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Bridging Finance Advice

                     

                     

                     

                     

Does the Stamp Duty Holiday end in June?

Chancellor Rishi Sunak extended the stamp duty holiday until the end of June 2021, which was welcomed news to many. However, many property and financial professionals remained worried of a ‘cliff edge’ to the scheme. Many homebuyers may find themselves caught in completion trap if the holiday were to end abruptly. Luckily for home buyers, the stamp duty holiday has now been seen to continue past June 30thhowever with some changes to the property value threshold.  

What is the current Stamp Duty Holiday? 

The current stamp duty holiday means that no tax will be levied on the first £500,000 of a property purchases in England and Northern Ireland until June 30. Homebuyers who purchase property during this time could save significant amounts of money up to £15,000. The stamp duty holiday, with this threshold, will end on June 30th. 

What does the extension mean? 

The stamp duty holiday will now officially end on September 30th, however the threshold between June 30th and the new September date will reduce. Between June and September 30th, the property threshold will drop to £250,000. These changes will only apply in England and Northern Ireland. 

If you are currently in a housing chain, and the property value is below £250,000, then you can be rest assured you now have an additional 3 months for your transaction to be processed.  

Stamp Duty Calculator  

You can find out how much you will save during the stamp duty holiday using the stamp duty calculator here. 

What to do next 

If you are planning a property development project or searching for a new home, now is a good time to purchase and save money. To get the best rates on the market, and to speed up the mortgage process, you should seek independent financial advice from a broker and make the savings thanks to the stamp duty holiday.  

Friends Capital are independent and unbiased mortgage and loan specialists. We are experts in the field of financing residential property, buy-to-let mortgages, HMO’s and financing property development projects. We have access to the whole of the specialist finance market, and we also have access to exclusive deals with the leading, most established, and trusted lenders. If you would like to discuss your situation with us and discuss your property development project, you can email us at info@friendscapital.co.uk or call us on 0800 862 0811 

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Bridging Loans Explained

What is a Bridging Loan?

A bridging loan (or ‘bridge loan’) is a loan which allows you to borrow money for a short period, usually up to one year. It can help to ‘bridge the gap’ to secure funding to buy a new property quickly. For example, bridging loans can help homeowners purchase a new home while they wait for their current one to sell. In this situation, your existing home will be used as collateral.

What can I use a Bridging Loan for?

A bridging loan is useful if you are:

  • Searching for short-term financing if you are buying property at an auction
  • Paying for renovations before resale or acquiring land for development
  • If you have found a new house without selling your current one, a bridging loan can cover you so you get the new home you want.
  • In a chain of homeowners looking to purchase new homes and a buyer pulls out, a bridging loan can close the loop so the sales go ahead
  • Purchasing a new business with a shortfall in funding
  • A business owner looking for working capital
  • Receiving a large tax bills
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Is a Bridging Loan a good idea?

It’s a fantastic option for short-term periods where quick and easy finance is required. However, bridging loans aren’t designed to be a long-term solution, and so aren’t a good idea for when you need finance for over two years. The benefits of a Bridging Loan are:

  • Funds are available very quickly
  • Interest rolled-up and paid on completion
  • Lenders are more open-minded about borrowers with bad credit histories
  • There are no exit fees for early repayment
  • Avoid wait times due to property chains
  • No repayments to make during the loan

How do Bridging Loans work?

Bridging loans are different to re-mortgages as they are not dependent on income, but are backed by the value of the property you own and/or looking to buy.  Typically interest rates are higher than other loans & mortgages as the interest is charged monthly, however these do not have to be paid until the end of the term when the borrower has secured permanent financing.

There are two types of bridging loan: ‘closed’ and ‘open’.

Closed Bridging Loans – With a closed loan, there is a fixed repayment date – you will normally be given this kind of loan if you have exchanged contracts but are waiting for your property sale to complete.

Open Bridging Loans – With an open loan, there is no fixed repayment date, but you will normally be expected to pay it off within one year.

Whichever kind of loan you take out, the lender will want to see evidence of a clear repayment strategy, such as using equity from a property sale or taking out a mortgage. They will also want to see evidence of the new property you are purchasing and the price you plan to pay for it, as well as proof of what you are doing to sell your current property if relevant.

