Regulated Bridging Loans
Bridging Finance 4 U can help you whether you are looking to find and arrange a competitive bridging finance solution for a commercial or a residential property transaction. Some types of bridging finance are regulated, and other types are not currently regulated by the Financial Conduct Authority.
A regulated Bridging Loan is defined as a bridging loan where :
- A first charge is taken out over the property being used as security.
- You or any family member use or intend to use at least 40% of the property as a dwelling (i.e. to live in).
Please note, the property or land you are actually purchasing may be for commercial / investment purposes, but if the property you are using for security of the loan is residential the bridging loan will be classed as regulated.
The Financial Conduct Authority (FCA) currently regulate residential mortgage advice and mortgage lending in the UK. i.e. the provision of a loan that is secured via a legal charge against a residential property, which either has at least 40% used or intended to be used for residential dwelling purposes.
Companies and individuals that wish to advise on or lend money for regulated mortgage contracts, including regulated bridging loans, must first be approved by the FCA. The FCA then maintain ongoing regulation of the activities of regulated mortgage advisers and lenders in the UK.
The FCA have 4 statutory objectives laid out in the Financial Services and Markets Act 2000 :
- Market confidence – maintaining confidence in the UK financial system;
- Financial stability – contributing to the protection and enhancement of stability of the UK financial system;
- Consumer protection – securing the appropriate degree of protection for consumers; and
- The reduction of financial crime – reducing the extent to which it is possible for a regulated business to be used for a purpose connected with financial crime.
As with any regulated mortgage, please pay attention to the following important risk warning :
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Bridging Finance for Land
Bridging Finance is not only available to purchase property, bridging loans are also available to purchase land for development purposes. Rates from 1% pcm.
You may have seen a bargain plot of land for sale, in a great location and with fantastic development potential either for a self-build property to live in yourself or for the development of one or more properties for commercial purposes.
It is possible to secure bridging finance for land very swiftly in comparison to other forms of commercial financing, helping you to complete and secure a purchase within a matter of days, not weeks and months. This can often mean the difference between securing the land purchase or losing out.
As always, bridging finance is used as an ‘interim funding measure’, not as a permanent funding option. However, where it may be difficult or nigh on impossible to obtain other types of finance for development land purchases, bridging finance can offer an accessible funding solution often with limited underwriting criteria providing the land is assessed to represent a viable development opportunity and you have the means to move the project through to completion.
So using the example of purchasing land for a self-build project, you could secure the land purchase with a bridging loan, obtain planning permissions and then seek development finance by way of a self-build mortgage or alternative development finance which can be used to repay the bridging loan and fund the building project. Or the bridging loan could be used to purchase the land with your own funds being left available to fund the build project. On completion the Open Market Value (OMV) will ideally be greater than the cost of the land purchase and build costs, leaving the option to take out a traditional mortgage to pay off the bridging loan, and if possible to repay your invested build costs.
Commercial Bridging Loans
Bridging Loans for Commercial Property
Bridging Finance 4U specialise in a wide range of Commercial Bridging finance solutions for UK applicant businesses.
We deal with a wide range of UK commercial bridging loan lenders, and are confident in our ability to broker you a competitive commercial bridging finance deal to meet your specific needs and requirements.
Commercial bridging finance is short term bridging finance solutions which are used to help businesses of any size to bridge the gap between the acquisition of a new commercial property and the sale of an existing commercial property. They work much in the same way that a bridging loan can be used to bridge a residential property purchase, with a primary difference being that the subject property is of a commercial nature.
Any loan that is secured against a residential property (a property which is at least 40% used for residential purposes by you or a family member) is currently regulated by the Financial Conduct Authority (“the FCA”). If the security property is not residential then the loan transaction is classed as non-regulated i.e. is not regulated by the FCA.
However, just because a commercial bridging finance is “non-regulated” it does not mean that we will treat you with any less attention, fairness or transparency. We make sure that all our clients fully understand the costs, risks and implications of a transaction before committing to proceed. You will not be placed under any obligation or pressure at any time.
Until 2008 there were a relatively large number of commercial bridging finance brokers operating in the UK market, but since the “credit-crunch” many have fallen away. Bridging Finance 4 U are still going strong, and happy to help broker a competitive commercial bridging finance deal for you.
Commercial bridging finance is usually repaid on an interest only basis. The bridging loan is usually cleared on the sale or refinance of a building.
Commercial property finance is offered for a stipulated period of time, with the interest rate and costs being higher for a longer term arrangement. This is because a longer term increases the risk to the lender, as opposed to a very definite short term period where it is clear exactly how and when the bridging loan will be paid off.
