Bridging finance can be much quicker to arrange than a normal mortgage

Bridging finance (also known as Short Term Lending) is a solution that can be used to provide fast access to funding for a number of different circumstances.

Often, bridging finance can be much quicker to arrange than a normal mortgage. However, bridging finance should not be considered a replacement for more traditional mortgage lending which is normally more cost-efficient.  It can be a complicated process and each case is written on a bespoke basis according to the requirements of each individual transaction.

Initially, this type of finance was used as a way to mend a broken link in a housing chain and typically used to ‘bridge’ the gap between a house sale and completion.

However, bridging is often also used for people buying at auction, to meet strict deadlines (usually of 28 days), for people wanting to carry out refurbishments to boost the value of their homes or where the property would not met the requirements of a traditional mortgage lender as well as for numerous business purposes. Some lenders will also help with short term VAT requirements subject to strict controls.

In more recent years, the market has seen a broader number of uses for short-term loans as their popularity has increased. For example, many commercial premises are now being converted into residential houses or flats, because of the expansion of permitted development rights, and bridging loans can be used in the initial stages of the conversion with longer term funding provided once the building project has started.  Short-term finance can be used to buy new equipment, to build up stocks ahead of an expected rush on seasonal orders, or for buying shares in another business.  It’s becoming increasingly popular, mainly because of its speed and flexibility.

The best way to look at this is as a means to an end.  Lenders will need certainty on the exit route (how will they get their money back?) and they will always insist on an agreement being in place from a traditional mortgage lender to provide a mortgage, at a given time and once any requirements have been fulfilled.  Alternatively, the exit route might be from the sale of the same or another property. So, short term lending is designed to fulfil the need or desire to act quickly.

Finally, this type of funding has become more competitive over the years with some now offering rates as low as 0.43% per month for the right customer.  Obviously, individual terms and conditions apply and with these types of offerings always seek professional advice!

Buying at Auction, with short term finance

Auction purchases can be a great way of buying properties at a discount and potentially achieving quick equity growth. Typically, a property will be listed via an auction because it may be uninhabitable (think no kitchen or bathroom) or it may be that the vendors need to realise sale funds quickly and are prepared to sell the property at below market value. Buyers typically exchange contracts and pay their deposit at the auction with a requirement to complete within 3-4 weeks. The condition of the property, and the timescales required, often rule out using an ordinary mortgage.

A recent example from one of our lenders, United Trust Bank, revolved around two brothers.  They had received a cash inheritance and had decided to use it to launch careers in property investment. Both were tradesmen and having completed many refurbishments for clients, they were keen to find a property they could refurbish themselves and sell on for a profit.

They visited several auctions to gain an understanding of the process and after some solid research on a particular area, decided to bid for a semi-detached house that had been left empty for a number of years and fallen into minor disrepair. They first went through the legal pack and confirmed there were no serious underlying issues with the property. Then, after running the bridging finance numbers ahead of the auction, they successfully secured the house and paid their 10% deposit with some of their inheritance.

The auction house required the sale to be completed within 4 weeks and after a quick valuation, the brothers were able to draw the bridging facility to complete the purchase well before the deadline. The brothers had the funds to complete the intended refurbishment works.

Although light in nature, the improvement works were designed to bring the property up to an excellent standard. The works were completed quickly and within budget.

The short term bridging finance enabled the brothers to acquire an uninhabitable property within a tight deadline. In addition, the typical 12 month term, gave them time to complete the works and properly market the property to achieve their desired selling price and a successful start to their property investment career.

Such an example is not unusual and is one that can be reviewed by a number of specialist lenders.  But as always, seek professional advice and review all options available to you.

Looking to build, renovate or extend?

You can’t miss the vast amount of building work going on locally.  In the main, it is by large property developers/builders, but we are receiving enquiries for those privately looking to build their own dream home or renovate and extend their existing properties.   This can also include knocking down the property and building a new one in the same location.  These are normally called Self Build Mortgages or Development Projects.

If you are considering these, have a chat with a local architect first to see if your plans are realistic possibilities. They will have a good idea as to what the local Council Planning Officers will accept and of course, what they will reject!  Lenders then may look to lend funds on a stage payment basis. Stage one might be the foundations, stage two might be ground level and so on.  Each stage would require sign off by the building inspector, and often the lenders own valuer, then funds would be released.  The lender may not lend the full build amount, so be prepared to put in a reasonable deposit, especially at outset to demonstrate your own commitment. 