How much is a Bridging Loan in the UK?

Bridging loans are priced monthly instead of annually because they are designed to be taken out for short periods only. Like all loans, some bridging loans can be expensive, and others are more reasonable. Fees are usually between 0.5% and 2% per month, which makes them more costly than a long-term loan like a mortgage.

There are also set-up fees, which is around 2% of your desired loan amount. Experts recommend bridging loans if you are confident that you will only need the money for a short amount of time.  

Many factors affect the kind of bridging loan rates you could get from a lender. If you want to take out a bridging loan for a house purchase, the lender will calculate the loan based on the value of the property you currently own and/or are looking to buy. Lenders of bridging loans will give an amount based on the maximum loan to value (LTV) amount, which is a maximum of 75%.

How long will it take?

Funds can be raised much quicker than a typical Mortgage application , typically between 3-4 weeks though  Friends Capital have raised  funds  quicker than this . Depending on your property`s valuation and the amount required it may not be necessary to wait for a physical valuation or to go through a complicated legal process. It’s possible to have your bridging loan within a week, however this is all depending on your personal circumstances. We will give clear expectations when you contact us.

How do I pay back the loan?

You pay back your bridging loan at the end of a set term, usually when you sell your house and typically within 12 months. Interest is calculated monthly, but you will need to show that you have a way to pay back the bridging loan at the end of the term. This may be when you sell your old home or by refinancing with a traditional mortgage.

If the bridging loan is for property development, with the intention of adding value to properties, the loan can be repaid when the house sells, or the loan can be repaid by arranging a buy-to-let mortgage.

How much can I borrow?

You can borrow up to £10 million with Friend’s Capital, but the amount you can borrow is calculated against the property’s value or properties if you have several properties. The calculation of how much you can borrow is called the loan to value. Friends Capital will provide a quote based on the LTV, which can be up to 75% of the property’s value or properties.

Friends Capital are mortgage and loan specialists. We are one of the UK’s leading brokers, with over 30 years of experience. Friends Capital work with all of the UK’s top financial institutions, bringing you the very best the market has to offer. We’ll find the perfect solution for your needs, clearly explaining the pros and cons of different options.

What type of security can my bridging loan be secured against?

A bridging loan can be secured on residential property, commercial property, building plots and land.

Can you get a Bridging Loan with bad credit?

Yes, you can get a bridge loan with a sub-par credit score. Another option in the case of bad credit is a non-status loan. A non-status loan doesn’t take into account the credentials of the borrower. Instead, they see the value in being involved in the overall purpose of the loan. Lenders use non-status loans to provide funding to developers. Non-status loans are much less common, and only specific lenders are willing to give them. They are suitable for when funds need to be released very quickly.

In the instance of non-status loan, the lender will consider the GDV (Gross Development Value) of the project in question instead of the credit, assets or cash flow of the borrower. GDV is a formula which provides a way to assess the financial value of a property development project. It takes into account a developer’s potential profit and the overall viability of a project. 

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Property Development – How to Maximise Your Profit

Established property developers and letting agents, or anyone searching for a property development opportunity, need to focus on generating the highest return on investment from their projects. Now is an ideal time to start a property development project as you can make significant savings like never before, and here’s how.

1. Find Property Development Opportunities at Property Auctions

The benefits of buying property from an auction are huge. It’s possible to sweep up property below its open market value. There is also no larger marketplace of properties which can be renovated or converted for profit. There’s also no quicker way to find property development opportunities than at an auction, as the completion date fixed at 28 days from when the gavel drops.

It’s also important to carry out research before attending a property auction. Legal packs are available online prior to the auction. These packs include documentation gathered by the auction house and the seller’s solicitor. The packs include title deeds, relevant searches, planning permission, and tenant leases. There is no cost for viewing these documents, and it could save you buying a property with massive structural issues.

2. Stamp Duty Holiday Deadline

If you purchase property for £450,000, you would pay £13,500 in stamp duty charges. In contrast, you could now buy a property worth £463,500 without paying anything extra. The are no plans to extend the stamp duty holiday past the end of June. If you are searching for a property development opportunity, you will need to purchase your property before June 30th. You can check if any stamp duty is due by using this stamp duty calculator.

