Email Usthumb
Categories
Other Finance News

Planning Permission Applications Down Once Again in Q1 2022

The lack of inventory on the UK’s prohibitively expensive housing market shows no signs of abating soon. According to the most recent figures published by the Department for Levelling Up, Housing & Communities (DLUHC), just 84,000 of the 109,900 applications for planning permission submitted in Q1 this year were granted.

This equates to an 87% success rate for planning permission applications submitted during this time – down 4% compared to Q1 2021. This may sound less than significant, but it comes at a time when the UK is in dire need of a major uptick in affordable home availability.

In addition, the total number of planning permission applications received for the quarter was down 12% compared to the previous quarter.

A total of 9,300 residential planning permission applications were granted in England in the first three months of the year – a 6% decrease compared to the same time last year. 1,900 commercial planning permission applications were granted – down 2% from Q1 2021.

Affordable Inventory Required Urgently

The dire need for rapid acceleration in the housebuilding sector was highlighted by Paul Neal of Missing Element Mortgage Services, who emphasised the importance of focusing on the availability of homes for people who actually plan to live in them.

“Not stock that is snapped up by landlords or builders to make a fortune on. Reliable, affordable housing for everyday people,” he said.

“Sadly, it’s not coming at anywhere near the pace it needs to, and planning is often the issue.”

Speaking on behalf of London-based property developer NewPlace, managing director Joe Garner said that the DLUHC data provides a clear indication that nowhere near enough homes are being built in the right places.

“The planning system is an absolute mess, and political infighting from central government all the way down to local councils is perpetuating the housing crisis,” he said.

Garner’s sentiments were echoed by Jamie Lennox, director at Norwich-based mortgage broker Dimora Mortgages, who likewise said that the government is not even coming close to meeting its own house building targets.

“Many developments get stuck in planning for years and until there is a quicker process to get sites approved, the ambitious plans for a certain number of new homes won’t ever materialise,” he said.

Help to Build Push Continues

Meanwhile, the government continues to push its Help to Build scheme as a potentially affordable alternative access point to the UK housing market.

Help to Build provides those looking to build their own homes with the opportunity to access a special mortgage of up to £600,000, which can be secured with a deposit of just 5% and offers the first five years interest-free. This 95% LTV mortgage will only be available through a selection of approved lenders, and the scheme is being managed by Homes England.

“Through the Help to Build scheme we will help thousands more people onto the property ladder by giving them the opportunity to build homes that are perfectly tailored to their needs and in the communities they want to live in,” said Housing minister Rt Hon Stuart Andrew.

“This innovative scheme will build on our work to break down the barriers to homeownership, as well as creating new jobs, supporting the construction industry and kickstarting a self and custom build revolution.”

Open to movers and first-time buyers alike, Help to Buy combines low initial deposit requirements with five interest-free years, followed by a 1.75% APR in the sixth year, and incremental annual increases thereafter.

“Self-build isn’t the preserve of the wealthy, and Help to Build makes it more practical and accessible than ever before for people to build their dream home,” said Andrew Craddock, Darlington Building Society chief executive.

“This scheme also opens up the opportunities to first-time buyers. It is a fantastic example of the market moving with the times, and people’s changing wants and needs.”

Categories
Development Finance

The Benefits of Private Lending as Development Finance

As economic uncertainty continues to escalate, the UK’s biggest banks are becoming increasingly inflexible. Strict lending regulations coupled with complex in-house policies are making it more difficult than ever to qualify for specialist funding on the High Street.

Property developers and real estate investors in particular are feeling the pinch.  Potentially lucrative projects are being left in limbo, or in some instances failing to even get off the ground in the first place.

But this lack of flexibility and product availability on the High Street need not spell doom and gloom for investors and developers. It simply calls for a search for affordable funding beyond the High Street, which is where private lending comes into play.

A Rapidly Evolving Segment

Demand for the kinds of flexible financial services that simply do not exist on the High Street is being met by a rapidly expanding specialist lending sector.  Across the UK, dozens of private lenders have gone into business to effectively (and in some cases literally) ‘bridge’ the gaps in the services provided by mainstream banks.

From bridging loans to auction finance to specialist development finance, it’s all available from an extensive network of private lenders.

What makes this specialist lending sector unique is how all applications for funding are assessed individually. None of the usual ‘binary’ application criteria apply – all requests are considered based on their broader merit.

This means that rather than being offered a limited range of off-the-shelf products, loans and development finance facilities are built from scratch to meet the exact requirements of the client. As a result, they get exactly what they need at a price they can afford, with terms and conditions that suit both the borrower and the lender.

The Advantages of Private Lending

Seeking support from a specialist lender (as opposed to a mainstream bank) can be beneficial in the following ways:

1.     Flexibility – All aspects of the facility arranged can be tailored to meet the unique requirements of the applicant. This includes LTVs as high as 90% or more, a wide variety of repayment options (loan terms) to choose from and the option to ‘roll up’ interest into the final repayment.

2.     Accessibility – None of the normal restrictions apply when seeking financial support from a specialist lender. Even with poor credit, a history of insolvency and/or no formal proof of income, it is still possible to qualify for flexible and affordable products like bridging loans.

3.     Speed – With all required paperwork and documentation in place, bridging loans and development finance loans can be arranged within a few working days. On the High Street, the closest comparable products could take weeks (if not months) to underwrite.

4.     Affordability – Interest rates and overall borrowing costs are always open to negotiation with specialist lenders. Some short-term facilities can be taken out from as little as 0.5% per month, with no initial arrangement fees, admin fees or deposit payments required.

5.     Freedom – Importantly, specialist lenders place few (if any) restrictions on how their products can be used. While traditional banks limit their loans and mortgages to very specific purposes, similar products for specialist lenders can be used for any legal purpose.

