Buying rental property at auction

For those looking to invest in rental property at auction, there are time pressures around financing.

You must pay 10% of the property auction price on the day and settle the full amount within 28 days of the auction taking place. Some houses may offer 56 days, depending on property and auction house rules.

Securing a mortgage in that timeframe is generally impossible. Regardless of timescales, if you are purchasing a property that is uninhabitable (no functioning kitchen /bathroom), a mortgage lender generally would not extend a mortgage. This is where a bridging loan comes in.

A bridging loan is a form of short-term lending and can be arranged in much less time than a buy to let mortgage. Turnaround times are typically 28 days, although one of the lenders we work with has the ability to pay out funds from as little as two weeks from application.

This means you can go to auction with a timely means of securing the finance you need to purchase your property.

Bridging loan uses

Bridging loans are not just useful for auctions.

They can help to finance a number of scenarios such as renovation work on a property, with the aim of either selling the building for capital growth once the work has been carried out, or letting it out (when it is in a suitable condition) for rental income.

A bridging loan can also be used to purchase land for future development, or (as mentioned above) to purchase uninhabitable property.

Borrowers can usually secure bridging finance on up to 75% loan to value and, at the time of writing rates start from 0.44% (this is subject to change).

Exit strategy                                                                                                                                            

When using a bridging loan, it is vital you have a clear exit strategy – i.e. a definitive plan on how you will pay it off.

Bridging loan rates are more expensive than buy to let mortgage rates and they are charged monthly not annually. Not having a robust method of repaying the loan risks unnecessary and expensive repayments at best, which could lead to financial hardship.

No broker should ever arrange a bridging loan for you without planning the exit, and if there is no viable way to pay off the bridging loan, they should not recommend a bridging loan to you.

An exit strategy could be as simple as the intention to sell the property to pay off the loan.

It could also be that the property, once renovated, is intended to be used as a rental property. In this case, the borrower may opt to pay off the bridging loan with a buy-to-let mortgage. The property would have to be in a suitable condition to meet lender criteria and have enough equity to satisfy the lenders’ loan to value limits.

In cases where a business has taken out a bridging loan, future operating cash flows may be used to pay off the loan. However, a projection of future cash flow is not a secure exit strategy.

How commercial bridging loans can contribute to solving the housing crisis

Land availability and securing planning permission can be tricky propositions.

Yet the declining UK high street could be a viable means of helping to create living spaces.

A report from the Federation of Master Builders, in 2017, suggested that as many as 400,000 new homes could be built or created through conversions above shops.

The conversion of empty office blocks or shops into homes, could save greenfield and brownfield belts, whilst supplying much-needed homes from existing structures, saving on tools and materials by recycling buildings.

Borrowing levels on a commercial bridging loan can be available up to several million pounds and financing can be completed in two to four weeks.

On commercial property, you can borrow up to 75% loan-to-value, with most lenders averaging at 65%.

Exit strategy on a commercial bridging loan

Once again, you must have a clear exit strategy as typically any bridging loan must be redeemed within 24 months.

Your options are to refinance to a term loan, which is usually secured for three or more years for commercial lending. This suits a scenario where a building has been renovated for commercial or residential letting, and the borrower is interested in retaining the investment and generating monthly income.

Alternatively, you may look to sell the building for capital growth and pay off the outstanding loan, providing enough value has been created in the property.

As the housing crisis continues to attract concern and political debate, this section of the bridging market could be set for growth in the coming years.

Source: Mortgage Introducer

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Bridging loans provide cost-effective solutions

As indicated by falling transaction volumes over the past 12 months, selling a built asset is never easy in today’s market, whether it’s a residential or commercial property. Offers that realise the full value of an asset have, in my experience as a specialist finance loan provider, taken longer than normal to materialise over the past year, especially when a developer is selling multiple units at a time.

Some developers will opt to reduce their prices for a quicker sale – and we understand that, especially when they’re waiting for multiple sales rather than one.

But others, equally understandably, are wary of dropping their prices and want to realise what they believe to be the full value, even if that means waiting longer to find the right buyer. For those developers, companies such as ours can offer development exit bridging loans to give them some breathing space, and we’re seeing more and more developers seeking that kind of facility.

There are a number of reasons a developer might want such a loan. Development finance for the project at hand might have tight terms that require payment within a few months of completion. Active developers might also want to free up equity to fund other schemes while they wait for a sale at the right price. These developments are completed, often to time, and are effectively de-risked – so why shouldn’t developers be able to pull some money out of them?

Whether or not a developer is looking for this type of loan is naturally very dependent on the term they have on their development finance, how complicated the build was, any time or cost overruns, and how much time they have to sell, but nonetheless it is a trend we are seeing across both residential and commercial markets. It is not just our existing clients that are seeking development exit loans; we are seeing a mixture of smaller, new developers alongside larger, more established players looking for this type of flexible finance.

Bridging loans

For the most part, developers simply want more time to find the right buyer, and in most cases they’re seeking a like-for-like refinance of existing loans. They might have a development loan reaching term end, for example, and a bridging loan from a company like ours can give them piece of mind by effectively increasing the term on their finance.

These bridging loans are not necessarily more expensive either: at the lower end of the loan-to-value spectrum we offer rates starting at 0.55% a month, and we do not charge any exit fees. That means that, as well as providing developers with more time, these loans can also sometimes be more cost-effective.

It is something we have been doing for years, but now that more companies are looking for this type of solution in today’s market, we hope to be more flexible than ever. We understand that circumstances change quickly on development projects. That’s why, in some cases, we can offer loans with an 18-month term, which is longer than for a normal bridging loan.