It’s also worth exploring a Bridging Loan, as these can be used to raise finance quickly. You can purchase property quickly and not have to wait for the mortgage lender and solicitors to complete. You can purchase the property in cash with a Bridging Loan, and guarantee that you make the savings.

3. Reduce Interest Rates

It’s always best to source finance that avoids high interest rates if possible. For those property developers that do buy with a mortgage or loan product, aim to get the house completed ASAP and sold on to fund your next project. Once you have raised finance, you can become a landlord to help offset the costs of future development projects.

Mortgages are often the best, low-interest source of funding for property development, however if you have a bad credit rating, it might not be an option. However, we can support property developers with most credit histories.

4. Seek Professional Advice

You may feel you have all the information you need for your property development project, and don’t need expert advice. Paying for professional financial advice may seem like an initial unnecessary cost. However, speaking with an independent mortgage advisor will help you find the best rates when raising finance and will give you access to most exclusive rates on the market. You are likely to save money in the long run and save time as the professionals will be doing all the work for you. Having a professional advisor supporting your project will give you peace of mind and they will offer invaluable advice which may make the process simpler and easier.

Friends Capital are independent and unbiased mortgage and loan specialists. We are experts in the field of financing property development, buy-to-let mortgages, HMO’s and funding residential renovation projects. We have access to the whole of the specialist finance market, and we also have access to exclusive deals with the leading, most established, and trusted lenders. If you would like to discuss your situation with us and discuss your property development project, you can email us at info@friendscapital.co.uk or call us on 0800 862 0811

How long does it take to get a bridging loan?

If you are looking for a bridging loan, then one of your concerns or questions will likely be about how long it takes to get a bridge loan.

Generally, from start to finish, the whole process can take a couple of weeks. However, it depends on the organisation of the broker, lender, and borrower.

The most convenient approach to attaining a bridging loan without delays is to fill out our application form and wait for a member of our team to call you back, which we are passionate about doing the same day. 

However, if you are looking to accelerate the process, you can follow these three steps:

  • Plan ahead: You should organise what you need for the application, put together your repayment plan, and prepare copies of documents such as …. (Awaiting info from client). We recommend scanning and emailing these rather than posting them, as this again cuts the time down by several days. It also saves on the costs of first class postage and tracking. You can complete this step over the weekend when most brokers will be closed.
  • Get in touch: You can email us all the information you have gathered and then call us up as soon as it has been sent to speak with one of our unbiased financial advisors. The financial advisor will ask a few questions to validate the information you have provided and offer the right product and solution. If you do this on Monday, you will improve your chances of approval in the same week.
  • Exercise patience: We appreciate that you are excited and impatient about getting your finance in place. However, you can sit back and relax for a while why we get everything in place and arrange the transfer of funds. With COVID affecting lenders and solicitors and with heightened demand for bridging loans, the process currently takes 2-3 weeks, from start to completion.

Preparing your repayment plan

Also known as your exit strategy, the repayment plan should state how you intend to repay the loan at the end of the agreed term. Your exit strategy might include:

  • Selling a property, you own.
  • Receiving an inheritance.
  • Refinancing the bridge loan with a regular mortgage.

If your repayment plan is to sell a property, the lender will want to arrange a valuation to ensure there is enough equity (money left over after repayment of any outstanding mortgage) to repay the bridging loan. If a remortgage is the intended exit strategy, then a decision in principle will be required as evidence that you can obtain the remortgaging finance.

Preparing to speak with our financial advisors

If the financial advisor determines that a bridging loan is the right solution, they will contact you to take brief details of the property involved, how much you intend to borrow, and what your exit strategy is. We will then approach the best lender to get a decision in principle on your behalf.

What about bad credit bridging loans?

Friends Capital helps clients find homeowner loans with bad credit. Homeowner loans with poor credit are not impossible to get approved because a bridging loan is offered based on the equity in the property or asset.

What about the stamp duty holiday deadline?