It is also possible to request a decision in principle on a bridging finance or development finance application, without posing a risk to your credit score.

Far from a last resort, more businesses (and mainstream borrowers) than ever before are setting their sights on the UK’s growing specialist lending sector. With the support and representation of a skilled broker, a product search that goes beyond the High Street can pave the way for significant savings.

Not to mention, a far faster, easier and less stressful experience than applying for funding via conventional channels.

For more information on any of the above or to discuss property development finance in more detail, contact a member of the team at UK Property Finance today.

Categories
Bridging Loans

Land Mortgages: An Introductory Guide

Getting a land mortgage is rarely a straightforward task. This is mainly due to a lack of available options, as most major lenders offer comparatively few (if any) specialist loans for land.

Hence, shopping around for a great deal on a landlord mortgage typically means looking beyond the usual High Street banks.

The UK’s specialist lending community has a wide variety of loan options available f

or land purchases. Examples of which include development finance loans, bridging loans, commercial loans and various other types of secured loans.

But as many of these lenders do not offer their services directly to borrowers, applications must be submitted via an approved broker.

Can I Get a Mortgage for Land?

Yes – land mortgages are available from a wide variety of specialist lenders.  However, qualifying for a land mortgage can be more difficult than obtaining a conventional mortgage.

With a traditional home loan, the funds are secured against the property you are purchasing.  With a land mortgage, the property has not yet been built. Therfore, if the lender issues a loan that also covers the costs of building the property, they are taking a much bigger risk.

Lenders, therefore, need to see evidence of what the borrower intends to do with the land, after it has been purchased. A full independent valuation of the proposed property/development must also be provided, which will be used as a basis for the maximum loan value issued.

What Are the Different Land Mortgage Options Available?

Specialist lenders offer a variety of different types of land mortgages, in accordance with the requirements of the applicant. Examples of which include:

  • Self-build mortgages
  • Agricultural mortgages
  • Woodland mortgages
  • Development finance

Ensuring you apply for the right mortgage is essential in order to get the best possible deal. If in doubt, consult with an independent broker, who will ensure you understand the unique features of the land mortgage options available.

Do I Need to Get Planning Permission Ahead of Time?

Not necessarily, but it will certainly broaden your borrowing options. When planning permission is granted on a plot of land, its value increases significantly. It also reassures the lender that your plans for the land can go ahead.

Obtaining a mortgage for land without planning permission is still possible but can be much more difficult. If you intend to apply for planning permission in the future or have other plans for the land you are purchasing, your broker will advise on the appropriate loan options.

What Are the Different Types of Planning Permission for Land?

There are two main types of planning permission that can be obtained for a plot of land. Both of which could significantly boost your chances of qualifying for a competitive mortgage:

Outline Planning Permission (OPP)

This is an agreement in principle issued by the local council, where one or more dwellings are to be constructed on a plot of land. OPP agreements are valid for a limited period of time (typically three years) and will need to be renewed once expired.

In order to qualify for a land mortgage having obtained planning permission, your lender will expect to see formal evidence of the following:

  • The overall layout of the proposed dwelling(s)
  • The appearance of the dwelling(s)
  • Upper and lower limits for the height, width and length of the dwelling(s)
  • Site access details
  • Landscaping proposals

Full Planning Permission (FPP)

Typically valid for a longer five-year period, Full Planning Permission is granted upon meeting more extensive criteria. An application for FPP must satisfy all of the requirements above, supplemented with detailed scale drawings of the property (or properties) and more detailed information.

FPP is always desirable in the eyes of lenders, as it adds considerable value to any plot of land. With FPP, a plot of land becomes more attractive to potential buyers, making it a safer asset to secure a loan or mortgage against.

What Needs to Be in My Financial Plan?

A detailed financial plan will need to be presented as part of your application.  This is essentially a summary of all estimated construction costs, along with estimated labour costs, the logistics of how the property will be constructed, contractors who will be involved in the project and so on.

Essentially, this is where you need to convince your lender that your project is not only viable, but also economically sound. In addition, almost all lenders impose restrictions on the types of properties they will lend against, and even the materials they are made of.

For example, brick-built properties are the only acceptable properties for some lenders.

Your financial plan, therefore, needs to be as detailed and comprehensive as possible. The clearer you outline your intentions and the specifics of your project, the more likely you are to qualify for funding.

How Do Land Mortgages Work?

Land mortgages work in a similar way to development finance loans, in that the funds are released in a series of stages. For example, the first instalment may be released to cover the costs of the land itself, followed by several subsequent instalments for key phases of the construction project.

This involves the use of surveyors, hired by the lender to monitor the progress of the project. When the bank is satisfied a key phase of the project has been completed, they will release the next instalment.

It is also possible to arrange a land mortgage that is paid in the form of a single lump sum. Bridging loans, for example, can be arranged and accessed in a matter of days – ideal for time-critical purchase and investment opportunities.

When the construction project is complete, the land mortgage can be repaid in the same way as a conventional mortgage. Or in the case of a shorter-term facility, transitioned to a longer-term repayment loan.

There’s also the option of selling the property upon its completion, in order to repay the loan in full and retain the profits.

How High Are Land Mortgage Rates?

Interest rates on land mortgages vary significantly from one product and provider to the next. As a general rule of thumb, the lowest rate you can expect to be offered is around 3%, but a more typical land mortgage rate would be around 4.5%.

With short-term funding options like bridging finance, interest is charged on a monthly basis – often as low as 0.5%. This could make a promptly-repaid bridging loan a uniquely cost-effective facility, with no additional fees or penalties payable for early repayment.

How Are Land Mortgage Fees Charged?

