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Refurbishment for Bridging & Commercial

Posted on | by Neil Alexander

Responses from Nicola Ferguson, commercial and bridging specialist, Clever Lending

Q: What kinds of properties are you seeing being refurbished the most?

NF: Generally, we are seeing a lot of conversions such as closed pubs converted into flats, large properties converted into Houses of Multiple Occupation (HMOs) and commercial property conversions where the upper floors are turned into residential and the ground floor is retained for commercial use.

Current market conditions mean property investors now have to convert properties into high yielding rental offerings to enable them to re-mortgage the properties at a later date and achieve the maximum loan-to-value (LTV) available. This is mainly because standard Assured Shorthold Tenancy (AST) properties are only attaining on average LTVs of between 50% to 65%.

Q: How important is retrofitting/making buildings more environmentally friendly? Is this something that most applications consider now, with EPC rating rules etc?

NF: It is definitely becoming more important as we creep towards the 2025 deadline. We are starting to see more clients enquire about discounted products if the property they own has an EPC rating of C or above. However, this is not really that common currently but I would imagine enquiries will increase considerably in 2024.

Q: How often do property developers present applications with misconceptions? And why do you think this is?

NF: It is actually quite common and therefore it is the job of a good broker (such as Clever Lending) to ensure they collate all the relevant information required by the lender before fully presenting it to them for consideration.

Most of the time this happens with inexperienced builders or developers, or first-time buyers for self builds for example, as they do not realise how much information is required by the lenders in order to establish whether or not it is a good project for which to provide funding.

We tend to find that once a customer has completed their first project, as with most experienced professional property developers and builders they are generally more prepared and have the basic information available on the initial enquiry. Lenders requirements can change and each project may have specific requirements, so it’s good to keep talking to us.

Q: What’s your best advice for those looking to invest in refurbishment?

NF: The best advice I can give is to not rush into any purchase. Do your due diligence and buy at the right price, although I know this is easier said than done, but it’s important to be patient as rushing into a decision always causes issues later on.

It is also important to ensure you are adding value to the property. If you are not flipping the property and re-mortgaging onto a Buy To Let, double check that you can raise the loan amount you desire first.

Refurbishing the property into a high yielding property such as an HMO or holiday let is also advisable as most standard property AST rentals do not stack up at 75% LTV currently, and are, on average, achieving LTVs of between 50% and 65%.

Bridging & Commercial Refurbishment Q&A

Posted on | by Neil Alexander

Responses from Nicola Ferguson, commercial and bridging specialist, Clever Lending

Q: What kinds of properties are you seeing being refurbished the most?

NF: Generally, we are seeing a lot of conversions such as closed pubs converted into flats, large properties converted into HMOs and commercial property conversions where the upper floors are turned into residential and the ground floor is retained for commercial use.

Current market conditions mean property investors now have to convert properties into high yielding rental offerings to enable them to re-mortgage the properties at a later date and achieve the maximum loan-to-value (LTV) available. This is mainly because standard Assured Shorthold Tenancy (AST) properties are only attaining on average LTVs of between 50% to 65%.

 

Q: How important is retrofitting/making buildings more environmentally friendly? Is this something that most applications consider now, with EPC rating rules etc?

NF: It is definitely becoming more important as we creep towards the 2025 deadline. We are starting to see more clients enquire about discounted products if the property they own has an EPC rating of C or above. However, this is not really that common currently but I would imagine enquiries will increase considerably in 2024.

Q: How often do property developers present applications with misconceptions? And why do you think this is?

NF: It is actually quite common and therefore it is the job of a good broker to ensure they collate all the relevant information required by the lender before fully presenting it to them for consideration.

Most of the time this happens when you are dealing with inexperienced builders or developers, or first-time buyers for self builds for example, as they do not realise how much information is required by the lenders in order to establish whether or not it is a good project for which to provide funding.

We tend to find that most experienced professional property developers and builders that have used development finance previously, are generally more prepared and have the basic information available on the initial enquiry.

Q: What’s your best advice for those looking to invest in refurbishment?

NF: The best advice I can give is to not rush into any purchase. Do your due diligence and buy at the right price, although I know this is easier said than done, but it’s important to be patient as rushing into a decision always causes issues later on.

It is also important to ensure you are adding value to the property. If you are not flipping the property and re-mortgaging onto a BTL, double check that you can raise the loan amount you desire first.

