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Thinking creatively when it comes to financing your next property purchase

Even amidst rumours of its demise, it is undeniable that the UK’s real estate sector is hugely attractive among both international and domestic investors.

Thanks to increasing prices and health yields, commercial and residential properties have remained popular ventures for those seeking safe and secure assets able to withstand sudden and volatile market shocks.

According to recent figures, strong market demand has pushed the average price of a UK home to £225,000, and property forecasters anticipate incremental increases over the coming 12 months despite a potential interest rate hike and uncertainty surrounding Brexit.

The competitive nature of the UK real estate market has, however, made it more challenging for prospective homebuyers seeking to move onto or up the property ladder.

Limited supply and rising demand have led to a rise in the number of property chains, in turn increasing the time it takes to complete a purchase and thereby meaning there is a greater risk of the deal falling through.

More and more deals are falling through

In Q1 2018, the number of house sales falling through before completion had reached 38.8% – this is up from 34.9% a year earlier and the highest recorded figure in over a decade.

Of these failed purchases, nearly half (46%) were due to a buyer changing their mind, or the seller becoming frustrated by the time it was taking to negotiate and exchange keys.

Understandably, the delays typically encountered when stuck in a property chain has become a source of frustration for prospective buyers, with the added repercussion that a collapsed chain can lead to thousands of pounds worth of solicitor, conveyancing and broker fees which ultimately amass to nothing.

With delayed chains affecting more buyers and sellers, there is a clear need for people to think more creatively when it comes to buying a property.

From the outset, a strategy is needed which takes into account the different scenarios that could arise, including a broken chain.

Indeed, people must consider unforeseen time delays ranging from the initial negotiation period right through to the days leading up to the completion of sale.

Moreover, it goes without saying that having access to the finance needed to commit to a purchase is of utmost importance.

The mortgage application and approval process can be time-consuming, made more complicated by the stringent lending measures that have been introduced in recent years.

Having a mortgage agreed in principle prior to a purchase is of course standard practice, but the ensuing background checks, mortgage affordability interviews or changes in earning as the property negotiations develop can lead to significant delays down the line.

As such, it is important that property buyers – particularly the more seasoned property investor who is far more active in this market – have a firm grasp of the options available to them if a mortgage is not viable.

Keeping your options open

Moving beyond the traditional finance instruments available to borrowers, alternative finance solutions such as specialist bridging loans can be ideally suited for those stuck in a chain.

Bridging loans are by their very nature a flexible and versatile solution, ensuring the rapid release of capital by using an existing property asset as a security.

The specific application varies according to the financial circumstances of each buyer, but in most cases, bridging loans ensure a buyer can purchase a property if there are delays in receiving the funds from a sale of an existing property or because another lender is unable to act quickly enough.

This type of creative thinking and willingness to look beyond traditional finance solutions has significant potential for those at risk of being stuck in chain.

Having access to capital places any buyer in a position of strength – it helps negotiations move more quickly and in turn reduces the risk of buyers getting locked in complicated chains or there being delays that result in a deal falling through.

Bridging loans will not be suitable for everyone, of course. Nevertheless, it remains important for those who are active in the UK’s property market to know the options available to them and understand how they can avoid some of the problems that are causing an increasing number of real estate deals to break down.

Source: Mortgage Introducer

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Two-thirds of brokers report bridging rise

65% of brokers saw an increase in bridging loan volume in the third quarter of 2017, a rise on 48% in the second quarter, according to the latest Broker Sentiment Survey from bridging lender, mtf.

The geographical spread of bridging loan demand also broadened in the third quarter and for the first time 9% of the 96 brokers surveyed cited an increase in demand in Scotland and Northern Ireland, respectively.

For the fourth consecutive quarter, the South East saw the biggest demand for bridging loans in the UK at 48%, although this represented a drop from 62% in Q2. The second highest area of demand was London, at 25%.

Also for the fourth consecutive quarter, funding development projects was the most popular reason for taking out a bridging loan at 30%, followed by business purposes at 17%.