Additional borrowing costs vary on the basis of multiple factors, including the type of mortgage taken out and the issuer.

As with any mortgage, you will incur fees that you will need to consider before applying, such as:

  • Application Fees: Also known as arrangement fees, processing fees and admin fees, which can be anything from zero up to 2% of the value of the loan.
  • Valuation Fees: The lender will want to see a formal valuation of the project’s estimated final value, provided by an approved surveyor and paid for by the borrower.
  • Legal Fees: All legal fees and conveyancing fees must also be covered by the applicant, which may be charged as a flat fee or a percentage commission on the value of the loan.

Comparing the market with the support of an experienced broker holds the key to getting an unbeatable deal, irrespective of the type of land mortgage you apply for.

Can Land Be Refinanced?

It is always advisable to consider refinancing options as soon as the project is complete. This is due to the fact that interest rates and borrowing costs on land mortgages have a tendency to be higher than those of conventional mortgages.

If the home (or homes) constructed on the land qualify for a standard residential mortgage, significant savings could be made. However, even bigger savings could be made by using a short-term facility (such as a bridging loan) to cover the costs of the project and repaying the full outstanding balance as quickly as possible.

For more information on any of the above or to discuss land mortgages in more detail, contact a member of the team at UK Property Finance today.

Categories
Bridging Loans

Buy-to-Let Property Investments: What First-Time Landlords Need to Know

Established and aspiring landlords alike continue to question the potential benefits of purchasing BTL properties via a limited company. Understandable, given the government’s no-holds-barred approach to BTL legislation over recent years.

Landlords were first hit (and hard) back in 2016, when the government introduced a new 3% stamp duty level on BTL property purchases. Next, policy reforms slashed mortgage and loan interest relief on second homes, which would eventually be removed entirely by 2021.

2019 brought more bad news for landlords in the form of the Tenants Fees Act, imposing much greater restrictions on what tenants could and couldn’t be charged for by property owners.

Whichever way you look at it, turning a profit as a private landlord is becoming trickier all the time. But as demand for quality rental homes skyrockets and average monthly rents break every record in the books, there’s still good money to be made with savvy BTL investments.

In total, the value of the UK’s BTL sector has grown from £239 billion in 2017 to more than £1.7 trillion today.

“There have been many challenges that have subdued investment into the private rented sector over the past few years,” comments Stephen Clark of Finbri bridging finance broker 

“But the sector has proved resilient and we have seen continued demand for finance in this vibrant part of the economy.”

Safety and Stability

UK’s property market, in general, remains a relative safe haven for investors. Even the catastrophic events of the past two years have done nothing to quell the public’s appetite for quality homes in desirable locations.

In fact, figures from the Nationwide suggest that from March 2020 to December 2021, average house prices in the UK grew by more than 16%.

Responding to demand from homebuyers and investors alike, major banks have been diversifying their mortgage portfolios as of late. BTL mortgage products, in particular, are available in abundance – more than 2,235 specialist mortgages at the end of last year.

What’s more, many banks have also been cutting interest rates on five-year fixed mortgages for BTL borrowers, as means to encourage more landlords to make their moves.

“The BTL sector has faced its share of upheaval and changes to regulations and requirements, so it is highly encouraging to see that providers are still keen to attract first-time landlords,” said Eleanor Williams at Moneyfacts.

“Rents have risen at the fastest rate on record, while tenant demand has almost doubled.”

Still, with inevitable Bank of England base rate hikes on the cards, mortgages across the board are not going to get any cheaper than they are now.

But when it comes to maximising profits and minimising tax liability on a BTL property, is it better to purchase homes through a limited company?

The Pros and Cons of Limited Company Investments

Forming a limited company to purchase real estate is not something that should be done without careful forethought. In addition, the advice and input of an experienced broker could prove invaluable.

From a general perspective, the benefits of using a limited company to purchase a BTL property are as follows:

  • All profits generated on limited company BTL property purchases are subject to flat-rate corporation tax at 19%. By contrast, private landlords are subject to standard income tax bands – 20% in the normal band and up to 45% for higher-rate taxpayers.
  • Mortgage interest is classed as a business expense for limited companies, meaning it is tax-deductible. For private landlords, a tax credit of just 20% can be claimed on mortgage interest payments.
  • Revenue withdrawal options are also broader.  All profits received by private landlords are taxed, whereas profits taken out of limited companies are only taxed once.
  • There are also options for decreasing overall tax liability, such as forming a family investment firm or a limited liability partnership. Assets can also be transferred to family members to avoid or reduce inheritance tax.

Downsides also apply with limited company BTL investments, including the following drawbacks:

  • Mortgage options are much more limited for businesses looking to purchase BTL properties, and it can be more difficult to qualify.
  • Larger deposits are the norm for these kinds of property investments, along with higher rates of interest and elevated borrowing costs.
  • Along with corporation tax, dividends withdrawn from the company are also taxable.
  • In order to transfer a property you already own into a company holding, it needs to be sold in the normal way. This means paying stamp duty at the normal rate, along with all associated conveyancing and legal fees, plus Capital Gains Tax.

Despite this fairly even split of pros and cons, more landlords are purchasing properties through limited companies than ever before. In fact, the figures suggest that around 80% of all BTL mortgages are being issued to limited companies.

“Getting the ownership structure right might make a tremendous difference in the amount of tax you pay throughout your lifetime,” commented Rob Dix (the Property Geek).

As a general rule of thumb, experts advise considering forming a limited company where a landlord has a minimum of three private rental properties. By contrast, landlords with two properties or a single rental home may find it more cost-effective to simply hire an accountant to oversee their affairs.