Refurbishing the property into a high yielding property such as an HMO or holiday let is also advisable as most standard property AST rentals do not stack up at 75% LTV currently, and are, on average, achieving LTVs of between 50% and 65%.

Empowering Your Property Moves with Regulated Bridge Financing

Posted on | by Neil Alexander

In the midst of uncertain times, opportunities arise, and the world of property transactions is no exception. Despite the chaos, the realm of regulated bridging loans is flourishing, capturing 46% of transactions. It stands as a solution for property acquisitions, breaking free from chains, and streamlining downsizing endeavours. The pillars of reassurance, flexibility, and speed bolster its appeal.

It’s often said that within disorder lies the chance for advancement. This sentiment holds true for the property market. Despite the global and local uncertainties of recent years, the specialty lending sector, specifically bridging loans, has experienced remarkable growth. Figures from Bridging Trends reveal a 64% surge in inquiries during the initial three months of 2023 compared to the last quarter of 2022.

Navigating Challenges through Brief Financing Support

Of particular note is the surge in popularity of regulated bridging loans, constituting 46% of all bridging transactions within this period. As understanding of this sector continues to expand, both brokers and homeowners are recognizing the advantages of utilizing short-term financing to effectively navigate the complexities of property acquisition in today’s economic landscape.

While media reports have highlighted rising interest rates and uncertainties in the housing market, predictions of its demise are overly dramatic. The desire to own property remains strong among consumers, and the need to address residential financing requirements persists.

True, the current mortgage market volatility and the financial pressures stemming from the cost of living predicament pose challenges for those seeking refinancing. However, consumer needs endure regardless of the perceived market conditions.

The Role of Regulated Bridging Loans

In reality, overcoming these hurdles is attainable, with regulated bridging loans emerging as a valuable solution. These loans are increasingly being employed to bridge the gap between property purchase and sale, especially for chain breaks.

In fact, chain break purposes now dominate the reasons for consumers choosing regulated bridging, accounting for 25% of all transactions in Q1 2023, according to Bridging Trends—up from 15% in the previous quarter.

This surge in demand is unsurprising, given that utilizing a bridging loan to break property chains empowers homeowners to swiftly secure funds required to navigate the challenges of chained property sales. This approach enables the outright purchase of a new property before repayment is due upon selling the existing one.

This not only adds certainty to property transactions, mitigating potential costs and delays associated with failed sales, but also prevents the need for underselling the current property to ensure a sale.

Regulated bridging loans also prove advantageous for brokers assisting downsizing clients. These loans facilitate the unlocking of equity from the current home, enabling the purchase of a smaller property without time pressure.

Moreover, they grant clients the freedom to choose when to sell their existing property, avoiding reactionary decisions influenced by an unpredictable economy. This is particularly appealing to those seeking to make informed choices on their terms.

The rapid release of funds further enhances the allure of regulated bridging products within a dynamic market. Applications are often processed within weeks, enabling swift action. In all cases, clients must have a clear exit strategy—typically the sale of their existing property.

Maximising returns in a challenging market

Posted on | by Damien pepper

By Matthew Dilks, Bridging and Commercial Specialist, Clever Lending

Given the continued uncertainty in the mortgage market and wider UK economy, reports of ageing landlords selling up and retiring from the buy-to-let (BTL) sector can be generally viewed as unsurprising. According to estate agency Hamptons, around 140,000 landlords left the sector last year, accounting for almost three quarters of all property sales by BTL investors.

Changing Demographics of Exiting Landlords

However, the figures show that it is predominantly older landlords leaving the market, many of whom were the early adopters of the first BTL mortgages in 1996. The report also shows that approximately 96,000 landlords in the UK are expected to turn 65 years old this year, suggesting many more may follow suit.

While the ongoing media speculation of a mass BTL exodus could be viewed as alarming, the fact is that many of these landlords entered the BTL market for the very reason they are now leaving – to fund their retirement.

This means that their recent exit presents an opportunity for those remaining in the sector to capitalise on their divestments and improve their existing yields by purchasing additional property and expanding their portfolios using a bridging loan. 

Bridging Loans: A Strategic Financial Tool

A bridging loan is an excellent financial tool that can be used by landlords and investors actively looking to expand their portfolios as it allows them to act quickly and seize opportunities as they arise. This is particularly attractive for those looking for a quick cash injection to purchase a property where there is a very short completion deadline.

