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Guides

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GUIDES

BRIDGING

BRIDGING

Bridging loans are expensive compared to a Mortgage. You can expect to pay between 0.4% to 1.5% interest per month, depending on a variety of factors including size of the loan, loan-to-value (LTV), duration, experience and credit rating of the borrower. There are lenders that can disburse the money very quickly, but these tend to be more expensive.

Bridging is a form of short-term finance, secured against an asset,
typically property. It is used for a variety of different reasons, including:

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Buying a property at auction

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Business ventures

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Refurbishing a property

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Paying a tax bill

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Preventing a ‘chain break’

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Divorce settlements

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HOW MUCH DO YOU WANT TO BORROW?
Most specialist property lenders will offer funding from £25k to £25m (and more when it comes to development finance).

HOW MUCH IS THE INVESTMENT PROPERTY WORTH?
The value of the property will affect how much you can borrow and the rates you will be charged. Most bridging lenders will loan up to 75% of the value of a property, known as the ‘loan-to-value’ or LTV. The higher the LTV the higher the interest rate. Some lenders can offer a higher LTV, but it’s unusual unless it’s development finance. While typically based on the lower of the purchase price versus the open market value, some bridging lenders will loan against the gross development value (GDV).

HOW LONG DO YOU NEED TO BORROW FOR?
Most bridging lenders will charge a minimum interest period of 3 months, although the loans themselves may last weeks only or typically up to 18 months. Normally, if you exit the loan early, as long as you have paid the minimum interest, you will be refunded any excess interest you may have paid. Some lenders do charge exit fees.

WHAT IS YOUR EXIT STRATEGY TO PAY OFF THE LOAN?
There are only two options and the bridging lender will want to see that you have a clear exit strategy in mind:
          a) Sell the property
          b) Refinance onto a Term mortgage

Term investment mortgages will not allow improvement works. It is common for a bridging loan to be used to acquire and refurbish a property, before moving to a Term mortgage.
 

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There are three types
of interest facilities.

Which are sometimes combined depending on the lender's and the borrower's circumstances.

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Retained Interest
The interest is deducted from the Gross Loan upfront. In this case, the borrower does  not need to make monthly repayments, and the capital is  repaid at term.

Rolled Up Interest
The interest is added onto the loan and paid at the end. There are no monthly payments, with both the capital and interest paid at term.

Serviced Interest
As with Term mortgages, serviced interest is paid off on a monthly basis, with the capital repaid at term.

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In addition to interest fees, there are also other facility costs that you need to be aware of.

Arrangement Fee: 
Charged by the lender for providing the facility, typically around 2% of the value of the gross loan.

Administration Fee:
Charged by the lender to cover the paperwork and other disbursement costs.

Legal Fees: 
You are expected to cover both your own and the lender’s legal fees. These are charged on the value of the property and expect to pay upwards of £1,200 + VAT.

Valuation Fees:
This is another fixed fee, paid to the Valuer chosen by the lender determined by property value, starting from £400 + VAT. If you prefer to get a valuation done privately, ahead of taking out a loan, check with your broker if a “re-type” is allowed, i.e. will the existing valuation be usable by the lender.

 
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GUIDES

DEVELOPMENT
FINANCE

DEVELOPMENT FINANCE

Development finance is for larger scale residential or
semi-commercial projects, including ground-up builds and conversions. Loan amounts of several million pounds are not unusual.

As these schemes are more complex and can range from 18-36 months with interest typically rolled up and paid at term, loan amounts of several million pounds are not unusual. Usually split into an upfront loan for the purchase of the asset and a second loan for costs which is drawn down in pre-agreed stages as work is completed and signed-off by an independent project-monitoring surveyor.

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By providing a detailed schedule of works in advance with costs broken down, it is often possible to secure 100% of the cost of works, alongside the loan for the asset.

Development finance generally is more expensive then other forms of property finance. The higher interest rate charged by the lender reflects their risk as the project progresses through to completion. On completion, the property value will go up and you will then have the option of transferring to a lower cost loan, while awaiting sale of the units.

This is known as a Development Exit loan. The repayment is geared to the sales plan for the project including the timing of planned sales and will take into account what proportion of the proceeds you may be able to retain at each stage. If you are selling units, the lender is likely to want you to use proceeds from the first unit sales to reduce the outstanding balance until the loan gets to the point of being 60% or less of the value of the security.

 

Refurbishment Finance is used when completing light to heavy refurbishments of a residential property, with or without the need for planning permission or building regulation approval. This can include converting a commercial property into a residential one.

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You must be able to demonstrate a realistic exit strategy.

 
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GUIDES

RESIDENTIAL
MORTGAGE

If you’re planning on purchasing a property to live in and require the funds to do so you’ll need a residential (regulated) mortgage.

Purchasing your own property is a great way to save money each month as mortgage costs tend to be cheaper than renting for a similar size property and also a great investment for the future if property prices rise.

