Background Information on Bridging Finance

With the BTL market slowing down since the (fairly) recent tax changes, more and more clients are looking to vary their investments. Short-term lending in the form of Bridging Finance is becoming an increasingly popular tool. It enables landlords/homeowners to expand and conjure up ways of making money.

For decades, Bridging Finance or Loans have been seen as an overcharged last resort lending option. This has, however, changed in the last few years with the market becoming increasingly competitive with new lenders emerging, all of whom are vying for business. Another positive is the huge number of acceptable reasons that lenders will lend and the favourable Loan to Values (LTV) they will look to. In short, if it is legal and secure in the form of a UK asset (property or land in our sector) ,then lenders will consider it.

The pricing norm would be a 2% arrangement fee, 0.75% payable monthly and 1% exit. However, although this isn’t too far from reality, some lenders are as low as 0.4 – 0.5% per month. The arrangement fees can occasionally come down to 1.5% and many have dropped the exit fee. So, it now does vary and it is therefore always worth running the case by one of Hawke’s brokers.

Outlined below are several common reasons for Bridging Finance and some of the proactive market lenders. At Hawke, we do not charge broker fees and know the market inside out. Therefore, we don’t mind giving insights into the lenders we have access to (which is the whole of the market).

Auctions

An Auction is one of the most common reasons to look at short-term finance. Completion usually needs to take place within 28 days (20 working days depending on wording), which essentially means you will require your lender and solicitors to move quickly. Hawke transacts on a large number of auction purchases and ensures timescales are met. Usually, this finance is simply used to secure the property and a refinance will take place shortly after ownership. Alternatively, under some circumstances after six months; whichever is most suitable for the client.

Refurbished Properties

Refurbished Properties almost go hand in hand with auctions as they tend to be run down. Bridging Finance can, however, also apply to normal purchases which may not be habitable or require improvement. These improvements could be cosmetic; from a new bathroom to a full renovation or extension. The main point for lenders in this scenario is experience (it is not an issue if there is no experience, it simply determines who we would use) and the extent of the works needed. An important element of all Bridging is the “exit” i.e. what will happen after the 3/6/9 or 12 months during which the lender is paid back their money. The most common is to retain as an investment or to sell. If regulated, the property can be lived in, but this should be discussed at outset.

Home Mover/Residential Regulated Bridge

Occasionally, a house to live in is too nice to let pass, so even though yours hasn’t sold you buy it anyway. In this situation, Bridging the Loan to purchase the new property whilst the other sells –  and therefore repays the bridge – can work nicely. This is particularly the case when downsizing and knowing the loan will be covered. Lenders would usually want to see the property being sold on the market or at least being in the motion of being sold. This is so that they can ensure you are not trapped on the Bridging Loan.

Tax Bills

Tax Bills are a common reason for requiring Bridging Finance. Not everyone budgets for their bill, or it is higher than expected. Either way, this is a legal reason for raising short-term finance, so lenders do lend. An exit strategy must be in place to cover the money after the agreed term. This would usually be a maximum of 12 months.

Our Bridging Finance Lenders and Hawke FS Contact Details

To mention a few lenders we use (many are exclusive just to us): Shawbrook Bank, Hope Capital, Together Money, Lend Invest, Interbay, Castle Trust, Precise Mortgages, Aspen, MT Finance, Masthaven and Affirmative. You won’t immediately know who is most suitable for your situation, so you will need guidance on rates and fees. Therefore the best place to start is to Contact Us. You can speak with Gary McKenna on 07920 511 924 / gary@hawkefs.com or John Green on 07799 387 421 or john@hawkefs.com.