It is also appealing for those seeking to purchase a property that is below market value or capitalise on any tenanted properties that may go to auction, as the ability to move quickly is likely to act in their favour, as the funds can be released within weeks.

Bridging loans can also be used to purchase other properties at auction, such as those deemed to be unmortgageable because they have fallen into disrepair or have no working bathroom or kitchen. In this case, taking out a bridging loan will allow the investor to purchase and refurbish the property to a much higher standard, before selling it on or remortgaging and renting it out to repay the loan. 

Unlocking Property Potential

Being agile is also appealing in cases where an investor may need to raise capital in order to carry out improvements to an existing property, particularly during periods of transition when one tenant leaves and another moves in. By taking out a bridging loan, investors can use the money to bring under-performing assets up to scratch in order to achieve maximum returns.

Whether the funds are used for simple changes such as painting or decorating or extensive repairs and renovations to existing stock, using bridging as a tool to update a property can help landlords improve its kerb appeal, increase its value and subsequently improve yields. 

Capitalising on Market Shifts

While there is no denying that the current volatility in the mortgage market is causing ripples throughout the BTL sector, it is important to note that the affordability pressures and reduced disposable income levels facing landlords and investors are being felt throughout the entire market.

However, with long-established older landlords choosing to retire from the BTL sector, there is still an opportunity for brokers with clients looking to expand their portfolio or even enter the sector, to capitalise on the current changes.

Using a bridging loan as a means of capital raising will enable investors gain swift access to cash and provide them with the ability to move quickly on a purchase or project, an important ability in a rapidly changing market.

property development finance

Preparation is key to securing property development finance

Posted on | by Neil Alexander

By Matthew Dilks, Bridging and Commercial Specialist, Clever Lending

Development finance is an extremely niche and specialist area of the mortgage market. No two projects are the same and the level of financing involved often varies from tens of thousands to multi-million-pound deals depending on the type of project being undertaken.

Typically, development finance is often used for large scale residential or semi-commercial projects such as ground-up builds, but can also be used for commercial to residential conversions, extensions and for smaller-scale heavy refurbishment projects.

Most recently, rising interest rates and high inflation have had an impact on the sector, forcing substantial increases to the cost of labour and materials required to complete these projects, resulting in a squeeze on margins for many property developers. Yet despite this pressure, demand for development financing still remains high.

Admittedly, placing business in the current economic climate has been challenging due to tighter lending criteria and more scrupulous underwriting practices, but it is definitely not impossible. As with all aspects of the mortgage market, knowledge of this niche area is essential to getting the deal done which is where the importance of financial advice comes into its own.

Securing Funding for Property Development: How Clever Lending Can Help You Succeed

At Clever Lending, we consistently receive, and successfully place, enquiries ranging from larger £2 million plus deals to small-scale property developments worth between £250,000 and £500,000, with many of these clients seeking funding for heavy refurbishments, change of use or extensions to existing properties.

Knowing where to place the business and understanding what each lender is willing to offer is crucial to securing funding. For example, not all lenders will finance small scale developments worth less than £750,000, which is why using a specialist broker familiar with this area is important. 

Preparation and planning also play a crucial role in property development cases and it is essential that all required certifications and insurances are signed off and in place before an application for funding is submitted, as this will help to streamline the process and prevent the application from stalling.

Having a detailed and itemised schedule of works that clearly lists the costs and timescales associated with each stage of any planned development, as well as a Joint Contracts Tribunal (JCT) contract, is also important as it enables the lender to see how the project is expected to progress towards completion.

Generally, it is always recommended that inexperienced developers employ contractors, builders and architects with previous project management experience as this helps to reassure lenders that deadlines can be met and that the project is being managed by skilled and experienced workers.

As with all types of short-term funding, having an exit route is vital and the value of the land and/or project in its current state; build costs and the estimated end value of the completed project need to be determined before a loan amount can be agreed. It is also recommended that all applications be submitted with full planning permission where possible, as this can help to ensure the funds are released quickly.

Generally, the application process is often more efficient for those clients who have equity to put into the project, such as those that can buy a property outright but need to borrow funds for the actual development. This is an important consideration for smaller developments as the funds released on day one of drawdown typically amount to between 55-65% LTV, so those developers that already own land are likely to find the deal progresses with greater ease.

Getting the right property development finance in place is essential to the success of any development project. Lenders will always require a detailed plan of the proposed project as well as proof that it can be completed before any agreement can take place. 

