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Banks Tighten Up On Credit Card Lending Restrictions
Any increase in activity Consumer spending can only be considered a positive thing in terms of getting the economy back on its feet. It stands to reason that the more UK products and services the average British consumer decides to invest in, the better the economy will perform as a whole. However, when an increase in public spending leads to excessive levels of personal debt, the situation stops being beneficial and becomes something of a serious economic problem.
According to recent reports, it seems that a large percentage of consumer spending over the last 12 months has been a direct result of increased personal borrowing. In fact, a recent report published by the Bank of England suggests that UK borrowing has gone somewhat out of control during the past year, with borrowing growth exceeding 10% within the past 12 months alone. With most of this figure being attributed to credit card borrowing, the UK banking sector has decided to tighten up on credit card lending across the board in order to help rectify the situation.
The official Bank of England warning states that banks could face an even bigger problem from consumer debt than mortgage lending. However, is this really the fault of the British public? The recent uncertainty following the Brexit vote saw many banks trying to tease consumers back into borrowing by offering some of the lowest credit card rates that the UK has ever seen. With more and more people applying for new credit cards and a similar increase in the rate of approval, almost a third of all credit card lenders have decided that the time has come to reverse the current trend by taking a much more restrictive approach when processing new applications.
Many leading experts are pleased with this decision, claiming that a lack of tighter restrictions could prove to be a serious threat to borrowers and lending facilities.
“The Bank of England will be pleased to see lenders tighten credit scoring criteria for unsecured lending in the first quarter and expect to tighten them significantly further in the second quarter (particularly for credit cards),” said Howard Archer, chief UK and European economist at IHS.
“If the fundamentals for consumers do weaken further as expected over the coming months, it is vital that banks adopt tight lending standards in granting unsecured consumer credit, or it risks causing serious debt problems for the economy. This would be reinforced if the Bank of England felt compelled to raise interest rates due to mounting concern over the potential inflation overshoot.”
With the short- and long-term effects of Britain leaving the EU remaining something of an unknown quantity, credit consumers are now being advised to take extra caution before deciding to borrow beyond their means. Although unemployment and interest rates are both at the lowest levels they have ever been, it is impossible to foresee how the situation will change over the next few years. It is therefore essential that borrowers do not get into excessive amounts of unnecessary debt in the meantime.
For International Individual Commercial Investors, Britain Is Best
The picture from a British investor’s view right now might not be quite so rosy. Nevertheless, it seems as far as private property investors on a global basis are concerned, commercial real estate in the UK is as hot as it gets. More people than ever before are eyeing up the UK as a commercial property investment hotspot, the latest figures reveal.
Specifically, the report reveals that private buyers accounted for around 27% of all global commercial property transactions last year, while 25% of private wealth is tied up in real estate investments.
“We predict that private investors will continue to take global market share as both the number of wealthy individuals and their assets grow. The number with $30 million or more in net assets rose by 6,340 in 2016 alone, taking the total to 193,490.
“We expect that the appetite from private investors for commercial property will continue to increase. The report shows that 32% of ultra-high net worth individuals will invest in cross-border real estate deals in the next two years.”
In terms of wealthy investor populations seeking overseas investment opportunities, the report showed that the United States is slowly but surely being challenged by Asia. As it stands, there are just over 27,000 fewer ultra-wealthy investors in Asia than there are in the United States. However, it is predicted that this will shrink to no more than around 7,000 within the next ten years.
One of the effects of the global financial crisis has been a growing tendency among investors to diversify, both in terms of their portfolios and their chosen geographical locations.
“The top markets targeted will primarily be those exhibiting solid fundamentals, including tenant demand, liquidity, and transparency.”
“However, increasingly, we are advising clients not only on prime office, retail, and hotel assets but also strategic investments in growth sectors such as urban logistics, leisure, and specialist operating assets, including student housing and multi-housing. Overall, property as an asset class remains high on the agenda of private investors.”
Closer to home, investors at all levels in the UK continue to view commercial property investment as a relatively safe haven for the immediate future, at least. Once again, capital values have risen 2.5% across UK commercial property, with rental value growth having come out at 0.8%. Not quite as strong as the 1.1% growth recorded during the same period last year, but reassuring, to say the least.
Of course, the effect Brexit is likely to have on all the above remains the single biggest unknown for domestic and global property investors alike. So while investment from overseas investors may be on the rise, few are throwing caution to the wind, having acknowledged that things could look very different just two years from now.
A Brief Insight on Secured Commercial Loans and Unsecured Business Loans
If you are thinking of starting up a new business or you are looking to expand an already successful corporate enterprise, the chances are that you will get absolutely nowhere and at light speed if you do not have access to the required type of financing you need.