For extensions and renovations, it may well depend on the size of the work and what funds are required.  If you are altering the property substantially, rebuilding etc, you will tend to find that only specialist lenders will take these on and in some instances, these may be on a short-term basis.

Development Finance and Bridging Finance (also known as short term lending) is money to be used in the short term to facilitate a financial transaction which has either an urgent or short lifespan and which is primarily geared to a property transaction.  The most regular type of transactions include: a property being purchased at auction: the purchase of a new property whilst the current one is still being sold: acquisition of a property which needs substantial renovation before it is suitable for a traditional mortgage or payment of an unexpected expense whilst more regular finance is being arranged, and so on.

Beware though, these lenders will need certainty on the exit route (how will they get their money back?) and with this type of lending and associated fees, it can be more expensive than a normal mortgage. Therefore it makes sense to exhaust all other possible options available to you before going down this route.

Why use Short Term Finance / Bridging Loans?

Short term finance (Bridging) was initially used as a way to mend a broken link in a housing chain and typically used to ‘bridge’ the gap between a house sale and completion.

However, bridging is often also used for people buying at auction, to meet strict deadlines - usually of 28 days - for people wanting to carry out refurbishments to boost the value of their homes or for numerous business purposes. Some lenders will also help with short term VAT requirements subject to strict controls.

In more recent years, the market has seen a broader number of uses for short-term loans as their popularity has increased. For example, many commercial premises are now being converted into residential houses or flats, because of the expansion of permitted development rights, and bridging loans can be used in the initial stages of the conversion with longer term funding provided once the building project has started.  Short-term finance can be used to buy new equipment, to build up stocks ahead of an expected rush on seasonal orders, or for buying shares in another business.  It’s becoming increasingly popular, mainly because of its speed and flexibility.

For example, a couple may own a £300,000 house with an outstanding mortgage of £150,000. They may have seen their dream home for £500,000 but the vendor will only sell on condition that they exchange contracts within three weeks and complete in four.  It may be difficult to get the finance from a bank or building society to buy the house in such a tight time frame, so they can take out a short-term loan, which is regulated by the Financial Conduct Authority (FCA) as a stop-gap.  Short-term loans are typically for 12 months and the borrower pays monthly interest, which can be “rolled up” and deferred until the loan ends. However, the loan can usually be paid off before the loan ends. In this case, it could be when the couple sell their previous house.  

Alternatively it might be used for a commercial property acquisition.  An investor may want to buy additional units on a business park. However, the seller will cut the price of the sale if the investor can pay within three weeks. His bank may be unable to provide the money needed in such a short timescale, so he will be able to take out a bridging loan to cover the purchase cost, secured against the other units already owned on the business park. Lenders could provide the loan ahead of the deadline, giving the investor time for his bank to release the funds to pay back the loan.

Whatever the scenario, short term finance can be used for a wide variety of opportunities and as always, seek professional advice.

Flat market predicted for 2018. although Technology will play a big part. Have a great Christmas!

So, as I pen my last column of the year, I reflect on a year that has had many ups and also many downs.  We can’t ignore the current housing shortage or the severe lack of help to first time buyers, even allowing for the recent stamp duty changes.  On the upside, and despite the bank base rate increasing, there are still plenty of good rates to be had and we’ve seen a good number of new lenders launch.  All great news.

2018 is set to be another flat market, with overall mortgage volumes estimated to remain circa £250bn.  However, with the onset of technology and more specialist requirements, the mix of the market is set to change, and many lenders will fall short of their targets, unless they evolve with the digital era.  It really is a case of watch this space as some lenders may just get left behind.

Those who will win will be the ones offering quality technology, but also the human touch for those who prefer or need it.  Sometimes, people just want to talk to people.

On a personal note, thank you for reading my column, it is appreciated. Mortgages can be a dull subject and I’ve tried to provide an unbiased insight to what happens in the mortgage world (and tried to keep it upbeat!).  However, I’m looking forward to a couple of weeks without a production deadline to meet!