Brokers unfamiliar with this niche area of the mortgage market can refer their client to a specialist broker with expertise in the area, such as Clever Lending as we can help you navigate the intricacies of the development finance sector and ensure your client gets the support they need when embarking on a property development project.

property development finance

Preparation is key to securing property development finance

Posted on | by Neil Alexander

Q: What is development finance, and what makes it a niche area of the mortgage market?

A: Development finance is a specialised area within the mortgage market that deals with funding for various types of development projects. It is considered niche because each project is unique, and the level of financing can vary significantly, ranging from tens of thousands to multi-million-pound deals. The financing is typically used for large-scale residential or semi-commercial projects like ground-up builds, commercial to residential conversions, extensions, and smaller-scale heavy refurbishment projects.

Q: How has the recent economic climate affected the development finance sector?

A: The recent economic climate, characterised by rising interest rates and high inflation, has impacted the development finance sector. These factors have led to increased costs for labour and materials required to complete development projects. As a result, property developers are experiencing a squeeze on their profit margins. Despite these challenges, there is still a high demand for development financing.

Q: How has the lending environment changed in the current economic climate?

A: In the current economic climate, the lending environment has become more stringent, with tighter lending criteria and more rigorous underwriting practices. As a consequence, obtaining financing for development projects has become more challenging. However, with the right knowledge and expertise, it is still possible to secure funding.

Q: What role does financial advice play in the development finance process?

A: Financial advice plays a crucial role in the development finance process. Due to the complex nature of this niche area, having proper financial guidance is essential for securing the best deals and navigating the intricacies of the development finance sector.

Q: What types of projects do lenders typically finance with development finance?

A: Lenders typically finance large-scale residential or semi-commercial projects, such as ground-up builds, commercial to residential conversions, extensions, and smaller-scale heavy refurbishment projects. The financing can range from larger deals worth £2 million and above to smaller developments valued between £250,000 and £500,000.

Q: What factors are important when applying for development finance?

A: When applying for development finance, preparation and planning are critical. It is essential to have all required certifications and insurances in place before submitting the funding application to avoid delays. A detailed schedule of works with itemised costs and timescales, as well as a Joint Contracts Tribunal (JCT) contract, is crucial for showcasing the project’s progress to the lender.

Q: Why is it recommended for inexperienced developers to employ contractors and professionals with project management experience?

A: Inexperienced developers are advised to hire contractors, builders, and architects with previous project management experience. This helps to reassure lenders that the project will be efficiently managed, deadlines will be met, and the work will be carried out by skilled and experienced workers.

Q: What factors should be considered in determining the loan amount for development finance?

A: To determine the loan amount for development finance, several factors need to be considered. These include the current value of the land or project, the estimated build costs, and the projected end value of the completed development. Having a clear exit route is also essential for lenders.

Q: How does having equity in the project impact the application process for development finance?

A: Having equity in the project, such as owning the land outright, can streamline the application process for development finance. Developers with equity can typically receive funds on day one of drawdown at a higher Loan-to-Value (LTV) ratio, usually between 55-65%, which makes the deal progress more smoothly.

Q: What role can specialist brokers like Clever Lending play in securing development finance?

A: Specialist brokers like Clever Lending can be invaluable in securing development finance. They have expertise in this niche area of the mortgage market, and they can help clients navigate the complexities of the development finance sector, ensuring they get the necessary support for their property development projects.

Bridging lending falls in Q2 as rising interest rates place finances under pressure

Posted on | by Damien pepper

Key Points:

  • Lending falls 41% in Q2
  • Average monthly interest rate jumps to a 3-year high
  • Investment purchase demand recovers
  • Demand for regulated bridging increases

According to the latest Bridging Trends data, bridging loan transactions in the second quarter fell to £165.7 million – the quietest quarter since Q1 2022.

Consumer caution in taking on unnecessary debt amid stubbornly high inflation and mortgage interest rate rises impacted the overall demand for bridging finance in Q2, with Bridging Trends contributors* reporting £165.7 million in bridging loan transactions – the lowest quarterly figure since Q1 2022 (£156.77 million) and a 40.6% drop from Q1’s record-breaking £278.8 million.

The effects of consecutive base rate hikes continued to further impact the bridging market, pushing the weighted average monthly interest rate on a bridging loan from 0.79% to 0.84% – the highest interest rate since Q2 2020 (0.85%).