However, some 69% of brokers said the bridging loan process took longer than it was 12 months ago. While 45% said it took under three weeks to complete a bridging loan, and 18% cited a mere one to two weeks, some 55% said it took in excess of three weeks.

34% suggested three to four weeks was the average length to complete a bridging loan, while 21% indicated that bridging loan cases generally took more than four weeks to complete.

Almost three-quarters of brokers surveyed blamed solicitors as the main reason for delay, followed by the valuer at 13%.

James Anderson, head of new business at mtf, said: “Bridging loans remain an important financial tool for borrowers and demand continues to grow.

“Speed has always been a vital element in bridging finance and it is important that solicitors understand what is required, so that bridging finance requests can be completed as quickly and accurately as possible.

“There are some excellent firms of solicitors to choose from and many bridging loan lenders, like mtf, use a panel of pre-approved firms to help speed up a bridging loan transaction for the applicant.

“At mtf, we take a fast, non-status based approach to lending going back to the traditional roots of bridging finance. Our approach is streamlined; no application forms, no upfront fees, offers in principal within 12 hours of enquiry and valuations within 48 hours.”

Source: Best Advice

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Bridging loan volume soars in Q1

Bridging lending reached £154.02m in Q1 2018, up almost a third compared to £118.79m for the same period last year, Bridging Trends data found.

This is the highest volume recorded since Bridging Trends launched in 2015, almost doubling £80.47m of lending during Q1 2015. Prior to Q1 2018, volume peaked at £150.07m during the second quarter of 2017.

Alan Dring, consultant at Hope Capital, said: “It’s a healthy trend that’s continuing, is good to hear and is encouraging for rest of the year. The first quarter was frustrated by bad weather but the confidence is still there and these figures are a good relfection of a confident, active sector.

“However service levels for bigger lenders are being jeopardised by appetites for more business at higher LTVs and lower rates, chasing the market and not necessarily quality and as a consequence these figures could be influenced by poor service levels.

“These figures don’t surprise me, they encourage me. Hopes’s figures in second quarter will be better than first which was our record.

“They’re gaining opportunity on the back of diminishing service levels of larger lenders who could be accused of getting greedy in a market steadily increasing. There’s every reason to be optimistic if you get your model right.

“The figures are also down to education with brokers becoming more knowledgable and aware of opportunities.”

The average term of a bridging loan was 11 months during the second quarter, down from 12 months in the previous quarter.

For the third consecutive quarter, mortgage delays were the most popular reason for obtaining a bridging loan, accounting for 24% of all lending.

For the first time, auction purchases were the second most popular reason for getting a bridging loan at 20% – up from 4% during the same quarter last year, as an increasing number of people benefitted from fast access to capital.

Refurbishment was the third most popular reason for obtaining a bridging loan during the first quarter at 18%.

A completion time of 48 days during Q1 2018 was lower than an average completion time of 50 days during Q1 2017.

The average term of a bridging loan was 11 months during the second quarter, down from 12 months in the previous quarter.

Average monthly interest rates remained at 0.83% for the second consecutive quarter and were 0.83% during the same quarter in 2017. Average LTV levels increased to 49.1% in Q1 2018, from 46.2% during the Q1 2017.

Regulated bridging loans increased for the first time since Q1 2017, with the number of regulated loans conducted by contributors increasing to 43.7% in Q1 2018, compared to 42.6% during Q4 2017.

First legal charge lending increased to 83.7% of all loans during Q1 2018, up from 80.3% in the fourth quarter. Meanwhile, second charge loans increased to 16.3% compared to 13.4% during Q1 2017.

Joshua Elash, director of bridging finance lender, mtf, said: “It is particularly interesting that pricing has remained stable, despite an increase in regulated lending. This suggests that the recent downward pressure on rates might be easing and in the unregulated space, going the opposite way.