Categories
Other Finance News

What is Invoice Finance? Advantages and Disadvantages

Invoice finance provides businesses with the opportunity of accessing money they are owed by their own customers in advance. In doing so, delays between issuing invoices and collecting payments can be shortened, or eliminated entirely.

Where the business issues an invoice, the recipient may have anything from seven to 90 days to pay – sometimes even longer. During which, the business must continue to make ends meet with its own on-hand capital reserves.

Effectively a financial ‘gap-filler’ for such scenarios, invoice finance allows the business to access its owed capital immediately.

How Does Invoice Financing Work?

Invoice finance can be beneficial for any business (or sole trader) for which significant gaps between raising invoices and receiving payments are the norm.

The facility is arranged by a specialist lender, who takes into account the company’s financial status, and the professional background of the applicant.  Pending invoices are then used to determine how much the business is owed, and the lender issues a loan to cover this outstanding amount.

Over the subsequent weeks or months, the business repays the loan as they collect payments from their customers.

“As the culture of late payment continues to rise here in the UK, the threat that this poses to businesses also grows. Our recent survey results highlight just how vital invoice finance is to businesses,” explained Phil Chesham, head of invoice finance at Time Finance.

“Of the business owners surveyed, 67% reported that an invoice finance facility helps them to pay suppliers, HMRC, employees and other financial commitments on time. 50% told Time Finance that it helps to manage late payments from customers and over one third said it helps them to better combat the current economic challenges such as rising costs and inflation,”

“With late payment debt as high as £200,000 for one in five UK SMEs, invoice finance solutions are as vital as ever and with the addition of our credit control service here at Time Finance, we can really take the strain away from chasing payments and protect our clients’ customer relationships.”

What Are the Advantages of Invoice Finance?

The potential benefits and cost-effectiveness of invoice finance will always vary significantly from one business to the next.

For those who stand to benefit from an invoice finance agreement, the main advantages of the facility are as follows:

  • Access to Quick Cash – Businesses with plenty of liquid capital always enjoy a competitive advantage over those with limited cash reserves.  With invoice finance, the business gains access to the money it is owed, right after its invoices are issued. 
  • No Assets at Risk – Invoice finance is issued in the form of a specialist unsecured loan, for which the invoices themselves serve as a form of collateral for the facility. This means no physical assets need to be put on the line and subsequently put at risk.
  • Missed or Late Payments – It can also be a useful facility for avoiding (or minimising) the consequences associated with missed or late invoice payments. Where customers pay late, the business can still access the money it is owed in a timely manner.
  • Reputation Protection – Most businesses rely on their customers’ payments to meet their own payment obligations. Invoice financing can make it much easier for businesses to keep to their own commitments, protecting both their reputation and their credit status.

What Are the Disadvantages of Invoice Finance?

Invoice finance is not suitable for all businesses and there are downsides to such agreements that must be considered. The most important examples of which are as follows:

  • Restricted to Business Customers – The only invoices that can be paid early as part of an invoice finance deal are those issued to other businesses.  Invoices issued to the general public cannot be claimed early on invoice finance.
  • Potential Relationship Strains – With some types of invoice financing (invoice factoring), the lender subsequently takes charge of chasing up the borrower’s customers for payment. Depending on how this is handled, it could result in frayed relationships between the business and its customers.
  • Long-Term Costs – Invoice finance can prove a highly cost-effective and beneficial solution, but is never offered free of charge. Irrespective of the terms, conditions and duration of the agreement, it will always result in additional costs for the business.

All of the above pros and cons will be discussed in full during your initial consultation, during which your broker will help you determine your suitability and eligibility for invoice finance.

Invoice Finance in Practice

To illustrate how invoice finance works in practice, consider the following example scenario:

  • A small business issues an invoice for £5,000 to a customer, with a 30-day payment deadline
  • The business would like to get this money back as quickly as possible, in order to invest it in a new project
  • An invoice finance agreement is reached for 85% of the value of the invoice, and with total borrowing costs of 3%
  • The business receives a payment of £4,250 from the lender i.e. 85% of the value of the invoice raised.
  • When the £5,000 invoice is paid, the full £5,000 is transferred directly into the account of the lender
  • The borrowing costs (£150) are subtracted from the remaining value of the invoice (£750), and the remaining £600 is transferred back to the business.

All invoice finance contracts are bespoke agreements, tailored to meet the exact requirements of the business in question. Though in most instances, the logistics of invoice finance are fairly similar and surprisingly straightforward.

For more information on any of the above or to discuss the potential benefits of invoice finance in more detail, call anytime for an obligation-free consultation.

Categories
Bridging Loans

What is Stamp Duty (and How Can a Bridging Loan Help)?

With the Stamp Duty holiday having officially ended, normal rates have resumed. This means that both first-time buyers and movers alike must once again factor Stamp Duty costs into their property purchase decisions.

What is Stamp Duty?

Getting to grips with the fundamentals of Stamp Duty is fairly straightforward, but essential nonetheless. Stamp Duty is payable on millions of property transactions each year, but not everyone is liable for Stamp Duty payments.

For example, residential property buyers in England and Northern Ireland pay no Stamp Duty on the first £125,000 of the property’s value. In addition, first-time buyers pay no Stamp Duty on the first £300,000 of their home’s market value.

After which, 5% is payable on the price of the property between £300,000 and £500,000. Higher rates apply for properties valued at £500,000 or more.

This means that most first-time buyers are not liable for Stamp Duty payments at all, with most property transactions in the UK falling below £300,000.

Different rules apply in Wales, where Land Transaction Tax is payable on homes valued at £180,000 or higher. Likewise, homes valued at £145,000 or more (or £175,000 for first-time buyers) are subject to Land and Buildings Transaction Tax in Scotland.