Despite this rise borrowers are not overstretching themselves as the average loan-to-value remained comfortably under 60%, at 56.9%, an increase from 54.7% in Q1. This reluctance to overburden themselves unnecessarily was further demonstrated by “minimum loan amount” replacing “regulated bridging” as the top criteria search made by brokers on Knowledge Bank’s system in Q2.

Soaring interest rates and product pulls from mortgage lenders have impacted confidence in the mortgage market, causing borrowers to turn to bridging finance to complete their property purchases. In Q2, regulated bridging extended its market share from 46.2% in Q1 to 48.7% – the highest proportion since the 53% reported in Q3 2020 amid the stamp duty holiday. Furthermore, demand for bridging loans to prevent chain breaks remained the most popular use for bridging finance for the second consecutive quarter – at 24%.

Property investors and landlords returned to the market in Q2, with bridging loans for investment purchase purposes jumping from 15% in Q1 to 22% in Q2, likely due to investors and professional landlords taking advantage of a sluggish property market to purchase assets at a reduced rate.

Whilst second charge bridging loan demand dropped for the fourth quarter in a row to its lowest level since Q3 2021, decreasing from 11.2% in Q1 to 10.7% in Q2.

Pressure on the industry continued as the average bridging loan completion time jumped from 54 days in Q1 to 58 days in Q2. The average term of a bridging loan remained consistent at 12 months.

Matthew Dilks, Bridging & Commercial Specialist at Clever Lending, comments:

“I have heard suggestions that regulated bridging will start to reduce as property sale exits are squeezed by lower sale values being achieved, but these figures along with what we are seeing at the start of Q3 show this isn’t really happening yet and I’m not sure it will either going forward. Within the chain break figures listed, I would anticipate a decent proportion of these will be downsizers and such borrowers have substantial equity, so can ride slight reductions in their eventual sale price.

“Finally, it’s also interesting to see a rise in finance for heavy refurbishments and I would expect to see this continue with professional portfolio investors seeking to improve yields with many opting to buy properties and immediately refurb, with many taking advantage with amateur landlords selling up.”

Sam O’Neill, Head of Bridging at Clifton Private Finance, comments:

“The rise in rate doesn’t come as a huge surprise but it’s good to see that it isn’t as much of a dramatic knee-jerk reaction as perhaps it could have been. “Chain break” leading the charge in loan purposes shows that despite cost, a bridging loan is often a means to an end and that the juice is worth the squeeze. Similarly, it’s no surprise to see investment purchases on the rise as investors (new and old) capitalising on opportunities in the marketplace often come to the surface at times of uncertainty.”

Dale Jannels, MD at impact Specialist Finance, comments:

“Although these latest figures might seem gloomy in terms of lending volumes in Q2, it feels far from it in terms of enquiries, although it is definitely harder and more time-consuming to get some cases placed and funded with interest rates where they are currently. Despite this, what we are seeing is more motivated borrowers and fewer ‘tyre kickers’, which leads me to suspect a degree of pent-up demand is there and is ready to be unleashed once economic conditions become more favourable.”

To view the full Q2 2023 infographic and figures, please visit www.bridgingtrends.com

Despite uncertainty, regulated bridging is gaining popularity

Posted on | by Damien pepper

Welcome to the world of regulated bridging loans, where exciting opportunities arise from times of uncertainty. As someone looking to step into the property market, you’ll be thrilled to know that even amidst economic fluctuations, there’s a path that can help you achieve your goals. Recent data from Bridging Trends highlights a remarkable 64% increase in enquiries during the first three months of 2023 compared to the previous quarter in 2022.

In this easy-to-follow Q&A, we’ll uncover the ins and outs of regulated bridging loans, shedding light on why they’re gaining popularity among homeowners like you. From simplifying property transactions to overcoming the challenges posed by today’s economic climate, regulated bridging loans offer a promising way forward. Whether you’re a seasoned property enthusiast or new to the market, this guide will provide valuable insights to help you make informed decisions and embrace the opportunities that regulated bridging loans bring to your property journey. Let’s embark on this journey together and discover how regulated bridging loans can turn your property dreams into a reality!

Q1: Ever heard the saying, “Out of chaos, comes opportunity”? Let’s talk about how this applies to the world of bridging loans and how they can be your ticket to navigating the property market.

A: Welcome to the realm of bridging loans, where exciting possibilities emerge even in uncertain times. This unique corner of the lending world has been thriving despite the ups and downs of the global and local landscape. Recent numbers from Bridging Trends reveal a whopping 64% surge in inquiries during the first three months of 2023 compared to the end of 2022.