Thank you to everyone who has instructed AToM to source and arrange their mortgage during the past twelve months. It has been a fantastic year and we have enjoyed substantial growth in volume, completions and headcount in the AToM team located between our two Horsham offices.  They are a truly awesome and knowledgeable group of people.

We were honoured to be nominated in a number of awards this year and win three major accolades including Best Bridging & Commercial Broker at the Mortgage Strategy awards, Best Use of Technology in the National Mortgage Adviser awards and most recent, Best HMO Distributor from Precise Mortgages.  Thank you to everyone who voted for us!

On behalf of all the staff and directors at AToM, we wish you and your families a very Happy Christmas and a Relaxing and Prosperous New Year!  Bring on 2018!

Competition in the market is fierce..

I've mentioned a number of new lenders launching in to the Residential and Buy to Let sectors recently, and a number of new lenders are lining up for launch over the coming months.  It is an exciting time, not just because rates are so low and activity is increasing, but because lenders are now looking at new market areas and criteria enhancements.  One such lender recently launched in to the Buy to Let sector, and whereas the normal requirement is for customers to have two or three years self employed history, this lender has no minimum term requirement at all.

Whilst rates remain low, competition in the market will remain fierce and this changed approach has become apparent across all sectors of the market, including both Bridging and Commercial.

Bridging Finance (now also known as short term lending) is money to be used in the short term to facilitate a financial transaction which has either an urgent or short lifespan and which is primarily geared to a property transaction. The most regular type of transactions include: a property being purchased at auction: the purchase of a new property whilst the current one is still being sold - usually when downsizing: acquisition of a property which needs substantial renovation before it is suitable for a traditional mortgage or payment of an unexpected expense whilst more regular finance is being arranged.

There are a myriad of other reasons for which short term lending can be applied and each application is looked at on its own merits before a lender will agree to assist. The best way to look at this is as a means to an end. These lenders will need certainty on the exit route (how will they get their money back?) and they will always insist on an agreement being in place from a traditional mortgage lender to provide a mortgage, at a given time and once any requirements have been fulfilled. So, short term lending is designed to fulfil the need or desire to act quickly. We have seen funds drawn in 48 hours from application! Beware though, this type of lending and associated fees does not come cheaply and it makes sense to exhaust all other channels first!

Commercial loans tend to be looked at by specialist lenders, geared more towards high street premises/shop fronts, development opportunities, pubs, conversions from residential to multi use properties right up to multi-million pound office blocks and  hotel complexes.

Short term lending has immense advantages..

During the last few years, increasing attention has been focused on short term lending, or bridging as it is more widely known.

Commentators are concerned, rightly so, that short term lending is used as a substitute for more traditional mortgage lending in order to obtain funds quickly. This is fine where speed and accessibility are of the essence, but care should be exercised where a normal mortgage could be used instead.

So, what is short term lending and what should it be used for?

It is exactly what it says it is! Money to be used in the short term to facilitate a financial transaction which has either an urgent or short lifespan mainly geared to a property transaction. The most regular type of transactions include: A property being purchased at auction: The purchase of a new property whilst the current one is still being sold - usually when downsizing: Acquisition of a property which needs substantial renovation before it is suitable for a traditional mortgage:  Payment of an unexpected expense whilst more regular finance is being arranged.

There are a myriad of other reasons for which short term lending can be applied and each application is looked at on its own merits before a lender will agree to assist. The best way to look at this is as a means to an end. These lenders will need certainty on the exit route (how will they get their money back) and they will always insist on an agreement being in place from a traditional mortgage lender to provide a mortgage, at a given time and once any requirements have been fulfilled. So, short term lending is designed to fulfil an ability to act quickly. We have seen funds drawn in 48 hours from application!

Undoubtedly, these lenders have a growing influence in a fast moving marketplace. Interest rates charged will reflect what lenders consider to be the risk to them but will generally start around 0.65% per month although, for the more obtuse applications they will be around 1.5% per month. Short term lending has immense advantages enabling you to move quickly but as always, make sure that you fully understand all aspects of the offering and, especially, your responsibilities to the lender.

Commercial and Short term options

We are noticing much greater numbers of clients looking to raise funds in the commercial sector and this is a very positive sign that confidence is returning and not just in the residential purchase or re-mortgage arenas.