But what remains consistent across the board is the requirement to pay this property purchase tax as quickly as possible. You have just 14 days to make the payment in full, which is where a fast-access bridging loan could get you out of a bind.

Stamp Duty on Second Homes

Existing homeowners purchasing a second property in England or Northern Ireland with a value in excess of £40,000 are liable for an additional 3% Stamp Duty payment (on top of the normal sum).

This applies to holiday homes, buy-to-let properties and second homes in general, but does not apply to houseboats, caravans and other non-static homes.

This higher-rate Stamp Duty may also be payable if you complete the purchase of your next home before selling your current home. However, you will be able to apply for a refund of this additional 3% Stamp Duty once the sale of your previous home is complete.

If you need a temporary financial solution to ‘bridge’ the gap between buying and selling, an affordable bridging loan could be just the thing.

Call UK Property Finance anytime to discuss the potential benefits of bridging loans in more detail.

Current Stamp Duty Thresholds

As of October 1st 2021, the following Stamp Duty threshold came into effect for most homebuyers in England and Northern Ireland:

Proportion of property valueStamp Duty paid
Up to £125,0000%
£125,001 – £250,0002%
£250,001 – £925,0005%
£925,001 – £1.5m10%
£1.5m+12%

Land Transaction Tax (LTT) applicable in Wales as of July 1st 2021 are as follows:

Property valueLand Transaction Tax paid
£0 – £180,0000%
£180,001 – £250,0003.5%
£250,001 – £400,0005%
£400,001 – £750,0007.5%
£750,001 – £1.5m10%
£1.5m+12%

Home purchases in Scotland are currently subject to Land and Buildings Transaction Tax (LBTT) at the following rates:

Property valueLand and Buildings Transaction Tax paid
£0 – £145,0000%
£145,001 – £250,0002%
£250,001 – £325,0005%
£325,001 – £750,00010%
£750,001+12%

Stamp Duty on Buy-to-Let Properties

Private landlords have been hit particularly hard by recent tax reforms in the UK and are also subject to higher Stamp Duty payments than conventional homebuyers.

A 3% surcharge now applies on all BTL property purchases valued at £40,000 or over – a full breakdown of current thresholds is as follows:

Proportion of property valueStamp Duty paid
Up to £125,0003%
£125,001 – £250,0005%
£250,001 – £925,0008%
£925,001 – £1.5m13%
£1.5m+15%

Buy-to-Let properties are subject to different taxation rules in Wales and Scotland – the respective information for which can be found on each country’s official government website.

Bridging Loans for Stamp Duty Payments

It is a legal requirement to meet HMRC’s Stamp Duty demands within 14 days of a property purchase being agreed. After which, significant penalties may be payable, increasing as the debt remains unpaid.

This is where affordable bridging finance has the potential to save homebuyers time, money and stress. If difficulties are encountered covering Stamp Duty obligations, a short-term bridging loan offers an ideal solution.

Unlike most conventional loans, bridging finance can be arranged within a few working days. This makes it ideal for covering time-critical expenses, where delays could lead to further costs and complications.

In the case of Stamp Duty, a bridging loan could be taken out to cover the required payment and repaid after a few months. Bridging finance is typically charged at a rate of around 0.5% per month, making it a uniquely cost-effective facility when repaid promptly.

A few common features of bridging loans:

  • Funds can be arranged and accessed in a few days
  • Loans available from £10,000 with no upper limits
  • No monthly repayments or initial deposit
  • Interest rates as low as 0.5% per month
  • Open to poor credit applicants and self-employed workers
  • Can be secured against most types of properties
  • Ideal for time-critical tax payments

Bridging loans are issued primarily on the basis of two things – security for the loan and a viable exit strategy. In the case of Stamp Duty payments, most bridging loans are repaid when the borrower’s previous home sells, or with personal savings accrued over the course of several months.

It is even possible to repay bridging finance with a conventional unsecured loan or personal loan, which can then be repaid gradually with affordable monthly instalments.

If you have any questions or concerns regarding your capacity to meet your Stamp Duty obligations, call UK Property finance anytime for an obligation-free consultation.

What Other Purposes Can Bridging Loans Be Used For?

The beauty of bridging finance lies in its versatility, as the funds can be used for almost any legal purpose.

Just a few of the most common applications for bridging loans in the UK include the following:

1. Escaping the property sales chain

Bridging finance can grant existing homeowners with the spending power of a cash buyer when looking to relocate. Rather than relying on the sale of their current home to fund their move, they can buy their next home with a bridging loan and repay the facility at a later date when their previous home sells.

2. Renovations, restorations and conversions

Sellers intent on selling their properties for the best possible price often conduct repairs and renovations, prior to putting them on the market. Bridging loans are commonly used to fund minor, moderate and major renovations to residential properties, with the aim of repaying the loan when the property sells for an agreeable price.

3.  Auction property purchases

Buying a low-cost property at auction means paying the full outstanding balance within 28 days; as bridging finance can be organised within a few working days, it is ideal for funding time-critical purchase and investment opportunities like these.

4. Fast purchases 

It could also simply be that you have found your dream home at an unbeatable price and you would prefer not to be beaten to the punch by a competing bidder.  With bridging finance, rapid property purchases are possible without having to rely on conventional loans or mortgages.

5. Starting a business 

Bridging finance also has an endless range of business and commercial applications. Many borrowers use bridging loans to raise the funds needed to start a new business, repaying the loan at a later date when their start-up begins turning a profit. Lending criteria for bridging finance is fairly relaxed, making it ideal for entrepreneurs with no provable experience or track record.

How Can I Get a Bridging Loan?

The key to getting a good deal on a bridging loan lies in seeking experienced broker support at an early stage. Your broker will help determine your suitability for bridging finance before scouring the market to find the perfect product for your needs.