“Also, particularly interesting is the increase in bridging loans for auction purchases, considering the otherwise quiet property market, where transactional volumes have been adversely impacted by recent changes to buy-to-let income tax treatment and exorbitant increases in stamp duty.”

Tomer Aboody, director of bridging finance lender mtf, said: “Bridging volume has peaked to its highest level as the product becomes an increasingly mainstream financial tool.

“This is good news for borrowers that are able to access fast and vast pools of capital to fulfil their short-term funding needs as well as a growing number of investors attracted to the space.”

Source: Mortgage Introducer

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Will the bridging boom continue?

House price growth is slowing in many areas across the UK and many developers and investors are choosing to boost the value of their property portfolios by carrying out repairs and refurbishments. As a result, we are seeing a boom in bridging finance, but will this continue and what does the future bridging landscape look like?

With Brexit looming large on the horizon, we recognise that there may be challenges ahead due to ongoing economic and political uncertainty. However, from our perspective, we are confident that the bridging market will continue to flourish. Indeed, this confidence is reflected by research from the Association of Short Term Lenders, which found that 78% of its members expect their business to grow, with almost all (93%) identifying the provision of short-term finance to SME housebuilders as a growth area.

We remain optimistic in the bridging sector in both the short and longer term. According to our SME Growth Watch research, the number of SMEs in the construction of domestic building sector has grown by 38% in the past five years, while the number of smaller firms in the renting and operating real estate sector – which includes buy-to-let – has risen by 16% over the same time period. This is positive news for the future of bridging as – with mortgages approvals taking longer – we believe developers and investors will increasingly look to short-term finance solutions to make the most of opportunities as they arise.

Regulatory changes are also set to lead to increased demand for bridging finance. From 1st April, government guidelines stipulate that “landlords of privately rented domestic and non-domestic property in England or Wales must ensure that their properties reach at least an energy performance certificate (EPC) rating of E before granting a new tenancy to new or existing tenants”. Properties that do not comply with these standards could require renovations and improvements and this is where bridging can help, enabling landlords and investors to get access to finance and make changes relatively quickly. The new EPC regulations will be rolled out to non-domestic properties from 1st April 2023, again providing another opportunity for the sector.

With house price growth slowing and regulatory and tax changes impacting margins in the buy-to-let sector, in particular, developers and investors are adding value to their properties by carrying out improvements. While there are a number of finance options available to carry out work of this kind, bridging is an attractive option for many, with lenders in this sector, including ourselves, providing levels of flexibility and speed of service that cannot be replicated by the high street banks. We believe the future of bridging will continue to be bright.

Source: Bridging and Commercial

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Bridging sector breaks £5bn

Gross annual bridging lending broke £5bn by the end of 2017, the West One Bridging Index found.

ASTL members lent over £1bn in the quarter during which the Bank of England implemented the 0.25% rise in their base rate.

Payam Azadi, director at Niche Advice, said: “I’m surprised. That figure is quite large and I didn’t expect it but it makes sense why so many lenders are looking to get involved in bridging.”

Alan Dring, consultant at Hope Capital, agreed and added the results were very encouraging.

He said: “I was surprised. You’ve got to be encouraged because that’s the way contributors to the data are seeing the market.

“The data in the bridging sector is often questionable. Its showing the trend is upwards and that has got to reinforce the fact the market is continuing to be vibrant.

“Hope had its best first quarter this year so it’s reflected upon ASTL members I think. It’s just a good indidcator that people’s confidence remains in the sector. There’s more solicitors trying to get into bridging and people trying to acquire the specialisms to generate a lot in this market.”

However Benson Hersch, chief executive of the Association of Short Term Lenders (ASTL), thought the huge figure wasn’t unexpected.

He said: “The figure of £5bn for bridging lending does not surprise me.  Indeed, the total may well be more, given that there are lenders which operate ‘under the radar’ as it were. The bridging sector grows from strength to strength and, barring unexpected setbacks, 2018 should be even better.”