Commercial lending was long the domain of high street banks and particularly so when all that was needed was a site meeting coupled perhaps with a good lunch with the bank manager and often the funds were quickly available!  Life has changed and the high street lenders are now more dramatically conservative in their lending with the decisions often being made at credit and risk committee level. This has opened up the market in many differing ways with a myriad of new lenders coming to market during the last few years covering almost every possibility from lock up shops to multi-million pound office blocks and hotel complexes.

There are lenders who will offer - short term lending for the swift purchase of an auction property; funds to support multi development or self-build including commercial units; funds to assist the re-mortgage of large property portfolios; funds to help buy existing businesses or extend current business portfolios or Houses of Multiple Occupation; funds to convert or extend offices or factories.  The list goes on!  In fact it is almost endless. If there is a defined, affordable commercial need, then there is likely to be a lender out there somewhere looking to write the business!

Of course, rates and terms will vary depending upon the type of commercial mortgage written. Lenders have varying degrees of risk assessment calculations and this will determine the loan to value and charging rate levels.     

So, where have all these lenders appeared from?  It is no surprise to learn that they have been there for a number of years simply awaiting the return of commercial mortgage demand. Some are subsidiaries of high street banks who have criteria which suits certain market segments.  Others may be as a result of private funders who are looking to secure a decent return for their investment as against the poor market figures at the moment.

As always, please ensure that you get professional independent advice before entering into any agreement.      

Help to Buy 2 launch bought forward!

The Prime Minister has bought forward the launch of the Help to Buy (mortgage guarantee) scheme to October, instead of January 2014.  But let’s review the small print before we all start celebrating the launch of the (some say) controversial scheme and how it may create a housing bubble.

The Help to Buy MG scheme will help people buy a home up to £600,000 with just a 5 per cent deposit.  The government will then provide the lender with a guarantee for the next 15 per cent of the property’s value, charged as an interest free equity loan to the consumer, for a fee (after year five).  A lender will offer the remaining amount as a first charge, subject to normal mortgage terms and underwriting and the scheme will be open for three years.  This is to purchase any property and is not restricted to new build properties as per the existing Help to Buy scheme.  So 5% deposit, 15% equity loan (interest free) and 80% mortgage.

Secondly, at the time of writing, many questions were still yet unanswered and only three lenders had committed to the scheme – Natwest, Royal Bank of Scotland and Halifax.  All government backed lenders..

Finally, we are led to believe that despite the doors being open for business, the actual 15% government guarantee to the lender, will still not be available prior to January 2014 and this may be a slight restriction to other lenders who might have wanted to offer these mortgages initially. 

Unfortunately, at this time, Help to Buy MG will not be available to those who have had any historic credit issues.

A similar proposition for those with a 10 per cent deposit is already on offer in the specialist sector.  A first charge lender takes a 70 per cent loan and a second lender adds a further 20 per cent as an equity share.  However, the latter has no monthly required payment, no fee after the fifth year and is only repaid once the property is sold, or client redeems early.

All of these schemes can be confusing, so always seek professional and independent advice to ensure you are getting the right deal to match your requirements.

Short Term Finance

The ‘Short Term Lending’ market continues to grow at a rapid pace.  Specifically geared at fast financial assistance, perhaps to purchase a property at auction or to enable a new purchase prior to sale of an existing property.  This is normally with a monthly interest rate and with a pre-agreed ‘exit’ route.

The term ‘Bridging Finance’ is quickly becoming a household name but most lenders now like to title it under the banner of Short Term Lending.  Many lenders in this sector of the mortgage market will offer loans up to 75% of the property value (sometimes higher with additional security offered). The loan is usually calculated and charged on a monthly basis and, in all fairness, can be quite pricey! Some of the lenders are happy to allow a 'roll up' of interest (no committed monthly payment) with the full debt settled at redemption.  Interest rates start from, circa 0.69% per month and normally are arranged over a period of between 1 to 18 months.  Most will carry a lender fee, an assessment fee, some will include early repayment charges and possibly an exit fee.  However, for the right scenario, these loans provide a superb funding line.