When trying to source suitable commercial finance products, an applicant will typically achieve funding by means of at least one, but sometimes multiple, business loan(s). When the time arrives, the borrower will ultimately be required to decide whether to apply for a secured business loan or an unsecured commercial loan product.
With this in mind, we need to understand the main differences between these two types of finance so that we can make an informed decision and take the most logical route.
What are secured loans for businesses?
A secured business loan is a long-term borrowing product that is available exclusively to applicants who are able to offer some type of collateral as security against the sum being borrowed. In most cases, this type of financing is usually secured on a property or suitable commercial assets. Although the borrower will typically use a commercially owned building or business asset as security, there are cases where secured business loans are taken out against an applicant’s home or primary residence.
Provided you are entirely certain that you can pay the loan back on time and in line with the terms and conditions set out in the agreement, a secured loan is often the most affordable type of financing available to the modern business borrower. As the loan is secured against an appropriate property or business asset, the rate of approval is generally exceptionally high, and your personal credit history and company finances will not be scrutinised as they would normally be when applying for an unsecured borrowing product.
Secured business loans are usually paid out at quite a fast pace, and the application process itself is incredibly quick and simple to understand. Of course, there is a downside to all of this, which is the fact that your assets will be removed from your possession and sold on to a third party should you find yourself unable or unwilling to make the required repayments in a frequent and punctual manner.
What is an unsecured business loan?
Unsecured business or commercial loans are short- to mid-term borrowing products that are not secured against an applicant’s assets. The main benefit on offer here is that if you are unable to pay an unsecured debt, you will not lose your home or valued assets as a direct result. However, with an unsecured loan, you won’t be able to borrow anywhere near as much as you could if you secure the funds against something of value. The application process is also a lot less forgiving, with much tighter restrictions, and you will also find that the interest rates can be quite high if you are successful in terms of accessing the funds you need to help your business grow and progress to the next stage.
Commercial Property as a Buy To Let Investment
Owing to recent tax relief changes that came into effect in April this year, a growing number of buy-to-let investors have found themselves turning their backs on domestic rental properties in favour of commercial investments as a more favourable opportunity.
In addition to this, some buy-to-let experts are also considering venturing out into more complicated areas of rental accommodation, such as multi-occupancy homes, which are popular with students who are studying away from their paternal nests.
Another area that is attracting an unusually high level of interest from buy-to-let landlords is semi-commercial property investment. This is where one part of the building is used for business reasons, such as a high-street bar or restaurant, and another part of the same property contains a residential flat.
Whereas the residential buy-to-let sector is experiencing a number of difficulties, the commercial property rental market is seemingly unaffected by recent changes, with industrial units being the primary candidate for healthy investment with serious returns.
Why choose commercial leasing as an investor?
The most significant advantage of investing in a commercial property with a view to letting is that the rents are typically much higher than with similarly priced residential lettings. This is a particularly appealing option at a time when most landlords have found themselves having to seriously think about lowering their costs while improving profit margins.
Although retail premises and office spaces are currently performing somewhat less admirably in the commercial letting arena when compared to industrial offerings, the commercial property sector as a whole is doing relatively well at the moment, with demand for such lettings consistently on the increase.
The effects of the Brexit vote
Another factor that is influencing this shift of focus is the Brexit effect and, in particular, the wide degree of uncertainty it caused. The most obvious result of this new period of insecurity was a dramatic increase in the number of low-cost commercial property investments entering the market.
‘The slowdown in the investment market during the summer months did inadvertently create a catalogue of available assets marketed at “Brexit factored” prices,’ read a recent report published by Knight Frank.
‘This was pivotal in delivering the strong uplift seen in Q4, which represented the fastest quarter-on-quarter growth in investment volumes for three years. Overseas investors continued to dominate, with £24 billion directly invested in UK commercial property in 2016, accounting for 49 percent of all investment.’
As the government seeks to make life more and more difficult for those in the residential buy-to-let sector, those letting commercial properties as a means of generating revenue seem to be having a much better time of things, with a growing number of UK investors choosing to abandon their domestic rental properties in favour of a more profitable experience.
Remortgaging versus Secured Borrowing
You may find it somewhat surprising to think that, when it comes to remortgaging, many borrowers remain completely unaware that another option exists. Recently, a growing number of independent finance advisers have begun to advise their clients of a unique range of secured borrowing products, which can sometimes be of much greater benefit to the homeowner in search of additional funds.
To understand the suitability of each borrowing product, it is important that you know the basic differences between a secured loan and a remortgaging option, so we’ll take a look at each one in the next couple of paragraphs.
What are secured loans?