Q2: What’s the buzz around regulated bridging loans and why are they gaining popularity?

A: Regulated bridging loans are making waves, accounting for 46% of all bridging transactions lately. People like you – whether you’re a homeowner or a property enthusiast – are starting to see the perks of short-term financing. It’s like a secret weapon to tackle the challenges of purchasing property in today’s ever-changing economic climate.

Q3: Are media reports about interest rates and the housing market downturn true?

A: While the news might make it seem like the housing market is on shaky ground, the reality is different. People’s eagerness to buy property is still high, and the need to help you get the right financing for your home isn’t going away.

Q4: How do these loans come to the rescue for those looking to refinance?

A: Admittedly, the mortgage market is a bit rocky right now, and rising living costs can add to the pressure. But don’t worry – your needs aren’t going unnoticed. Even when the market isn’t in its prime, there are solutions that can help you overcome hurdles. Regulated bridging loans, for instance, step in as a lifeline to bridge the gap when you’re buying and selling property.

Q5: Tell me more about using regulated bridging loans for chain break purposes.

A: Picture this: You need to sell your current home to buy a new one, but the process is dragging due to property chains. Regulated bridging loans can swoop in to save the day. They let you access funds quickly, so you can purchase your new dream home before selling your existing one. No more worries about sales falling through or rushing to sell at a low price – you’re in control.

Q6: What other advantages do these loans offer?

A: Here’s the magic: If you’re downsizing, a regulated bridging loan can be your best friend. It lets you unlock cash from your current home to buy a smaller property, all without feeling rushed. Plus, you decide when to sell your current place, no need to stress over the unpredictable economy. It’s your move, your way.

Q7: How quick is “quick” when it comes to these loans?

A: Speed is the name of the game. Regulated bridging loans are designed for the fast pace of today’s world. Applications are processed in a matter of weeks, making sure you can seize opportunities as they come.

Q8: What’s the exit plan for these loans?

A: Every good story needs an ending, and the same goes for these loans. Typically, the exit plan involves selling your current property. It’s all about having a clear strategy to wrap things up neatly.

Q9: What if I’m new to all of this?

A: Don’t worry if the world of regulated bridging loans seems unfamiliar. You’ve got experts on your side. If you’re working with brokers who aren’t yet pros in this area, they can connect you with specialist master brokers like Clever Lending. They’re your guides, helping you make sense of this growing field and ensuring your needs are met every step of the way. Let the journey begin!

Regulated Bridge – Chaos breeds opportunity

Posted on | by Damien pepper

By Matthew Dilks, Bridging and Commercial Specialist, Clever Lending

It is often said that out of chaos, comes opportunity, and that is certainly true of the bridging sector. This area of the specialist lending market has seen substantial growth amid the global and domestic uncertainty of the last few years, with enquiries up 64% in the first three months of 2023, compared to the final quarter of 2022, according to recent figures from Bridging Trends.

 

Navigating Challenges with Short-Term Financing

Regulated bridging in particular has seen a surge in popularity, accounting for 46% of all bridging transactions in this time, as awareness of the sector continues to increase with both brokers and residential homeowners starting to acknowledge the benefits of using short-term financing to help them navigate the challenges of buying a property in the current economic climate.

While recent media reports of rising interest rates and a faltering housing market have certainly been plentiful, talk of the market’s decline are somewhat alarmist. Consumer appetite for buying a property remains high and there will always be a need to address the home financing requirements of residential consumers.

Admittedly, the current volatility in the mortgage market coupled with the squeeze on income due to the cost of living crisis is presenting some challenges for those customers looking to refinance, but the needs of consumers do not stop just because market conditions are considered to be less favourable.

The Role of Regulated Bridging Loans

In fact, navigating these obstacles is certainly achievable and short-term financing solutions such as regulated bridging loans are increasingly being used to help bridge the gap between buying and selling a property and for chain break purposes.

The use of regulated bridging for chain purposes alone is now the most common reason why consumers take out the product and accounted for 25% of all transactions in Q1 2023 according to Bridging Trends, a jump from 15% on the previous quarter.

This uptick in demand is unsurprising as using a bridging loan for chain break purposes allows homeowners to quickly raise the funds needed to circumvent the problems associated with property chains as it enables them to purchase a new property outright before repaying the loan when they sell their existing home. 