Ideal scenarios include –

1) Chain breaking or not sold your property yet
When the chain breaks or you have not sold your property but found one you have fallen in love with, bridging finance may enable you to complete on the purchase before you have sold your existing home.

2) Refurbishment – allows you to buy and refurbish property quickly
A loan to support with the purchase of a property and then undertake the refurbishment
before it is eventually presented to a mortgage company or bank for long term re-mortgage finance, or sold on at profit.

3) Purchasing properties at auction
Short Term Loans can be arranged very quickly and can be ideal where there are tight deadlines to meet.  A typical 28 day completion from purchasing an auction property is usually easily achievable. A pre-auction valuation is considered a must.

These are just some examples, there are many others.  However, where there are positives, there can be negatives!  Many lenders have set a minimum term for a property to be owned before they will allow a remortgage to occur. This is often six months.  So please ensure this is factored in to any purchase, budget calculations and financial requirements before committing to any Short Term Funding/Bridging Finance.  For more information, or to discuss a specific scenario, please contact us!

And 200 mortgage columns later....

Way back in November 2008 I was engaged in an interesting conversation about the parlous state of the mortgage world and enjoying a coffee with a friendly WSCT manager, when I inadvertently agreed to write a weekly column specifically geared to the mortgage market and its impact both locally and generally.  Who would have thought that, four years later I would still be writing it, the paper would still be publishing it and more importantly, you are still reading it! 

As I reach the 200^th column milestone, it is fair to say that it has been an enjoyable and rewarding task enabling me to express a personal view of the mechanics as well as the financial issues which affect us all in our everyday lives.  Sometimes not for the fainthearted, it has to be said, but hopefully useful nevertheless.

The last four years has seen seismic change in the mortgage sector and this has included a high street lender or two hitting the wall in late 2008. Since then I have commented on detail including a dip, a double dip and even the possibility of a triple dip recession.  None of us have any firm indication either way on the latter at the moment!  We have seen times when mortgage availability was so limited that we were almost back to the days my father sometimes refers to when mortgages were rationed and you had to have sufficient savings with a lender simply to gain an interview! 

Lenders have come, lenders have gone.  Quantitative easing, Swap rates, LIBOR Rates, Funding for Lending and many other ‘jargon’ titled mortgage terms have been regular features in my articles. In more recent times we have seen a gradual increase in mortgage product availability and more so in product innovation designed to help gaps in the market. These have included niche First Time Buyer products and the dramatic increase in Bridging Finance.  In the last few weeks I have been able to report on the fantastic rate price war in all areas of the market, which now proudly boasts over 4,000 products.  Still some way to go from the boom time of 07, but the light at the end of the tunnel may no longer be the headlights of an oncoming train!

On reflection, the last four years has been a roller coaster ride in the mortgage marketplace and I envisage that there may still be a rocky ride ahead but with a more positive outlook than at any time during that period.  I look forward to continuing to report on developments as they occur and I hope that 2013 will bring further competitiveness within the mortgage sector.  This can only be of huge benefit to the end consumer.

Finally, for this article at least, thank you to the WSCT for printing my column each week and an even bigger thank you to you for taking interest in them.  Here’s to the next 200....!

The Mortgage event of the Year...

The great and the good of the industry descended upon London’s ExCel last week for the annual Mortgage Business Expo.   Around 70 exhibitors offered their wares to mortgage brokers, intermediaries, financial advisers, solicitors and others who attended the largest trade mortgage event in the calendar. 

The two day extravaganza was well received in its new venue (previously Olympia) and despite the slightly longer journey, attendees enjoyed the fantastic facilities available at the gigantic centre.

Big players such as Nationwide, Virgin Money and Halifax had their latest products and rates on offer which were well received especially as most have recently been reduced.  However, noticeable absentees included Barclays, Natwest and Santander, leaving a rather large gap from the high street contingent.

This left room for the smaller, lesser known lenders to promote their offerings.  They may not be processing the volume of cases like the high street lenders, but they have a huge appetite to lend and offer niche products to cater for a variety of customer profiles.

Thriving areas also included short term funders/lenders specialising in Bridging Finance and a number of Commercial lenders were also in attendance as funding becomes somewhat more available to businesses.

