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Tag: bridging loans


Auction Finance – Solutions For Quick Property Purchase

Property developers attend auctions to weed out some of the best investment opportunities available. Auctions, however, present a multitude of complexities that do not come with mainstream property purchases.

Financing an auction property can bring with it headaches and technical problems not seen in traditional property purchase scenarios. Auction finance is specifically geared to deal with these issues.


Auction Finance – What’s the Difference?

Most commonly, auction finance is a form of bridging finance. It allows the property purchaser some breathing space to get more traditional forms of finance in place.

In some cases, the finance must be completed quickly to secure the auction sale. The loans are usually secured against the property that has been purchased or other property that the developer already owns. The idea is to make the funding available as quickly as possible to allow completion.

Funding can be confirmed within hours. This is in complete contrast to the days or weeks that financing can take in traditional situations. The process is less onerous, and lenders will be more interested in the security available.

Auction finance sources will also lend to individuals who are self-employed as well as limited liability partnerships, limited companies, partnerships, sole traders, and employed individuals. Their scope for consideration is far wider than the average high street bank.


Not Just A Bridging Loan

Auction finance does not always involve bridging loans, however. When an investor or property developer sees a property they would like to purchase at auction, they can prepare financing ahead of time.

Mortgages and buy-to-let mortgages can be agreed in principle well before the hammer falls. This places the bidder in a position where they will know where their funding limits lie. Situations where the bidder knows their maximum bidding threshold places them in a position of strength.

Auction sales move very quickly. Especially for those new to them, it can be nerve-wracking and overwhelming. When the hammer drops, 10 percent of the price has to be paid up front.

Under most circumstances, the balances will be settled within 28 days. It is usually the 28 day period that necessitates auction finance in the form of a bridging loan.

If a mortgage has been agreed in principle and where it is being secured on either the purchased property or other assets, it is on rare occasions possible to finance immediately using a mortgage agreement.

To achieve this, you may need an experienced advisor broker. Your broker will know which finance companies work the fastest to ensure completion on time while still meeting all the requisite legal requirements.


Commercial Property

Auction finance is not only available for residential property. A business may want to extend its premises or buy new premises at a different location. If it is expanding, there may be good reason to buy additional properties.

Commercial property financing is also available under auction finance and is a good avenue to purchase value for money property. In the same way that individuals may want to seek a mortgage, it is probable that a commercial purchase at auction will require both bridging finance and a commercial mortgage to obtain the property.

If you are an individual seeking to buy a second home or a business purchaser for new manufacturing premises, good financing advice will be crucial. Established and reputable brokers will be well networked and able to find you a good deal.

Whether you wish to use a traditional lender or will need to find a private lender, Belgravia Property will be able to guide you along the way. For confidential unbiased advice, contact our London office.


Second Charge Bridging – Are The Lenders Disappearing?

Whether you are based in Cardiff, Birmingham, Glasgow, or Dublin, there will be property that needs to be financed outside of the conventional norms.

This can be because there is high pressure to close the deal. With competitors lurking like vultures ready to snap the opportunity from you, you may want to act quickly and decisively. Second charge bridging is often the route to take.

Frequently, there is something that is holding up the process. Individual home buyers could be waiting for the settlement of their current home sale. It’s even possible that their current property has not yet been sold. A second charge bridging loan is needed. And urgently.


Second Charge Bridging

Second charge bridging loans are a little different from regular bridging loans in that they cover the balance required for borrowing when there is already a current mortgage in place.

This kind of bridging, however, only takes place when there is sufficient equity in a property to support the lending. Finding a lender to provide finance for this kind of situation is not as simple as walking into a high street bank.

Most lenders that will offer second charge bridging will be non-status lenders and will take less interest in your credit history and details of income. They will, however, take a far greater interest in the property itself. The worry is that as Brexit approaches are these lending sources going to dry up?


Are Bridging Lenders Drying Up?

Most bridging lenders borrow from wholesale banks and then pass the tight terms on to their customers. The very nature of bridging loans means that the margins are cut very thin.

For the lenders, this kind of lending can become difficult as economic seas become rough. To catch up on the current housing shortage, the UK needs to build 250 000 new homes every year. In 2015, only 143 000 were built.

The four wholesale banks that provide the finance for second charge bridging lenders have been reviewing their position and winding back on this type of lending.

Rather than cause a shrinkage in the market for second charge bridging, it appears they may, in fact, have created a void that other non-conventional investors are willing to fill.

As Brexit draws closer, the property market may be flatlining in some areas. It, however, hasn’t fallen through the floor as some pessimistic forecasters suggested it would.

The availability of bridging loans remains a feature in the property market. It, in fact, may well be the financial product that keeps the market going. This bodes well while we negotiate our way through the economic uncertainty that many feel over Brexit.


Economic History Suggests Differently

In fact, the demand for bringing loans has increased since the Brexit vote. This may well be an indication that investors have faith that the market will grow again steadily once the dust has settled.

When we look back at the financial crisis of 2007 and 2008, retail mortgage deals dried up rather quickly. This left the market ripe for second charge bridging lenders to take the opportunity to keep the property market afloat.