They will also negotiate on your behalf to ensure you get an unbeatable deal, while ensuring your application is processed as quickly and smoothly as possible.

For more information on any of the above or to discuss the benefits of bridging finance in more detail, contact a member of the team at UK Property Finance today.

Categories
Bridging Loans

Bridging Applications Fall by More Than 50% in Q1 2022

New data from the Association of Short Term Lenders (ASTL) indicates a dramatic decline in bridging loan applications for the first three months of the year. According to the ASTL’s figures, application volumes were down more than 50% in Q1, coming out with a total combined value of £6.3 billion.

Bridging loan completions were also down for the period – a 15.8% decline from the previous quarter, with a total combined value of £1.04 billion.  However, both figures remain higher than in Q1 last year, and the outlook for the sector as a whole is generally positive.

Q4 2021’s record-breaking performance for the sector rendered it practically impossible for a similar performance to be achieved during Q1 of this year.  Along with a decline in bridging loan applications, the average bridging loan LTV also fell in Q1 – down from 61.2% in the previous period to 58.7%.

A Predictable and Temporary Shortfall

Commenting on the findings, Vic Jannels, CEO at the ASTL, suggested that the figures came as no real surprise.

“The latest ASTL data survey shows a reduction across most areas in the first quarter of 2022 — however, this is set against record results at the end of last year and the volume of lending continues to be strong,” he said.

“Given the current context of global uncertainty and increased living costs, it’s perhaps reassuring that record growth has been curtailed and the market is continuing growing at a steadier pace,”

“This points to high standards of lead qualification and underwriting across our members, who are continuing to provide the bridging finance that customers need, in a way that is robust and sustainable,”

“Average LTVs have fallen and the fact that the value of loans in default has now fallen for five consecutive quarters shows that lending continues to be responsible and customer focused.”

Cash Remains King

Elsewhere, Dale Jannels, MD at Impact Specialist Finance, spoke with confidence about the sector’s broader performance in general. He suggested that while competition remains ferocious on the UK housing market, consumers will be compelled to consider alternatives to conventional mortgages.

“This latest Bridging Trends Report highlights more than ever that cash is king,” he said.

“This applies to homeowners wishing to get their offer accepted before they have sold their own property, as well as investors wanting to raise funds quickly to invest in stock or refurbish existing to achieve better yields for example,”

“The shortage of suitable housing stock will undoubtedly drive increased volumes in the bridging sector for the foreseeable future.”

Bridging finance effectively gives homebuyers the spending power of a cash buyer, enabling them to opt out of traditional property chains entirely.

A move that can be beneficial in a variety of ways, as explained by Toto Lambert, a partner in Knight Frank’s Chelsea office.

“Being a chain-free buyer means that there are fewer hurdles to jump over when buying a home. The longer a property chain is, the greater the possibility of a transaction falling through, as you are reliant on other people’s property sales and therefore other people’s problems,”

“Being a chain-free buyer also means that you can often offer a greater level of flexibility if required, for example timescales to exchange and completion,”

“Flexibility can help in the initial negotiations with a seller and may put you in a favourable position, particularly if there are multiple parties interested in the home you want to buy.”

Categories
Mortgages

Johnson’s New Mortgage Affordability and Right to Buy Plans Prompt Outrage: Here is How We Can Help

There was never any doubt that Boris Johnson’s plans to help as many Brits as possible get on the housing ladder would be anything but a big disappointment. We already knew much of what he was going to say, before his already infamous remarks were voiced in Blackpool this week.

“We’re going to look to change the rules on welfare, so 1.5 million working people who are in receipt of housing benefits, I stress working people, and want to buy their first home will be given a new choice: to spend their benefit on rent as now, or put it towards a first ever mortgage,” he said.

“Doing so removes a significant barrier that currently prevents hundreds of thousands of families from buying their own home,”

“We’re going to explore discounting Lifetime and Help to Buy ISA savings from Universal Credit eligibility rules”.

Support for ‘Trapped’ Housing Association Tenants?

In addition to the above, he talked about an extension to the existing Right to Buy scheme, which will give up to 2.5 million housing association households the opportunity to purchase their properties at a discounted price.

“They’re trapped, they can’t buy, they don’t have the security of ownership, they can’t treat their home as their own or make the improvements that they want,” he said. 

“So, it’s time for change. Over the coming months we will work with the sector to bring forward a new Right to Buy scheme.”

All of this is somewhat predictable, as was the reaction from those within the housing and mortgage sector who were quick to lambast the ailing prime minister.

“There are real practical problems, to qualify for Universal Credit, you’ve got to have savings of less than £16,000, which means that most people who the Government are trying to reach with this announcement are not going to have anything near the amount that they need for a deposit,” said Shadow Levelling Up Secretary, Lisa Nandy.

Her sentiments were echoed by Edward Checkley, managing director of London-based property finance specialists Advias, who highlighted the dangers of plunging struggling households into further debt.

“This policy would go against all sensible lending practices, considering housing benefit is typically awarded to assist with rental payments if unemployed or on a low income, and to households with less than £16,000 of savings,” he said.

“With the cost-of-living crisis already affecting lower income households, how can saddling them with debt be responsible?”

Elsewhere, the founder of Mansfield-based Shaw Financial Services, Lewis Shaw, gave the prime minister both barrels, and joined the growing call for his resignation.

“Mortgage lenders already allow people to use state benefits to support a mortgage and have done for years. It varies from lender to lender exactly which state benefits they’ll take into account, so I’m not sure what a new policy could be,” he said.

“It’s almost as though they don’t know how the mortgage market works already. If we’re to believe they want higher LTV mortgages, there’s only one place to go, and that is 100% LTV. However, again, we already have 100% LTV as a couple of lenders allow you to take a personal loan as a deposit.”

