Expert commercial mortgage broker, Richard Winston, identifies three common uses of short-term finance and tells you what you can expect in terms of rates, fees and time-scales.
In recent years, short term finance or bridging as it’s often called has increased in popularity and is now a multi-million pound business in its own right. It’s shed its “finance of last resort” reputation and is now a regular part of most landlords’ and developers’ toolkit. Often it is used for:
1. To buy property at auction (sometimes called auction finance)
Properties bought under the hammer usually have 28 days in which to complete which doesn’t leave much time to organise longer term finance. Whilst there are some buy to let lenders which can complete a mortgage application within this timescale, it can be touch and go, so short term finance can be a safer route. These days some buy to let lenders will even let you refinance straight away – in days gone by you had to wait for six months.
2. To purchase land or property ahead of planning approval
This is a common practice with many property developers, particularly, where they have identified land or property which is likely to get planning consent.
3. To buy properties in need of refurbishment
Lenders will only grant buy to let mortgages on habitable, “ready to let” properties. Many landlords and developers using bridging to purchase properties that require work before they can be let out. Once the property is habitable, they then refinance the property onto a buy to let mortgage – or sell the property on.
Bridging loan rates and terms
- Terms up to 12 months (a handful of lenders will extend this to 18-24 months)
- Loans from £50,000 to £25,000,000 (and beyond…)
- Rates from 0.65% per month
- Arrangement fees around 1.5% - 2% of the loan amount
- Up to 80% loan to value
How to repay a bridging loan
Your exit strategy from the loan is key to being offered finance, i.e. how will you repay the loan. Commonly, loans are serviced in two ways. Firstly, by making monthly interest payments and then repaying the capital amount at the end of the term. Secondly, by having the interested rolled up into loan, and paying off the entire amount (capital and interest) at the end of the term. The most widely used exit routes are refinancing or selling the property on.
- Most lenders will consider: Individuals, partnerships, limited companies and LLPs
- Some lenders will consider: Trusts, offshore companies, foreign nationals and ex-pats
- First charge over the property
- Some lenders will consider a second charge and additional security (usually a first or second charge over a separate property)
Application processing times
- Agreements in principal within four hours (can take up to 24 hours)
- Processing times vary. We often seen cases go from application to completion within 2-3 weeks, although it can take longer.
Short term finance lenders tend to take title insurance which reduces legal timescales and allows transactions to complete quickly.
How to apply
Give us a call today on 0345 345 6788 (Option 2). We can then talk through your requirements and then give you a clearer idea of rates and timescales.
You can speed up the process by preparing the following paperwork beforehand. Depending on your circumstances and the lender you may need to provide some or all of the following:
- Your latest 2-3 years’ accounts (if borrowing via a trading limited company)
- Evidence of planning approval and a breakdown of works
- Details of who will carry out any work required (including details on their experience)
- An overview of your background and experience (CV if available)
- Copies of your latest six months’ personal and business bank statements
- A schedule of your assets and liabilities
- Proof of income such as SA302s/tax returns etc.
- Proof of your identity and address
Processing the application
It’s our job to ensure that you get the money as quickly as possible. We prepare the application and supporting documentation making sure it’s in the right format for the chosen lender. We submit it for you too, and make sure it stays on track. We also make sure everyone knows what’s going on and people in the chain are doing what they need to when they need to! We have a team of case managers to do this which means you can get on with your day job – whatever that may be! We’ll just keep you updated – by phone, by email or by text – whichever works for you.
Remember our initial advice is totally free of charge and without obligation. If you’re unsure of anything, please ask. We aim to be transparent about the process, the fees and your chances of securing finance, so do get in touch to chat through the possibilities even if you’re not ready to move forward straight away.
Call 0345 345 6788 (option 3)