Our trade association AMI (Association of Mortgage Intermediaries) held numerous seminars covering various issues including Mortgage Market updates and it’s estimated that over 1,750 people attended the two days.  Well done to the organisers!

AToM were the only Specialist Mortgage Packager/Distributor onsite who offered all areas of the mortgage finance sector.   If you follow us on twitter, you will see our stand (@atommortgages).

For those who don’t know AToM, we have a shop front in the Carfax, Horsham.  But we also process cases for lenders via exclusive products and to a database of over 8,000 mortgage brokers, intermediaries and IFAs.   In short, we are a one stop shop catering for all types of people whether it be a straight forward and clean credit history application, right through to complex deals needing a manual assessment on a product exclusive only available via AToM.  As the name suggests, All Types of Mortgages!  So why not give us a try!

Short Term Loan required?

The ‘Short Term Lending’ market is growing at a rapid pace. Specifically geared at speedily arranged loans, normally with a monthly rate of interest and pre-agreed with an ‘exit’ route, the term ‘Bridging Finance’ is quickly becoming a household name. With many lenders in the market, offering loans up to 75% of the property value (sometimes higher with additional security offered) these types of loan are calculated and charged on a daily/monthly basis, with some even offering to roll up the interest (no committed monthly payment). Interest rates start from 0.75% per month and normally are arranged over a period of between 1 to 18 months. Most will carry a lender fee, an assessment fee, some will include early repayment charges and possibly an exit fee. However, for the right scenario, these loans provide a superb funding line.

Ideal scenarios for Bridging Finance include –

1) Chain breaking or not sold your property yet
When the chain breaks or you have not sold your property but found one you have fallen in love with, bridging finance may enable you to complete on the purchase before you have sold your existing home.

2) Refurbishment – allows you to buy and refurbish property quickly
A loan to support with the purchase of a property and then undertake the refurbishment
before it is eventually presented to a mortgage company or bank for long term re-mortgage finance, or sold.

3) Purchasing properties at auction
Short Term Loans can be arranged very quickly and can be ideal where there are tight deadlines to meet. A typical 28 day completion from purchasing an auction property is usually easily achievable. A pre-auction valuation is considered a must.

These are just some examples, there are many others.

However, where there are positives, there can be negatives! Many lenders have set a minimum term for a property to be owned before they will allow a remortgage to occur. This is usually six months. So please ensure this is factored in to any purchase, budget calculations, etc before committing to any Short Term Funding/Bridging Finance. For more information, or to discuss a specific scenario, please contact AToM.

Visit our Lender day on 28th March

Would you like to know more about Short Term Lending / Bridging Finance / Chain Break Finance? If so, AToM is hosting a free to attend lender presentation event on Wednesday 28th March at 6.30pm at Horsham Park Barn. This is an open invitation to all Customers, Estate Agents, Solicitors, Mortgage Brokers, IFAs and any other parties who would be interested in learning more about this fast growing part of the mortgage/finance market to hear directly from the experts.

Many lenders in this area of the market offer loans up to 75% of the property value (sometimes higher if additional security is offered). These types of short term loan are calculated and charged on a daily/monthly basis. Some offer to roll up the interest (no committed monthly payment) and interest rates range from 0.75% per month upwards and are normally arranged over a period of between 1 to 18 months. Most will carry a lender fee and an assessment fee and some will include early repayment charges and possibly an exit fee.

However, for the right scenario, these short term loans provide a superb and speedy funding line.

Ideal scenarios include –

1) ‘Chain Break Finance’ - When a chain breaks, or you have not yet sold your property but found one you have fallen in love with, bridging finance may enable you to complete on the purchase before you have sold your existing home.

2) Refurbishment – allows you to buy and refurbish property quickly. A loan to support the purchase of a property on which you undertake refurbishment before it is eventually presented to a mortgage company or bank for long term re-mortgage finance, or sold.

3) Auction property purchase - Short Term Loans can be arranged very quickly and can be ideal where there are tight deadlines to meet. A typical 28 day completion from purchasing an auction
property is usually easily achievable. A pre-auction valuation is considered a must.