“It’s more bluster from the blond blancmange. Just resign for God’s sake and let someone with an ounce of competence and integrity have a crack.”

The ‘Strength in Numbers’ Approach to Homebuying

Increasingly, millions of prospective first-time buyers are counting themselves out of the running where home ownership is concerned. Even when coming up with the required deposit to qualify for a mortgage is possible, skyrocketing house prices are pricing many out of contention.

With average house prices now hovering around £300,000, lenders’ policies on salary-based maximum mortgage sizes are proving increasingly unrealistic. Capped at around 4.5-times the applicant’s salary, even a £35,000 per year earner would fall drastically short of the mark.

A mortgage of £157,000 has been more or less useless across much of the UK for years, thus painting an even more unfortunate picture for many millions earning closer to £20,000.

This is where a product known as a Joint Borrower Sole Proprietor (JBSP) mortgage could help; a JBSP mortgage works by effectively combining the annual incomes of up to four family members, in order to increase the size of the maximum loan amount. 

Responsibility for the mortgage is effectively shared between all who sign into the agreement – usually the person or couple looking to buy their first home, and the parents of one of the buyers.

Like a conventional mortgage, a JBSP mortgage can be taken out with an LTV as high as 95%. Maximum loan sizes and terms vary on the basis of the ages of the supporting applicants, and all borrowers named in the application must be in employment at the time.

Where the conventional pathway to home ownership seems implausible at best, considering the alternative options with the help and support of an experienced broker comes highly recommended.

For more information on any of the above or to discuss the benefits of Joint Borrower Sole Proprietor mortgages in more detail, contact a member of the team at UK Property Finance today.

Categories
Other Finance News

Government Introduces Help to Build in England

A new scheme has been unveiled by the UK government, which will supposedly assist “thousands” of first-time buyers looking to get on the property ladder. Though unlike traditional Help to Buy schemes, this new initiative offers support to those who plan on building their own homes from scratch.

Named Help to Build, the programme will reduce the immediate costs of building a home by offering those who take advantage access to lower-deposit mortgages with fixed introductory interest rates.

The scheme was officially announced last week by the Department for Levelling Up, Housing and Communities, and £150 million has been set aside to help those who qualify.

First-time buyers are finding it increasingly difficult to get on the property ladder, with average house prices having once again surged to all-time record-highs in April – £281,000. Over the course of just 12 months, the average price of the UK home has increased by more than £31,000, pricing more prospective buyers than ever before entirely out of the market.

What is Help to Build?

Help to Build provides those looking to build their own homes with the opportunity to access a special mortgage of up to £600,000, which can be secured with a deposit of just 5% and offers the first five years interest-free. This 95% LTV mortgage will only be available through a selection of approved lenders, and the scheme is being managed by Homes England.

In a similar way to property development finance, Help to Build mortgages will be issued in a series of stages, coinciding with the completion of key phases of the construction project. The maximum loan available will be £600,000 to cover the costs of the land and the home’s construction, or £400,000 on build costs alone where the land is already owned.

“Through the Help to Build scheme we will help thousands more people onto the property ladder by giving them the opportunity to build homes that are perfectly tailored to their needs and in the communities they want to live in,” said Housing minister Rt Hon Stuart Andrew.

“This innovative scheme will build on our work to break down the barriers to homeownership, as well as creating new jobs, supporting the construction industry and kickstarting a self and custom build revolution.”

Who Can Apply?

While the scheme is designed to appeal primarily to first-time buyers, it will also be open to anyone interested in building their own home in England. In order to qualify, applicants will need an excellent credit score, a detailed breakdown of the project’s estimated costs and evidence of full planning permission from the relevant authorities.

In addition, the newly constructed home must be the sole residence of the mortgage holder – the scheme is not available to those looking to build a second home, or a BTL home.

After the first five interest-free years, interest will apply starting at 1.75% in the sixth year, and rising annually thereafter.

“Self-build isn’t the preserve of the wealthy, and Help to Build makes it more practical and accessible than ever before for people to build their dream home,” said Andrew Craddock, Darlington Building Society chief executive.

“This scheme also opens up the opportunities to first-time buyers. It is a fantastic example of the market moving with the times, and people’s changing wants and needs.”

Categories
Mortgages

What You Need to Know About Buying Homes at Auction (and How to Pay for Auction Properties with a Mortgage)

Whether you are looking to pick up your dream home at a rock-bottom price or turn a quick profit with a fixer-upper, auction property purchases can be just the thing. Buying homes at auction is quicker and easier than becoming part of a conventional property chain, and the savings on offer are unbeatable.

But as properties purchased at auction call for prompt payment, typically within 28 days, conventional mortgages have little practical value; with the typical residential mortgage currently taking around three months to arrange, this 28-day payment deadline calls for an alternative funding solution.

The Benefits of Property Auctions

One immediate benefit of buying properties at auction is the speed and simplicity of the transaction. Within 28 days, the property purchase and transfer process in its entirety are complete. You benefit from the lower prices afforded to cash buyers and there is zero risk of being ‘gazumped’ by competing bidders.

If yours is the winning bid on the day, the property is yours – and at the exact price quoted.

In addition, a much broader range of homes go under the hammer at auction than appear on the conventional property market. Homes that need to be sold as quickly as possible, properties in need of repairs and renovations, non-standard properties considered ‘unmortgageable’ by major banks – all potential bargains in the making.

You can even buy rental properties at auction that already have tenants living in them, enabling you to begin collecting regular rent payments in less than a month.

The Drawbacks of Property Auctions

On the downside, the shorter transaction times associated with auction property purchases can prove problematic.  If your bid is successful, you will be expected to pay a non-refundable reservations fee on the spot.