Although commercial bridging finance can appear expensive at first glance, you need to bear in mind that the cost is only for a short period of time. If you have alternative fast method of financing, then you should opt for this instead of bridging finance, but commercial bridging finance is usually a necessary means to an end where other fast financing options do not exist.
Commercial Bridging Loan Scenario – Example:
You are in the process of purchasing a new commercial property, but there is some delay in the sale of your existing commercial property. You need to complete on the purchase of the new commercial property in advance of the sale of your existing commercial property going through, although you are confident that your existing commercial property sale will go through within a relatively short timescale of weeks.
The seller of the property you wish to purchase has informed you of a potential cash buyer, and needs your commitment to complete rapidly. A commercial bridging loan is a finance solution that could help you to complete on the purchase quickly with the view that the bridging loan will be repaid on the sale of your existing commercial property within a period of less than a year.
Other reasons for commercial bridging loans:
There are a variety of other acceptable reasons why commercial bridging loans may be required:
- To purchase land for development.
- Funding stock purchases.
- Expanding or relocating premises.
- Company re-establishing and avoiding bankruptcy.
In fact, commercial loans are adjustable enough to adapt to most commercial circumstances, providing you have assets available to act as security.
Commercial & Residential Development Finance
100% Commercial & Residential Development Finance
If you looking for a facility that offers 100% Commercial or Residential Development finance for build cost then we can assist. We can obtain you 80% of the initial purchase price and 100% of the build cost. Complete one of our enquiry forms giving a summary of the development you are looking at then we can do an appraisal of your potential development and assist in giving you the finance you require.
How it works?
You will require a minimum 20% deposit towards the purchase price of a development property. The Gross Development Value (GDV) or end value of the property is then considered and the total facility is offered based on a % of this total end value. If you have purchased a property for £350,000 and have a loan of £280,000 outstanding which has planning for development which will be worth £1,000,000 when completed, you will be offered up to £650,000 less the current 1st charge of £280,000. On this example the max build cost can be £370,000 for which 100% is funded. If you already own land and property has planning you should be able to get finance on 100% of the build cost.
How much does it cost?
The normal lenders arrangement fee is 2% of the loan facility and interest rates can range from 0.83% up to 1.1% per month, depending on the level of lending required. The important thing to remember is you are only charged interest on the money once drawn down at each stage of the development so you are only paying for money as it’s required by the project. Minimum loans are £60,000 and max £50,000,000.
Contact us now for more information on 0800 288 9044.
Open Bridging Loans
An Open Bridging Loan is defined as a bridging loan where a guaranteed repayment option or the date of repayment is not clearly defined. For instance you may have put your house on the market but have not as yet received an offer, so it is impossible to define exactly when you house may be sold and the bridging loan repaid.
Because of the uncertainty, this type of bridging loan is viewed as a higher risk form of lending than closed bridging loans and hence the interest rate and fees charged by the open bridging loan lender are normally higher. i.e. it is a higher risk, higher cost form of lending.
Your existing residential property is on the market for sale, but as yet has not been sold. A highly desirable property has come up for sale, your ‘dream home’, and you realise that if you wait the likelihood is that someone else will acquire it. In this situation an open bridging loan is a form of bridging finance which can be used to release the equity in your existing property for a short term period, enabling you to purchase the new ‘dream’ property. The bridging loan is then repaid on the sale of your existing property.
Open Bridging Loans are an intrinsically risky form of financing, and it is important that you understand and are willing to accept the risks involved and have exhausted all other financing options. It is important to balance the potential gain against the risk you are taking before moving ahead.
We recommend that you seek independent legal advice before proceeding with any form of bridging finance, to ensure that you clearly understand the risks and the consequences involved.
Closed Bridging Loans
Sometimes the date of repayment can be clearly defined at the outset when applying for a bridging loan, and therefore a Closed Bridging Loan product can be obtained.
Closed Bridging Loans are most commonly used to buy a home whilst awaiting completion (after exchange of contracts) of your current residence. On exchange of contracts, a completion date can often be set and this completion date can be stipulated as the date when the bridging loan can / will be repaid in full.
Very few sales fall through once contracts have been exchanged, so although not 100% guaranteed and secure, the chances of a fall through are small.
As this type of fast bridging loans is of lower risk to the lender, they are usually more competitively priced in terms of interest rate and fees compared to the higher risk open bridging loans.
You have sold your existing residential property, exchanged contracts and the completion date has been formally set. There is a dream home that you would like to purchase and you have had an offer accepted, but the vendor is demanding a rapid completion which must take place sooner than your current property sale will complete.
A closed bridging loan is a form of bridging finance which can be used to release some of the equity in your current property before the sale completes, and may allow you to successfully purchase your dream home. Once your existing residence is sold the proceeds of the sale can be used to repay the bridging loan.