The higher volume of smaller-sized transactions that characterised the latter part of 2017 has continued through to the end of the year, as property investors look regionally for their returns.

Higher volumes of smaller transaction sizes have persisted throughout the second half of 2017. Average loan sizes remained between £600,000 and £800,000 in the quarter and confirming a longer-run average trending to below £800,000.

Transaction volumes continue to be strong, however, resulting in total lending surging in Q4 2017.

Marie Grundy, sales director of West One, said: “In 2017, bridging has turned out to be a ray of sunshine in the property finance world, with a series of record performances throughout the year.

“The industry shrugged off the headwinds buffeting other parts of the industry, to deliver a final lending total of £5bn for the year. At West One, our short-term lending grew with similar strength to a book of around £450m and record volumes of transactions in the year.

“What’s perhaps most encouraging is to see a breakthrough in the diversity of that growth, with more and more opportunities being found regionally.

“Where I am, in the North West of England, places like Greater Manchester and Merseyside are increasingly vibrant cities that are benefitting from urban regeneration and moves away from London, like the BBC made a few years ago.

“That means that these, along with Birmingham and the East Midlands that are extended commutes from London, are attractive places to live. Opportunistic investors looking for better returns are finding them here, and bridging is well placed to help them capitalise on those.

“Looking ahead, we remain confident in further growth of the bridging market not only through further regional expansion, but also as SME developers seek small project funding for housebuilding, to meet the government’s new home targets.

“With many finding it hard to get funding for projects under £1m, or to finance property acquisition whilst planning permission is being obtained, bridging is well-placed to support them.”

Greater buoyancy in property markets outside London and the South East are offering property investors better rental yields and  some opportunities for capital appreciation despite the capital city offering neither.

Danny Waters, chief executive of Enra Group, said: “The bridging sector has performed excellently in 2017, despite the backdrop of concern around the progress of Brexit negotiations, sluggish economic indicators and interest rate rises.

“Whilst a few lenders have notably taken 2017 as the time to exit bridging, we are generally seeing more competition in the sector, which both drives innovation and keeps pricing attractive for customers.

“That continuing adaptation to conditions and to borrowers’ needs has been a key strength for the sector in the decade since the financial crisis.”

Source: Mortgage Introducer

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Bridging loan volume rises in Q1

Bridging loan volume rose by almost a third in the first quarter of 2018 as demand for short term finance remained strong, the latest Broker Sentiment Survey by lender mtf found.

Some 30% of the 119 brokers asked, experienced a rise in bridging loan volume, with the biggest demand coming from the South East at 50%, up from 47% in the last quarter of 2017. About 37% of brokers cited competition as a key issue facing the bridging finance sector during the first quarter of 2018.

Alan Dring, consultant at Hope Capital, said: “Business for my clients certainly rose in the first quarter which was very encouraging and I think competition stimulates that growth because there were significant changes on rates and LTVs and that is a reflection of a competitive market.

“This time of the year gets more exciting and the potential for continued growth is certainly there although the bad weather conditions in the first quarter would have caused delays to some developments.

The key issue is always the service levels that competition brings. I said competition would be biggest influence in 2017 and I think it was. It won’t go away in a robust market.

“The biggest aspects for 2018 wont’ be competition but will be education, collaboration and communication. They need to be appreciated by all the stakeholders.

“Competition is always good but whether you grow is down to how could your relationship is with your stakeholders and the opportunities they bring.”

Demand for alternative finance and an influx of cash into the space given the comparative attractive yields on offer has prompted new borrowers, investors, lenders and brokers to the market. This has facilitated its growth and continued acceptance into the mainstream as a viable financial tool.

Interest rates and pricing emerged as most important when choosing a bridging finance lender at 39%, while 33% of respondents said flexibility was a key issue. Some 26% cited speed of completion as paramount. A mere 2% said an existing relationship with a lender was the most important factor.

James Anderson, head of new business at mtf, said: “The feedback from brokers points to a strong need for specialist lending. Bridging finance is increasingly being used as a viable financial tool to provide real time funding to plug any gap before longer term finance can be put in place.”