The stamp duty holiday is ending on the 31st March 2021. The government has confirmed that there will not be a stamp duty extension. There should still be time to arrange a bridging loan before the deadline, but you should not delay getting the process started.

If you follow our tips for accelerating the bridging loan process, you will acquire your funds in the quickest time frame. Please contact Friends Capital to further assistance.

Bridging Loan Application Form

Equity Release Options: Bridging loans vs remortgaging

A bridge loan or remortgage is a secured homeowner loan that allows you to release equity in a property. These types of mortgages allow you to borrow more money using the property you own as collateral.

You can remortgage to release equity or take out a bridging loan to purchase and develop a property to increase your income. Landlords and property developers can use bridging loans to turn properties around faster.

Bridging Loans

For homeowners, bridge loans are a fast way to attain short-term finance for several purposes, and they are even available if you have an outstanding mortgage. You can use them to bridge the gap between buying a new home and selling your old one if you are stuck in a property chain or have yet to find a buyer. You can use this short term loan to buy a property while you are arranging a long-term mortgage. You can borrow a large amount and also use bridging finance to renovate your home and increase the property value.

Property development also falls under the scope of this form of finance. You can use the loan for adding value to properties, but the funds can be used for other purposes such as generating an income, planning to downsize, moving quickly, or wish to buy any type of building or land. 

  • Closed bridging loans have a set repayment date, cheaper bridging loan rates, and more likely approval. However, there are large penalties if repayment terms are not met.
  • Open bridging loans are ideal when you do not know the exact date you can repay the loan. With no set repayment date, they are great for covering legal hold-ups. However, they are more expensive because of the increased risk to the lender.

A bridging loan can be arranged for one day to eighteen months and typically have no monthly payments. They also do not have the upper age restrictions you encounter when looking to remortgage.

Remortgaging

If you still have an income, you can remortgage and take advantage of lower interest rates. Remortgaging is better financially but takes a long time for loan approval, and repayment terms are usually set for five years or more. If remortgaging will not meet your needs, then maybe it is time to consider a bridging loan.

Contact us to learn more about the best options to suit your current situation from our unbiased financial advisors.

Why Bridging Loans Are Good For Property Development

Bridging finance is a unique way for homeowners and business owners to embrace short term loans. Bridging loans act as a literal bridge between the times when funds are needed and when funds are going to be released from an asset, most commonly a property. Individuals, companies, and corporations use bridge loans to provide funds on short-notice notice for short periods.

They are perfect for property purchases and sales because funding is easily and quickly accessible. Most bridging loans have predictable costs when there is an exact repayment schedule, and so are a great fit for inclusion in property development projects.

Money Makes Money, Fast money makes money faster!

Refurbishment projects can require a lot of money, especially where the model is to buy a property, refurbish and then immediately sell it. Because of this, many property projects involve multiple partners; some that provide financial investment and others that manage the construction.

Some people prefer to fly solo, and some property companies would prefer not to bring any more partners than necessary. In any case, the property investment market is highly competitive and successful development projects require appropriate funds at speed.

The benefits of Bridging Loans

A bridging loan can be a great solution. Here are some reasons why:

Finance can be secured very quickly. Grabbing the right property at the right time and the right price is the difference between the success and failure of an investment project. Having the funds on hand is the key to doing that. You can put this in place ahead of time, making sure that you know exactly how and when your provider can get the funds to you.

Bridging loans can be great for grabbing great deals at property auctions, where deals are quickly snapped up, and easily accessible quick loans are invaluable. A bridge loan can also avoid a lot of the stress associated with property purchases. It is a great idea to build a good relationship with your lender so that you can continue to rely on them for funds to be delivered promptly.

Bridging loan lenders are more flexible when it comes to credentials and credit histories. They prefer to give a loan on the security of an existing property. Once the legitimacy and the value of the property have been approved, getting a bridge loan is quite simple.
Though a bridging loan needs to be repaid in a short period, e.g. likely within 12 months, providers are usually flexible as to the repayment schedule.

Friends Capital are brokers with access to lenders with the best bridging loan rates on the UK market, contact us for a free, no obligation bridging loan enquiry.

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