This can help to provide surety around the property purchase and help to prevent the costs and delays that can sometimes come with a sale falling through. It can also help to prevent the buyer having to sell their current property at a lower price simply to ensure the sale goes ahead.

A regulated bridging loan is also a useful tool for brokers with clients looking to downsize, as it provides them with the opportunity to unlock equity in their current home and use the cash to purchase a smaller property without the pressure of being rushed.

It also offers the client the freedom of being able to choose when to sell their current property, rather than reacting to the changes in an increasingly volatile economy. This can prove extremely attractive to those who want to move on their own terms and not feel rushed into making a decision.

The speed at which the funds can be released also makes regulated bridging products an attractive proposition in an ever-changing market as they allow consumers to move quickly as applications are often processed in a matter of weeks. In all cases, the client will need to have a clear strategy for exiting the loan, which is often the sale of an existing property.

 

Guiding Clients with Specialist Support

Brokers unfamiliar with this area of the market, but with clients who could benefit from a regulated bridging loan, can refer clients to specialist master brokers such as Clever Lending who can guide you through the process and help you navigate this growing area of the mortgage market while continuing to meet the needs of clients.

Bridging for BTL clients

Posted on | by Damien pepper

By Matthew Dilks, bridging and commercial specialist, Clever Lending

In the current economic climate of rising interest rates and ongoing uncertainty in the mortgage market, many buy-to-let (BTL) landlords are facing numerous challenges when it comes to trying to secure a fixed rate mortgage deal.

The days of plentiful fixed rate products are now a thing of the past and many mortgage offerings are becoming increasingly short-lived as lenders pull rates at an alarmingly rapid rate as they struggle to keep up with the constant fluctuations in the mortgage market.

According to financial data firm Moneyfactscompare, nearly 10 per cent of UK residential and buy-to-let mortgage deals totalling 800 products, were pulled from the market in the last week of May, with the number of BTL mortgages falling by 403 to 2,343 in seven days. Although latest figures are yet to be announced, this trend will only be continuing.

Meanwhile, the average rate on a five-year fixed rate BTL deal is now hitting 6.29%, as lenders try to curb the impact of inflation on escalating mortgage costs, with predictions for higher rates ahead following the Bank of England’s recent decision to increase the base rate to 5% in mid-June.

What is the impact for landlords?

For BTL landlords, this is causing a real squeeze on margins as affordability constraints leave many struggling to secure finance or remortgage onto a cheaper fixed rate deal and therefore face the prospect of having to move onto a product transfer with a higher standard variable rate of interest.

With yields already dropping and other factors such as the forthcoming Energy Performance Certificate (EPC) requirements deadline in 2025 also on the horizon, higher monthly mortgage repayments are not ideal. Many landlords are already facing increased mortgage and maintenance costs, so seeking out ways to maximise returns and move quickly in a volatile market is key.

For brokers with BTL landlords as clients, now is the time to ask your clients to take stock of their portfolios and consider the ways in which under-performing assets can be repurposed for maximum returns through the use of a bridging loan.

Bridging loan

Bridging loans can serve as a useful financial tool for landlords looking to quickly raise capital to purchase an additional property or carry out improvements to an existing one. This could be through simple changes such as painting or decorating through to extensive repairs and renovations to existing stock.

Bridging loans can also be used for a variety of other purposes, including to buy another property quickly or at auction; to extend the lease on an existing property or to carry out maintenance to improve a property’s overall value. Once the work has been completed, the client can then exit the loan by refinancing onto a standard mortgage.

As the funds are released quickly, the chances of missing out on a property purchase because a deal has been withdrawn are also reduced, which provides greater peace of mind for the borrower and can prove vital for landlords in an uncertain market.

Bridging loans can also be used for residential purchases, and are particularly useful in situations where a client is looking to downsize and needs to break a chain in order to purchase another property before selling their existing asset.

As the maximum term on bridging loans is 12 months for residential purchases and up to 24 months for BTL or commercial properties, they are ideal for BTL landlords as they enable them to gain swift access to cash and move quickly on a purchase or project – an essential ability in a rapidly changing market.

Given the current challenges within the mortgage sector, the ability to move quickly and with ease is an important advantage for BTL clients. Bridging loans offer the means to achieve this by enabling them to expand their portfolio or carry out the work required to update under-performing assets so they can ensure they maximise returns and get the most out of their investments.