Bridging Finance Broker

It is essentially flexible funds. These funds can be drawn down typically quicker, with fewer questions and for circumstances where the property (security) is not suitable for conventional finance, such as a Mortgage. However, due to the fast and flexible funding options, they are more expensive and most commonly used by Experienced Property Landlords, and Property Developers. However, these facilities are also available to the first-time user and we would recommend these users take advice in arranging this type of finance.  The most common reasons to use Bridging Finance are;

• Auction Purchase: where speed is important
• Development Exit: where the properties are completed and to be sold
• Unmortgageable properties: structure issues, no kitchen or bathroom
• Improving a property: completing works to a level where the property is not habitable or lettable
• Structure alterations: extending the property layout, such as single or multiple-story extensions, or building in the loft/basement space

Bridge-to-Let is two types of finance: offering more security if the lender will complete on the Bridging Finance (providing you complete the works you have said you will); the surveyor will be asked for the current and after-works value. It does not mean you have to take out the mortgage with that same lender after the works have been completed. When the project is near completion and a mortgage is needed to repay the bridging finance, you should look at all the options available at the time. However, should a new mortgage option be found and their surveyor down-values the property, you then have the option of taking the new lower value on a better interest rate, or you can stick with your current lender on a higher interest rate, allowing you to be able to get your expected money out of the deal and potentially reinvest in more products.

As this type of finance is so flexible most people can qualify for the finance, even if they have been declined for finance elsewhere. There are better rates when you borrow over £200k and under £5m, but £20k is the minimum finance available and up to £50m. The most important qualifying factor is equity, either in the subject property or the equity in your other properties, even your own home and these can already have mortgages.

This type of finance should be used only when it’s needed, as it is an expensive type of finance. Before this should be considered, you should inquire about cheaper finance elsewhere. Such as a conventional mortgage, or a loan from family and friends if you do not have the funds yourself. Only when your other options have been exasperated and after considering the Total Finance Costs, ensuring the project is still a worthwhile investment, should this option be taken.

Bridging Finance costs are typically the monthly interest rate, plus lender fees and then any other third-party costs such as broker, valuation & legal fees. It is also worth noting that most lenders require you to use two solicitors, The first for their interest and the second for your interest, which means you will have two lots of solicitors costs. Also, Vincent Burch Ltd does not usually charge broker fees, unless the finance is small or complicated. The average bridging loan term is 7 months.

An example cost on a £240k loan, at 0.75% monthly interest charge (9% APR) is £1,800 monthly cost x 7 months is £12,600, + 2% lenders fee (£4,800), plus £3k Solicitor fees (remember typically two lots of fees) and £600 valuation fee is £21,000 cost of finance, as a very rough guide example of working out finance costs.

Firstly, this type of finance is very flexible, there is no one-fits-all approach and there are endless uses. However, typically most business is conducted on a 75% loan-to-value Gross less finance costs (including the lenders arrangement fee and monthly interest payments) are deducted from the loan on completion.  Even if you expect to redeem the finance in a couple of months, I would always recommend you take the finance over a longer period, what you do not use you should not pay for. In these instances, typically, I would recommend a 12-month loan but only roll up 6 months of interest payments. This gives you a larger day 1 net-draw-down facility and allows a full 12-month term, for those what-ifs and maybes as you never know what might happen.

Just like other types of financing such as a mortgage, it depends on your circumstances and there is no one lender for everyone and everything. If there was 1 lender that always said “yes”, then there would be 1 lender. Currently, there are expected to be more Bridging lenders than mortgage lenders and some are more suited to your individual needs than others. You need to ensure the lender is credible, and a good example is if they are members of different associations, such as the NACFB (National Association of Commercial Finance Brokers). There are more suitable bridging lenders for speed, the experience of the applicant in completing similar projects (or lack of experience), loan sizes and reasons for needing the finance in the first instance.

Regulated Bridging Finance is when the applicant or their close family member intends to occupy more than 40% of the property. Regulated Bridging Finance is most commonly used in property chain breaks. Your buyer pulls out, and you really want the purchase property but need the funds to complete the purchase. With Regulated Bridging Finance you can use the funds to purchase the new property and move in, while still having your property up for sale.  And, when it’s sold the proceeds from the sale will repay the bridging finance and the remaining proceeds are repaid to the clients.

Unregulated Bridging is the most common type of bridging finance, it’s when you or a close family member are not intending to occupy the property.  Bridging Finance is usually used by property professionals to add value to the property and then to sell at a profit, or for Landlords to let the property on completion of the works.