Buy-to-let

We’ve also had cases where investors looking to sell a number of residential properties have moved into one of the units, and the loan then becomes a regulated bridging loan. Essentially, if there are variations along the way or bumps in the road, we’ll be able to accommodate it – and we have a large, dedicated loan team on hand to see to our clients’ needs.

Unlike some other bridging lenders, we also provide a full spectrum of finance products, including development finance, which means we understand developers more than most. Last year, we also launched longer-term second charge mortgages on both residential and buy-to-let securities and we have exciting plans to launch into other areas of lending next year in the hope that it gives our clients surety of not having to jump between different lenders, offering them a one-stop shop for their financing needs.

Development exit bridging loans are a product that we are very much used to offering, and the main variable on our part is the length of the loan term. When a developer is selling multiple units, such as a residential apartment block, then we are very used to working with them to come up with the best strategy.

Development finance

We believe the increased flexibility of companies such as ours is part of the trend that is seeing smaller, specialist lenders stepping in and providing ever-more cost-effective solutions for developers, which helps get more homes and offices built. Even with Brexit and all the concerns people have about the housing market, there is still a shortage of property and there are pretty big targets to hit to meet housing needs, which makes specialists like us more important than ever.

Our development finance starts at 7% a year, and that is getting close to the high street and other established lenders. Specialist lenders like us can also give developers more leverage – and clearly, cash is very important when it comes to development. Having the liquidity to make sure the project gets finished correctly, and on time, is vital. The ability to push the loan-to-value to a higher level than the high street or more traditional development lenders is therefore an increasingly attractive option.

By offering the full spectrum of financing options, we hope we can build long-term relationships with our clients, and give them the confidence that we will be with them no matter the situation. In that way, development exit bridging loans, as well as our upcoming buy-to-let product, feel like a natural extension of what we have always done and will continue to do.

Predicting what will happen to the residential and commercial markets over the next year is difficult, but as long as transactions are taking longer than usual, bridging loans can offer developers the time and support they need to sell their high-quality completed assets at the right price.

Source: Property Week

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Bridging finance industry is buoyant according to new survey

The bridging finance industry is in promising shape and continues to flourish. That’s the conclusion of Gareth Lewis, commercial director at MT Finance (mtf) after a new survey showed a spike in demand.

The desire for bridging loans increased in the third quarter of 2018, despite the traditional summer slowdown, according to the latest Broker Sentiment Survey conducted by bridging lender mtf.

Demand for bridging finance grew in the third quarter of 2018, with 48 per cent of brokers experiencing a rise in bridging loan volume, up from 38 per cent in the second quarter of 2018. And just 17 per cent of brokers did not experience a rise in bridging loan volume in Q3 2018.

Feedback from brokers points to a strong need for specialist lending but the geographical spread of bridging loan demand narrowed in the third quarter the year, with demand in the North West, South West and Scotland dropping from the previous quarter.

The South East saw the biggest demand for bridging loans in the UK at 48 per cent, up from 30 per cent in Q2. The second highest area of demand was London, at 41 per cent.

For the third consecutive quarter, funding development projects was the most popular reason for taking out a bridging loan at 31 per cent. Business purposes was the second most popular reason at 21 per cent, up from 16 per cent in the second quarter of 2018.

However, 66 per cent of brokers said the bridging loan process is longer than it was 12 months ago, while the majority, some 48 per cent, suggesting three to four weeks was the average length to complete a bridging loan. Meanwhile, some 21 per cent indicated that bridging loan cases generally took two to three weeks to complete. Of 113 brokers polled, 61 per cent blamed solicitors as the main reason for delays, followed by the valuer at 16 per cent.

And Lewis said: “The bridging finance industry is in promising shape and demand continues to grow, particularly from property investors looking to fund development projects in London and the South East.

“However, speed has always been a vital element in bridging finance and it is essential we don’t lose sight of this. It is important that all parties involved- the lender, lawyer, valuer and the broker, move swiftly to complete to the borrower’s schedule.

“It is important we stay true to the fundamentals of bridging: providing borrowers with fast access to the capital they need in a responsible and sustainable way and not fall in to the more traditional computer banking model.”

Source: Bridging Directory

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Bridging can offer the solution to HMO compliance

The new Houses of Multiple Occupation (HMO) rules came into effect last week, which means any landlords whose HMO properties are not up to scratch in terms of the minimum room sizes and amenities could face serious penalties.

The new rules came into play on October 1 and there is no grace period, and the consequences for non-compliance can be severe: up to a £30,000 fine, a rent repayment order, a banning order and even a criminal record.

For those who simply need to get a licence because, under the new rules, their property is now defined as an HMO, the process is fairly simple.

But for those landlords who need to make structural alterations or improvements to safety standards to comply with the new minimum room sizes in HMOs, compliance is not so straightforward.

There are only a handful of lenders that lend on HMOs and the ones that do will be more used dealing with experienced professional landlords so will expect the property to have the correct licensing and already meet the new minimum bedroom size guidelines before they will consider lending. This is obviously no good for landlords who need an injection of cash in order to fund changes to their properties to ensure they comply with the new rules.

This is where bridging loans can offer a solution.

We have already seen many people entering the HMO market, looking to purchase a large detached property in order to convert it into single living accommodation units with shared facilities and communal areas.

In these situations, a bridging loan is able to bridge the value of the funds needed to improve the property and make it suitable for owner occupation. We typically lend on a term of six months, obviously ensuring the client has an exit strategy in place – in this case, it will generally be a buy to let or commercial mortgage.

In most cases, the value if the property will not generally be enhanced, but the rental value will go up as the property becomes a fully licenced HMO with potential for multiple rental incomes.

And while we expect to see this trend continue, there could now be a spike in HMO lending as landlords scramble to ensure their properties, already defined and licenced as HMOs – meet the new regulations.

Source: Mortgage Introducer