 

A mortgage for buying a home to live in is far more flexible now than it has been in the past with options such as only putting down a 5% deposit and being able to chose from lenders with different incentives such as those with no upfront fees and some even offering cash back incentives.

Residential rates vary, from prime rates for those with no adverse credit and larger deposits of 30% +, to higher rates for those with past credit blips or non UK nationality.

There are also different types of mortgages you have access to e.g. Fixed rates, where the interest rate is fixed for a certain period of time, most commonly fixed for 2-5 years however there are now mortgages available to have the rate fixed for up to 40 years. Variable or tracker mortgages, which fluctuate can sometimes be cheaper, if interest rates are dropping. If you expect interest rates to rise, locking in a fixed rate could be a safe option to prevent your rate getting out of control and ensuring you can still keep up with your mortgage repayments. Banks, building societies and specialist lenders have their own criteria and their ways of assessing how much you can borrow and at what rate will vary, however they will look into the following:

  • Age now and your age at the end of the term

  • Your gross yearly income (some lenders will even take into account your bonuses and overtime so you can borrow more)

  • Credit card balances

  • Monthly loan repayments

  • Average monthly spending 

  • Your credit history 

  • If you are a first time buyer

  • Your nationality and how long you have lived in the UK

Interest Rates vary widely, but at present they start from 0.99% per year for an average buyer putting down a 25% deposit.

Most residential borrowers prefer to take out repayment mortgages because it means at the end of the term the mortgage will be paid off in full so there is no need for alternative funding. 
Interest only mortgages are also available however as you only pay interest, you’ll need to repay the full value of your mortgage at the end of the term.

Most borrowers will remortgage their properties at the end of their fixed period, due to the lender's standard rate being less competitive.

 

RESIDENTIAL MORTGAGE

 
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GUIDES

BUY TO LET
MORTGAGE

BUY TO LET MORTGAGE

If you’re planning on purchasing a property to let out and require the funds to do so you’ll need a buy-to-let (BTL) mortgage. Provided the property can be let out and the rent is paid, buying to let can provide landlords with rental income along with asset appreciation if house prices rise.

Buy-to-let mortgage deals vary and there are a number of different types. Fixed rate mortgages allow landlords to budget effectively. Variable or tracker mortgages, which fluctuate can sometimes be cheaper, if interest rates are dropping. If you expect interest rates to rise, locking in a fixed rate could be a safe option to prevent your rate getting out of control.

Banks, building societies and specialist lenders have their own criteria for buy-to-let mortgages. Generally you’ll be subject to:

  • Minimum or maximum age restrictions

  • A minimum annual gross income of £25,000, although some lenders go as low as £18,000

  • A limit on the number of buy-to-let mortgages you can have with that specific lender

  • A limit on the total amount that that they will lend to you

  • Affordability checks of borrower’s costs (including tax liabilities),  credit history and balances, verified personal income and possible future interest rate increases

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Interest Rates vary widely, but at present they start from 1.5% per year for a standard BTL bought by an individual to 2.5% for a limited company, increasing to 3.5% for a House in Multiple Occupancy (HMO) or Holiday Let and higher again for portfolio loans on multi unit freehold leasehold blocks (MUFB/MULB).

Most BTL borrowers prefer to take out interest-only mortgages because it means lower outgoings.  As you only pay interest, you’ll need to repay the full value of your mortgage at the end of the term.

Repayment mortgages are also available. Most borrowers will remortgage their properties at the end of their fixed period, due to the lender's standard rate being less competitive.

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GUIDES

COMMERCIAL
MORTGAGE

COMMERCIAL MORTGAGE

Commercial mortgages are mainly for business owners who are looking to buy property or land for commercial use.

Business owners who are looking to avoid increasing rents, or maintenance and management fees may find it more cost effective to invest in buying their own premises e.g. offices, warehouses, industrial premises or retail shops etc.

Because each business and its requirements are unique, loans are not standardised. Facilities granted will differ depending on whether the mortgage is for an active trading business or an investment portfolio that will lease to a non-connected trading business. Lenders generally limit the LTV to 65% of the property value and for semi commercial mortgages they usually require the residential portion to make up two thirds of the space.

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Applying for a commercial mortgage requires a lot more documentation than a BTL mortgage.

You need to prove the viability of the business as well as that of the beneficial owners. You will be asked to provide amongst others:

  • Recent bank, liability and asset statements (for a period of at least three years)

  • Performance figures, balance sheet and profit and loss documents (both current and projected)

  • Any current borrowing the trading business or investment business may have,

  • e.g. overdraft facilities, equipment finance 

  • Tax returns (for a period of at least three years)

  • Name of the entity which will purchase the property along with directors/shareholders proof of identity, address and recent credit reports

  • Lease Agreements for tenants

Commercial mortgage terms vary from 3 to 25 years in length, with an average term of 15 years. Commercial mortgages are currently harder to obtain. Trading businesses are given preference over investment businesses. Budget to pay upward of 5.5% interest per year.