This may be 2.5% of the property’s agreed price (plus VAT), or a set fee of around £5,000. The contracts do not need to be signed and exchanged right away, but you will forfeit this initial reservation fee if you back out of the deal.

Upon signing the contract and agreeing to purchase the property, you will be expected to pay a 10% deposit. At this point, you will usually have 28 days (sometimes slightly longer) to come up with the rest of the money.

Another drawback to property auctions is the risk of being outbid, which could happen after paying for a formal survey of the property. There are also no guarantees yours will be the winning bid, irrespective of how many lots you bid on, and how many auctions you attend.

Financing an Auction Purchase

The time-critical nature of auction property purchases calls for something much swifter than a conventional mortgage. In addition, it is essential to arrange the necessary funding before the auction, in the form of pre-approval or a decision in principle. This will enable you to access the funds you need if your bid is successful, without having to start your application from scratch.

Most buyers pay the 10% deposit on the homes they buy at auction out of their own pockets, or perhaps by way of a personal loan or a credit card payment on the day. It is therefore important to ensure you have access to this 10% deposit on the day itself, or your bid will be cancelled and the property sold to someone else.

Bridging Loans for Auction Property Payments

One of the most convenient and cost-effective ways to fund an auction property purchase is bridging finance. Where approval is obtained in advance, a bridging loan can be arranged and accessed within a few working days.

Bridging finance can be secured against most types of property or land and can also be used to purchase any type of property – irrespective of its condition.  This makes it a particularly suitable facility for auction property purchases, where non-standard homes in questionable states of repair often go under the hammer.

A strictly short-term facility, bridging finance is designed to be repaid within a few months – charged at a monthly rate of around 0.5%. It can therefore be ideal for investors looking to flip properties for fast profits, using the funds raised at the point of sale to repay the loan.

It is also possible to repay a bridging loan by transitioning it to a conventional mortgage or similar long-term repayment facility.

Auction Preparation

In the weeks and months leading up to an auction, full details of the properties set to go under the hammer will be released. This will include a “guide price” for each home, which in most instances will be significantly lower than the price it sells for.

If there is a property you are interested in buying, you will need to arrange an in-person viewing and a professional survey. Particularly if it is a home in need of renovations and repairs, you need to know exactly what kind of work will be needed to bring it up to acceptable standard.

At this point, you could also contact a local architect or builder to provide you with an estimate regarding the proposed renovations. They may be willing to conduct a survey and provide an estimate for free if you subsequently use their services if/when your bid is successful.

Take a good look at the legal pack for the property you intend to buy and have a solicitor examine its contents on your behalf. If this is to be your first property auction, visit one or two auctions as a visitor in advance to get a feel for how the whole thing works.

On the Day of the Auction

Arriving early will give you the best shot at securing a good seat in the auction room. Ideally, you should be in a spot where you can see your competing bidders, but also where the auctioneer can clearly see you.

When the auction begins, don’t be tempted to exceed your budget and try to keep your emotions in check. Even if you have your heart set on a property for sale, you need to remain grounded and bid objectively.

If your bid is successful, you will need to provide two forms of identification, along with evidence that you can pay the deposit.

Should the property you are interested in fail to sell having not reached its reserve price, request the contact details of the seller; you may be able to negotiate with them directly, and perhaps pick up the lot for less than you intended to spend.

Can You Buy Property at an Auction with a Mortgage?

In terms of conventional mortgages, the answer is no. Based on standard mortgage processing times alone, it would be practically impossible to arrange a traditional mortgage within the 28-day time limit.

There may be the occasional exception to the rule, where an agreement is reached with a lender in advance to secure the required funds as promptly as possible. But this simply isn’t an option with most major lenders, where typical mortgage application processing times average around 12 weeks.

In addition, many (if not most) of the properties that go under the hammer at auction would not qualify for a conventional mortgage with a mainstream lender. Auction properties are often deemed ‘non-standard’ or ‘unmortgageable’ due to their repair and renovation requirements.

Fast-access funding is available in the form of bridging finance, along with specialist auction finance and development finance loans for established investors. Issued as short-term facilities, fast-access loans like these can be repaid using longer-term mortgages, once the property has been restored to an acceptable standard.

Consult with an independent broker ahead of the auction to discuss the most cost-effective funding options available.

What Happens if You Can’t Meet the Completion Deadline?

If a buyer is unable to pay for their property in full within the 28-day deadline, the transaction is cancelled, and they forfeit their deposit. Depending on the terms and conditions of the agreement, they may also be liable for the costs of listing the property once again at a future auction.

However, there is usually some leeway where buyers raise their issues with the vendor ahead of time. For example, if you simply need an extra few days/weeks to come up with the money, they will most likely demonstrate a good deal of flexibility.

After all, it is in nobody’s best interests to take the whole thing back to the drawing board.

If you have any questions or concerns regarding your ability to meet the completion deadline, ensure they are discussed with the seller at the earliest possible stage.

Pros and Cons of Buying at Auction

In summary, a brief overview of the pros and cons of buying properties at auction:

Pros

  • The opportunity to secure an unbeatable bargain
  • A much faster and simpler transaction
  • No reliance on risky property chains
  • Zero risk of being gazumped by competing buyers
  • A broader range of properties to choose from

Cons

  • No guarantees you will walk away with a property
  • Full payment is required within 28 days

Auction property purchases can therefore be advantageous in many ways, but will always call for careful planning and forethought.

For more information on how to fund auction property purchases or to discuss the benefits of buying at auction in more detail, contact a member of the team at UK Property Finance today.

thumb

Live Chat

hi Olivia here,
how can I help?