When things became more difficult economically, it would seem that bridging lenders flourished. Bridging lenders do, however, need to assess their customers’ situation. This is to ensure they will not get into financial difficulty during the duration of the loan. Typically, a period of between one month and one year.

The economic circumstances that demand the necessity for bridging loans create unexpected byproducts, however. Terms that were unacceptable yesterday will become completely acceptable today, just to get the loan.

To explore the best possible terms for second charge bridging, you will need a reputable and experienced broker. Although based in London, Belgravia Property Finance provide advice and support for properties throughout the UK, including Scotland and Northern Ireland.


Bridging Loans In Scotland

Because property law is somewhat different to elsewhere in the UK, it can be difficult to obtain bridging loans in Scotland. This is the case, especially when approaching a traditional high street lender.

Bridging loans in Scotland by their nature are not a long-term solution. They are exactly as their name describes them – a short-term bridge to cover a shortfall when the mainstream funding for a transaction is not available for any of several reasons.

Typically, they are sought and offered to stem a cash flow issue that has arisen once a transaction has commenced. The transaction cannot be concluded because of an obstructive situation. Quite literally, they provide emergency funding while the clock is ticking.

That said, there are some, mostly private, lenders that provide access to bridging loans.


Bridging Loan Rates In Scotland

Bridging rates for loans secured against Scottish property have dropped significantly over recent years. This is due to an influx of lenders in the sector now lending in Scotland. Rates are available from 0.48% per month for regular bridging loans in Scotland and much lower from private banks, for high net worth individuals (HNWI) that qualify. Loan to values are generally up to 75% of value.

Scotland is also known for Below Market Value (BMV) bridging transactions, Belgravia Property Finance has successfully arranged 100% funding towards below market value purchases in Scotland. An example of a BMV deal is the client purchases a property on the open market value, the property has already had a valuation carried out (Home Report in Scotland), this values the property at £100,000, the property is marketed at this level but doesn’t sell, but the client negotiates a price of £70,000, this is now a below market value transaction.

Belgravia Property Finance can arrange a loan for the full purchase price, plus fees up to 75% of the value ie. a maximum loan of £75,000 in this case. Belgravia can then arrange exit finance via a mortgage. Rates for 100% loans which are below market value are higher than standard bridging rates due to the higher risk taken by the lender.


The Loans Are Unique

What makes a bridging loan unique is that it is a flexible product that is usually structured on bespoke terms that are unique to the specific lender, borrower, and circumstance under which the loan is being taken.

The loan will also be an interest-only loan because it is simply to cover other funding which, once available, will be repaid on the terms set by a different lender.

Bridging loans in Scotland are designed to provide access to funding secured against property, therefore, they can also be structured in different ways to include the security. Funding can be procured on either first or second charges or both. It is even possible to structure a loan across multiple properties.

Furthermore, any type of property can be considered for a loan and almost any borrower circumstance will be considered by the lender.


Newcomers To The Market

The financial crash that caused the credit crunch worked as a catalyst to bring about new innovative bridging products. Moreso, and especially in Scotland, new entrants to the market have forced change and a rethink of how the bridging loan market in Scotland is developing. Lower interest rates have also been seen in more recent years.

There are still far fewer lenders that will provide bridging loans in Scotland, compared to England, but the lending scene has improved substantially. Belgravia Property Finance has access to bridging loans that are unique and can connect you with different opportunities in private funding. There are even funders that will cover bridging loans in Scotland as well as England, Wales, the Channel Islands, and much of Europe.

Differences in Scottish property law have made it difficult for bridging lenders to provide loans across the UK. The few that do are specialists and are often accessible only through a specialist advisor.


What Are Bridging Loans In Scotland For?

Bridging loans are typically provided for:

  • Scottish commercial properties
  • Landlords that are building property portfolios both in England and in Scotland.

Applications for a bridging loan in Scotland will not follow the same procedure as applying for a high street mortgage. Using an expert broker means that you will find that the confidentiality and sensitivity are increased.

The level of professional conduct provided and expected is also much higher. Applications are processed quickly because bridging situations often accompany a sense of urgency. There are situations that without a rapid solution, transactions may in fact collapse. Something we would seek to avoid for our clients at all costs.

The typical bridging loan covers around 70% of the value of the property against which it has been secured. There are unusual situations, however, when the loan will cover 100% of the value of the property. This is the one similarity that can be seen with high street lenders.

Deals can take as little as a few days to finalise. They can, however, be expected to take between seven and fourteen days.


How Bridging Loans Work

Most bridging loans come in one of two forms.

Firstly, there is the closed bridging loan. This kind of loan is aimed at borrowers that have already completed an exchange on the sale of a property. They do, however, need the finance to secure the transaction. This type of bridging loan is easier to find and negotiate because risk to the lender will be reduced.

In the second instance, the bridging loan is known as an open bridging loan. These are provided in situations where a borrower has found a property that they wish to purchase. Their problem is that they have not yet sold their own property.

Increased risk of the first home not selling means most lenders are reluctant to offer bridging loans when this happens. The probability of acceptance for an open bridging loan increases with the more equity the borrower holds in their property.

Learn more about bridging loans in Ireland and Spain.

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