Some 42% of brokers would like to see higher loan-to-values on offer in the bridging finance sector, while 27% of brokers want greater flexibility on commercial lending and 26% want faster turnaround times. None of the brokers felt the need for lower rates or further transparency.

The most popular reason for taking out a bridging loan in the first quarter was to fund a development project at 27%, up from 19% in the fourth quarter of 2017.

The purchase of an investment property was the second most popular reason at 24%, followed by refurbishment at 21%.

Source: Mortgage Introducer

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Bridging lenders are positive about the future

ASTL found the majority (78%) of members expect their business turnover to grow, with two thirds (63%) expecting the same of the bridging finance sector as a whole. Members are also very positive about the prospects of providing short term finance to SME housebuilders, with 93% believing this is a growth area.

However, members are slightly less optimistic about the long-term future prospects of the UK economy, with positivity decreasing from 50% in December 2017 to 43% this month. Just over half (52%) of members are unsure, and 11% feel negatively about the economy. This is likely due to the protracted nature of the Brexit negotiations combined with the rise in inflation, which in turn is likely to lead to higher interest rates.

ASTL members are split about the direction of property prices, with 52% expecting slight growth and 48% expecting prices to fall. They are lukewarm about the potential impact of the Spring Statement, with 48% neutral and 19% negative.

ASTL CEO Benson Hersch said: “Whilst I remain cautious about future prospects for the UK in a very uncertain world, in which the economic climate can change overnight, members are confident that they will continue to prosper. The use of bridging as a financial tool, both for property transactions and for other business purposes is now well-established.”

Source: Mortgage Finance Gazette

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Bridging finance regarded as well established in British mortgage market

Bridging lenders in the UK are positive about the future with the majority expecting this sector of the mortgage industry to grow, according to a new sentiment survey.

The upbeat outlook from members of the Association of Short Term Lenders (ASTL) suggests that the use of bridging loans as a financial tool for property transactions is well established.

Some 78% of members expect their business turnover to grow and 63% are expecting the same of the bridging finance sector as a whole. In addition, they are very positive about the prospects of providing short term finance to SME house builders with 93% believing that this is a growth area.

However, members are slightly less sanguine about the long term future prospects of the UK economy, positivity has decreased from 50% in December 2017 to 43%. No less than 52% are unsure and only 11% are negative.

The survey report says that this is likely due to the protracted nature of the Brexit negotiations combined with the rise in inflation which in turn is likely to lead to higher interest rates.

Members are split about the direction of property prices, with 52% expecting slight growth and 48% expecting prices to fall. They are lukewarm about the potential impact of the Spring Statement, with 48% neutral and 19% negative.

‘Whilst I remain cautious about future prospects for the UK in a very uncertain world, in which the economic climate can change overnight, members are confident that they will continue to prosper,’ said Benson Hersch, ASTL chief executive officer.

‘The use of bridging as a financial tool, both for property transactions and for other business purposes is now well-established,’ he added.

Source: Property Wire

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How businesses can use bridging finance to raise money

A form of finance which is rapidly gaining popularity in the UK business market is bridging finance. Around £750 million was borrowed through the means of bridging in the year 2011, since then it has only gone up where in 2016, this number went up by £4 billion.

The way bridging loans work is that they allow a business (or an individual) to access large sums of money within around 2 to 4 weeks.

Just like the name suggests, the loan is designed to ‘bridge the gap’ of financial opportunity which would be more expensive if you were to wait much longer for a traditional loan or mortgage.

The growth in the industry has emerged from a stricter criterion over the years by mainstream banks as well as the emergence of 40 bridging lenders who have quickly been able to establish a competitive environment for the UK bridging market to thrive.

What is Bridging Finance?

Essentially, bridging finance is type of short-term finance which is designed to appeal to those who have a strict deadline to meet. As mentioned, you would choose to apply for a bridging loan when other financial assets may too long to get your hands on or they are simply unavailable.