These are just some examples, there are many others, so do come along to our event on Wednesday and listen to the experts. Places are still available. Please call AToM asap on the number below to secure your seat, or email pt@atomltd.co.uk

FINALLY, as I write this column, I’ve just noticed that Nationwide are the latest lender to cap their interest only lending at 50% of the property value on all residential mortgages
(excludes Buy to Lets). This is with effect from Wednesday 21st March and all applications which exceed 50% of the property value will now only be considered on a repayment basis. Long
live interest only…!

Short Term Lending is flourishing

The ‘Short Term Lending’ market is flourishing. Specifically geared at speedily arranged loans, normally with a monthly rate of interest and pre-agreed with an ‘exit’ route, the term
‘Bridging Finance’ is quickly becoming a household name. With many lenders in the market, offering loans up to 75% of the property value (sometimes higher with additional security offered) these types of loan are calculated and charged on a daily/monthly basis, with some even offering to roll up the interest (no committed monthly payment). Interest rates start from 0.75% per month and normally are arranged over a period of between 1 to 18 months. Most will carry a lender fee, an assessment fee, some will include early repayment charges and possibly an exit fee. However, for the right scenario, these loans provide a superb funding line.
Ideal scenarios for Bridging Finance include –

1) Chain breaking or not sold your property yet
When the chain breaks or you have not sold your property but found one you have fallen in love with, bridging finance may enable you to complete on the purchase before you have sold your existing home.

2) Refurbishment – allows you to buy and refurbish property quickly
A loan to support with the purchase of a property and then undertake the refurbishment
before it is eventually presented to a mortgage company or bank for long term re-mortgage finance, or sold.

3) Purchasing properties at auction
Short Term Loans can be arranged very quickly and can be ideal where there are tight deadlines to meet. A typical 28 day completion from purchasing an auction property is usually easily achievable. A pre-auction valuation is considered a must.

4) Funding under value purchases
A loan based on the actual value of a property and not the purchase price. Thus, when purchasing a property, under value, you may have the ability to borrow up to 90%of the cost of a property (subject to valuation) and then re-finance the transaction using a traditional lender later on.

These are just some examples, there are many others.
However, where there are positives, there can be negatives! Many lenders have set a minimum term for a property to be owned before they will allow a remortgage to occur. This is usually six months. So please ensure this is factored in to any purchase, budget calculations, etc before committing to any Short Term Funding/Bridging Finance. For more information, or to discuss a
specific scenario, please contact AToM.

Short Term Lending is on the increase!

The ‘Short Term Lending’ market has been flourishing recently. Specifically geared at speedily arranged loans, normally with a monthly rate of interest and pre-agreed with an ‘exit’ route, the term ‘Bridging Finance’ is quickly becoming a household name.

With many lenders in the market, offering loans up to 75% of the property value (sometimes higher with additional security offered) these types of loan are calculated and charged on a daily/monthly basis, with some even offering to roll up the interest (no monthly payment). Interest rates start from 0.75% per month and normally are arranged over a period of between 1 to 18 months. Most will carry a lender fee, an assessment fee, some will include early repayment charges and possibly an exit fee. However, for the right scenario, these loans provide a superb funding line.

Ideal scenarios for Bridging Finance include –

1) Refurbishment – allows you to buy and refurbish property quickly
A loan to support with the purchase of a property and then undertake the refurbishment before it is eventually presented to a mortgage company or bank for long term re-mortgage finance, or sold.

2) Purchasing properties at auction
Short Term Loans can be arranged very quickly and can be ideal where there are tight deadlines to meet. A typical 28 day completion from purchasing an auction property is usually easily achievable. A pre-auction valuation is considered a must.

3) Funding under value purchases
A loan based on the actual value of a property and not the purchase price. Thus, when purchasing a property, under value, you may have the ability to borrow up to 90%of the cost of a property (subject to valuation) and then re-finance the transaction using a traditional lender later on.

4) Chain breaking or not sold your property yet
When the chain breaks or you have not sold your property but found one you have fallen in love with, bridging finance may enable you to complete on the purchase before you have sold your existing home.

These are just some examples, there are many others.

However, where there are positives, there can be negatives! Many lenders have set a minimum term for a property to be owned before they will allow a remortgage to occur. This is usually six months. So please ensure this is factored in to any purchase, budget calculations, etc before committing to any Short Term Funding/Bridging Finance. For more information, or to discuss a specific scenario, please contact AToM.