A secured loan is a long-term borrowing product where the loan amount is secured against something of value. This is usually a homeowner’s property, and this is the main reason that secured loans are often referred to as homeowner loans. Whereas personal loans have an upper ceiling of around £25k, a secured loan is only limited by the amount of equity that a homeowner is able to offer, a figure that is worked out by subtracting any outstanding mortgage debt from the market value of a property. When applying for a secured loan, it is important to realise that your home could realistically be repossessed should you fail to make payments on time, either deliberately or through no fault of your own.
What exactly is a remortgage?
A remortgage is very similar to a secured loan in that the borrower is offered a loan amount in direct relation to the amount of equity they are able to provide. However, unlike a secured loan, which may or may not be secured against a homeowner’s property, a remortgage will typically always require the applicant to put their home at risk in the event of non-payment. With a secured loan, it is quite possible to offer other types of collateral against the amount you are seeking to borrow.
Another difference between a remortgage and a secured loan is that most remortgaging products can only be used for a limited range of reasons, such as home improvement. With a secured loan, the borrower can typically use the funds for any purpose they see fit. On top of this, the remortgaging application process is often quite complicated and can take a considerable amount of time to complete.
When you choose a secured loan
It is usually in your best interests to apply for a secured loan whenever you need to borrow a considerable sum of money over a substantial length of time. Secured loans are also the ideal option whenever you require the funds for reasons other than home improvement, although they can also be used for this purpose if this is what you are looking to borrow for.
Unlike remortgaging products, secured loans can be taken out against additional properties that you own other than your primary residence, and they can even be used for commercial reasons such as expanding a business or to secure new assets for a self-employed venture.
Although secured loans are typically much easier to apply for, with the funds being released in a matter of just two or three weeks, both products offer unique advantages, so it always pays to do a little research and seek sound borrowing advice from an FCA-approved broker or independent adviser before deciding on which product to apply for. Work out the costs of a mortgage using our UK mortgage calculator.
Secured Business Funding
Raising the required capital to start and develop a new business is often the dictionary definition of a catch-22 situation.
In terms of available lenders, there are dozens of major banks, building societies, and financial institutions that are happy to loan cash to the required amount. Unfortunately, they only tend to be willing to hand over a penny if you can already prove your capacity (and that of your business) to pay it back. which can, of course, be difficult if your business either doesn’t exist or is only just getting off the ground.
You need money to get your business where you want it to be, but you need to get your business to a certain position before most will even consider lending you the required capital. Suffice to say, this is a difficult and frustrating situation that many business owners and entrepreneurs are probably all too familiar with.
An accessible alternative
This is just one of the reasons—albeit a big one—why secured business funding has the potential to represent a far more accessible and beneficial alternative. In terms of simply getting hold of the cash you need in the first place, a secured loan could offer the kind of flexibility and affordability no conventional loan comes close to.
The key difference with secured business funding is the way in which the loan is secured by property or assets of some kind or another. With conventional loans, you essentially need to prove your current financial situation to such an extent as to prove your capacity to pay back the loan. With a secured loan, this isn’t necessary at all, you simply need the required collateral, in accordance with the value of the loan itself.
This way, current financial circumstances and even your future financial outlook are superfluous considerations. This in turn significantly simplifies the application process, meaning that regardless of how much capital is required, it can be obtained far more quickly and easily. Not only this, but it is often true to say that secured business funding is offered with considerably lower rates of interest and overall borrowing fees than comparable conventional loans. This again largely comes down to the simplicity of the deal: you put up the required collateral, they provide you with the capital, and repayment agreements are reached accordingly.
Speaking of which, there can also be a great deal more flexibility in terms of repayment with secured loans. Along with the usual method of paying back a specified amount on a monthly basis, it is also possible to pay larger sums on a less frequent basis, or perhaps something like a lump sum inclusive of all agreed borrowing charges at a later date.
Even if the applicant in question doesn’t have the most outstanding credit history, this rarely tends to be an issue when it comes to secured loans. The only thing needed to facilitate the loan is the required collateral; the rest rarely comes into the equation.
Time savings, low costs, simplicity, and flexible repayment options—just four of the many benefits that accompany secured business funding over and above the traditional alternative.
How To Get The Results You Need When Applying for Property Development Finance
Although most property development projects tend to radically differ from each other in terms of the actual work itself, they all share one key requirement. The primary underlying factor in terms of a developer being able to successfully deliver a project while simultaneously generating a healthy return is the ability to acquire the relevant funds to ensure that the task can be completed in a timely manner without exceeding the budget. Whether you intend to refurbish existing real estate or construct a new residential or commercial building from scratch, appropriately sourced property development finance will typically always serve as the dividing line between prosperity and failure.
In an ideal world, the developer would always have the required funds at their disposal without ever having to look elsewhere for help. However, in reality, this is seldom the case, and this is precisely where an expert property development finance broker can make a colossal difference, particularly in terms of ensuring that a project can be completed cost-effectively while increasing profit margins. If you happen to be a property developer and you are looking to improve your odds of getting a good deal on development finance, then there are a number of steps you can take in order to gain access to the competitive funding solution you ultimately need.