Typically, the amount you can borrow ranges from around the £25,000 mark to as much as £25 million.

Due to the short-term nature of a bridging loan, the length given on the term of the loan is usually only around 3 to 12 months. In some cases, companies may offer you 24 months – this is usually reserved for larger sums of money.

The Typical Terms

With a bridging loan, the applicant is expected to put down some form of security as collateral should the applicant fail to make their repayments.

What you put down as collateral will be present in the agreement between you and the lender. For businesses, the things that are usually put down on the contract are:

  • Property (Estate)
  • Premises such as office and office equipment and furniture
  • Their own business – stakes in the company
  • Client invoices and sales

The terms of bridging loans state that you should pay off the loan and the interest in its entirety, otherwise you would be at risk of severely losing out and having your property repossessed – although this is quite rare and commonly customers will ‘re-bridge’ under different terms.

As a borrower, you will typically have the option to pay off the loan in monthly instalments, interest only or rolling up the interest until the loan term ends.

Usually, a standard interest rate that is charged by lenders ranges from 0.59% to about 2% per month (Source: MT Finance).

Be aware that on top of this will be additional fees such as a 2% broker fee and administration fees. Ultimately, the amount you will pay will be unique to the lender you go with.

When might you use a bridging loan?

The most common reason a business owner may take out a bridging loan is for property development. Say that a property developer wants to reconstruct or redecorate a house in order to sell it for a larger price, then it goes without saying that they will need a sum of money to be able to carry this out.

The property developer could go down the traditional route and take out a mortgage, but this could take several weeks to be approved by a lender.

The other option is a bridging loan which will offer than a quicker means of attaining the money they need to make a profit on the property for sale.

Elsewhere, companies will consider bridging finance to fund a growth period. For a company with its own offices, it can secure the loan against the premises and uses the finance for extra staff, inventory and advertising. Once they have generated more revenue, the loan can be repaid.

Opportunities in stocks and investments may be a reason to take out a bridging loan. This will hopefully help an individual maximise their returns, but they just need that little bit of financial aid.

Source: Byte Start

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How long is the average bridging loan term?

Recent reports have revealed that the average bridging finance term is getting longer.

Why is this? And how long does it take to get a bridging loan?

The average bridging loan now lasts a year

According to a recent report by Bridging Trends, despite a bridge being ‘short-term finance’, the average bridging loan now has a duration of 12 months.

Traditionally, bridging finance was sold as ‘up to 12 months’, so these findings could indicate that lenders are taking greater advantage of the maximum terms available to them.

How long does it take to get a bridging loan?

The research also revealed that, in 2017, the average bridging finance loan took 43 days to complete. This was down from 45 days for the previous period.

It’s important to recognise this is just an average and completion times can vary greatly. Here at Pure Commercial Finance, we’re known for sourcing fast finance and have completed deals in mere days in the past.

Why are bridging loan terms increasing?

Greater competition

With bridging finance increasing in popularity, more and more lenders are entering the marketplace.

That means there is more competition and lenders are having to work harder to stand out from their competition. One such way of doing this is by offering longer terms of up to 48 months.

An uncertain property market

With Brexit looming, some areas of the country are feeling the effects of an uncertain future with the property market slowing slightly.

This means some properties are taking longer to sell and as a key component of any loan is to lend against a property that has a realistic exit, having an achievable time to secure this has resulted in some lenders extending terms to reflect this requirement. This in theory should prevent borrowers defaulting on their loans when their property fails to sell as quickly as they may have hoped.

More flexible specialist lending

It’s no secret that specialist lenders can be more accommodating than those on the high street.

These lenders are more likely to take the time to look at the individual circumstances of a case and bend their criteria in order to help the borrower wherever possible.

That means, if you are an experienced borrower with a large deposit and clear credit history, a lender may extend the parameters. The average bridging term is affected as a result.

Source: Bridging and Commercial