Here are five essential steps that will help you achieve the best property finance deal while ensuring your application is approved without any complications.
1) Whether you are applying for development funds for the first time or you are already highly experienced and well versed in the world of development finance as a borrower, one of the most important things you must do when completing your application is to always remain transparently honest with your lender from the outset. If you are realistic about your plans and can identify your business goals, financial standings, and even your fears or concerns (i.e., whether you may need to borrow more funds at a later date should an unforeseen event occur), the development finance lenders you approach will be more comfortable and inclined to deal with you.
2) Previous experience always plays a vital role when trying to secure development finance for a given project. Even if you are relatively new to the game yourself, the ability to show a lender that the people you will be working with on a project are suitably qualified and capable of completing the task at hand will ultimately improve your chances of accessing the credit you need. This includes architects, interior designers, builders, plasterers, and anyone else involved. In a nutshell, when you show a prospective lender that the people you have on board for a project are qualified, experienced, and reliable, with proven track records and quality references, the confidence they will have in your project will increase exponentially.
3) When it comes to development financing, the decision to lend is also based on numbers, hard facts, and figures. If you can demonstrate the feasibility of the project in an accurately numerical fashion, lending confidence increases further, and your chances of being approved for a property development funding package with a low rate of interest will also be much higher. Basically, you need to show the lender that you have done your homework and that your ambitions to succeed are realistic and achievable.
4) When applying for development funding, always make sure that you are confident in your own ability to see the project reach fruition. If you show any signs that you have outstretched yourself, either as a borrower or a property developer, your lack of self-assurance will be quite off-putting from the lenders’ perspective.
5) Regardless of your level of experience when dealing with or applying for property development funding, it is always useful to talk to a qualified and well-recommended professional who will discuss all the options available to you while taking your unique set of circumstances into consideration.
Additionally, when you apply for development finance online using an FCA-authorised and regulated broker such as UK Property Finance, you will also gain exclusive access to a diverse panel of mainstream lending facilities alongside a unique set of private investors who will be interested in funding any individual project based on its own merits. You should also be aware that many of the development funding options available through a specialist broker may not be available through other channels, even when approaching a specific lender directly.
Turned Down For Property Development Finance?
Contrary to popular belief, being turned down for property development finance is far from uncommon. It’s just that when it happens to you personally, you feel as though you’re the only one in the world facing such troubles.
Regardless of what it is you need the capital for, there are generally four main reasons why applicants are refused assistance by any given service provider, which are as follows:
- Your credit score If your credit score simply isn’t up to par, chances are very little else will matter in the eyes of the lender.
- Your current business position You may have a fantastic credit history, but if the lender doesn’t believe that your business is currently in a suitable position to warrant the loan, you will probably be refused.
- Your Request. Alternatively, it could simply be that you have requested too much money, unacceptable repayment terms, or anything else the lender deems unsuitable.
- Your Choice of Lender or Product Lastly, it could simply be that you have made a poor choice in terms of the lender you have chosen to work with or the actual development finance package you have applied for.
So that’s the basis of the problem outlined, but what about the solution?
The good news is that no matter how many times you have been turned down, there are always alternative avenues to explore. There are certain issues that may stand in your way and make life difficult, but there is never such a thing as reaching a point where there’s nowhere left to turn.
So if you do find yourself in a situation where you have been refused financial assistance, consider the following, and you may be able to gain access to the required funding elsewhere:
- If your credit score is the problem, it isn’t a problem that is just going to go away on its own. Find out exactly what it is that is blighting your credit record and begin making the necessary changes to put it right.
- If you have only applied for generic development finance products via everyday lenders, you might want to think about the various intelligent financial solutions available. These are exactly the kinds of instances in which bridging loans, for example, have the potential to represent highly accessible, affordable, and cost-effective solutions.
- There are always alternative options to explore outside the usual borrowing spectrum. Examples include crowdfunding, peer-to-peer lending, and seeking the involvement of private investors.
- It’s also worth carefully reconsidering exactly how much you need, what you need it for, and when or how you can guarantee the sum’s full repayment. If it’s possible to get by with considerably less and pay it back quicker, you may find more lenders willing to help.
- Never overlook the possibility of obtaining a secured business loan, which, assuming you have the required collateral to put up as security, can be much easier to obtain than an unsecured loan.
- Last but not least, it’s advisable to immediately get in touch with an experienced and reputable independent broker in order to obtain professional guidance and assistance on all aspects of property development finance. Rather than repeatedly trying and failing on your own, why not get the professionals to lend a helping hand?