Property Finance Brokers arranging Whole of Market Funding for Property Developers, Investors & Traders

Bridging Loans

We broker Bridging Loans, also known as short term funding, to 80% of value (and to 100% of purchase price) for our clients for their property projects. To view a comprehensive list of market leading products click on the link…

  • Short term finance for any legal purpose secured on residential and commercial property and land with planning consent
  • Typically terms to 24 months but longer by negotiation
  • 1st and 2nd charge loans, based upon value rather than purchase price
  • Status and non-status loans for purchase, refinance and light refurbs
  • Bridge to Let loans from a single lender; NEW market leading product!
  • Speedy decisions, offers and completions
  • Loans from £250k to £Multi Million

Below we have provided further information on the Bridging Loans market in Q&A format, which we trust you will find of use. (Last updated 1st October 2013.)

How would you describe the demand for Bridging Loans at the moment?

The demand for quality housing, both to purchase and to rent is strong in many parts of the UK and it is not surprising therefore that there is also strong demand for bridging loans, also known as short term finance, from property developers, traders and investors. The supply of BTL and residential investment mortgage lenders (offering portfolio mortgages) and products has improved significantly in the last year or so and take up is strong. As expected there has been a similar increase in demand for bridging loans as it is often not possible for an investor to secure a BTL or residential investment mortgage on acquisition of a property (the property may be acquired at auction, or undervalue, or in need of refurbishment etc.) and there is a need to put short finance in place, pending re mortgage later. It remains to be seen what effect, if any, the proposed SDLT and taxation (removal of higher rate tax relief on mortgage interest) changes have on demand for residential investment properties and funding.

Note: there are new and innovative Bridge to Let products on the market, from single source lenders,  which consist of a bridging loan that converts to a BTL -Commercial Mortgage.

Turning to the commercial investment property market; we are seeing demand for short term finance as the traditional source of finance for this asset class, the high street banks, are not interested unless the tenant has a prime covenant. The supply of term mortgages for commercial investment property has improved, mainly from the challenger banks who are lending on secondary covenants and short leases (subject to proven local demand for the asset type), and this in turn is resulting in an in improvement in demand and liquidity.

But it is not just property investors and traders that seek bridging finance is it?

Absolutely not! Bridging loans can be used to secure finance for almost any legal purpose. The lender will wish to know what the money is being used for and how they will be repaid which will be either by sale or re finance.

The loan can be for purchase or refinance. It can be on a 1st or 2nd charge basis (and even a 3rd charge). The loan may be secured on a residential or commercial property or portfolio of properties, or on land with a valid planning consent to construct either residential or commercial property.

And what about the supply of Bridging Loan finance?

The market is buoyant with literally dozens of lenders, many of whom have entered the market in the last 12 months or so. Frankly many are offering nothing new or innovative but amongst them there are lenders that genuinely have something to give. Be it high LTV’s, competitive pricing, excellent service or user friendly processes. Bridging lenders have moved into traditional high street banking space and are filling the gap left by their absence from the market. The increase in supply is having a positive influence on the market. Pricing is reducing (although it is not and is unlikely to ever be at pre downturn high street bank rates), LTV’s are at or near pre downturn levels and geographical spread has reached parts of the UK other than London/SE (with limited availability in Northern Ireland).

So, the high street banks are not lending in the bridging market?

No, they are not; and are unlikely to at any time soon. The high street banks just don’t want short term property loans on their books which carry expensive capital costs and are perceived as high risk.

And who are these lenders and where do they get their money from?

A mixed bunch! Many are backed by investment and hedge funds, some by private wealthy individuals and family offices and  others have a wholesale funding line from banks . We have also recently seen some of the challenger banks move into the short term loan market offering innovative products and competitive pricing. A few of the challenger banks have successfully entered the short term loan market offering innovative products and competitive pricing and have the added benefit of being able to provide take out long term BTL -Commercial Mortgage funding (Bridge to Let).

The challenger banks; who are they?

This is a collective name given to a few new to the market banks. They have depositors and a banking licence and are structured in a way that enables them to offer both short term funding and more crucially long term funding to property investors and trading businesses. Two of these banks will not accept business directly from the public but only via accredited brokers.

How much can be borrowed against a property asset?

It depends upon location, the nature of the asset, the class of security and the intended source of repayment.

The maximum gross loan that can be sourced on residential property is 75% Loan to Value (LTV) . The median is nearer 65% LTV.

If a property is being purchased most lenders will require a minimum cash contribution of c.10% irrespective of the LTV; in other words if a borrower is acquiring a property at undervalue they won’t fund 100% of purchase price (unless additional security is provided).

LTV’s for commercial property are more bespoke and will depend upon asset type, location and exit route, However on a speculative basis the maximum is c. 60% LTV and the median is c. 50% LTV; however if there is a defined take out in place such as an offer of refinance or a contracted sale up to 70% LTV may be possible. Funding for land with planning consent may be sourced up to 80% LTV (but with the same lender offering take out development finance); the norm is nearer 60-65% LTV.

What do you mean by gross loan? And is there a net loan?

The gross loan is the maximum LTV offered by a lender.

The net loan is the amount that the borrower receives.

The difference between the two will be any deduction for interest, lending fees, and legal fees.

So how is interest charged?

Retained:         Interest may be retained on day one from the gross loan. So if the loan is for £100k and the interest rate is 1% flat per month and the loan is for a 6 month term then £6k will be retained and a net loan of £94k made available

Rolled up:       Interest may be rolled up within the facility but within the maximum LTV

Paid:                Interest may be paid monthly by the borrower from their own resources.

Factors such  lender policy, LTV, exit route, and financial covenant of the borrower will determine how interest is charged

How long is a typical Bridging Loan term?

12-24 months or less although longer terms may be negotiable if there is a genuine need for it. Note: residential investment properties that are let may be refinanced on Medium Term Loans of up to 5 years and whilst these are not bridging loans they may fill the gap between short term bridging and long term commercial investment mortgage or BTL funding.

How do lenders decide whether to lend on a project?

Some lenders will underwrite on a full status basis (like a bank, and requiring full disclosure of the applicant’s financial position), others on a semi-status basis (requiring some financial information about the client) and others on a non-status basis where they are purely interested in the asset rather than the borrower. Ultimately the lender will need to be comfortable with the proposed exit route (sale or refinance).

Will funders lend to applicants with adverse credit?

The term ‘adverse credit’ applies to minor breaches such as the odd late payment on a credit card through defaults and CCJ’s to bankruptcy. The extent of the adverse credit will determine whether a lender will proceed but there are some lenders that lend on a non-status basis and therefore will ignore this. Others will take a measured view and are more likely to lend if the exit route is sale rather than re finance. Undischarged bankrupts cannot borrow by law.

How much does it cost to borrow on a Bridging Loan?

The increased supply of bridging lenders has brought competition to the market and pricing is falling which is good news for the borrower. Lenders charge in a variety of ways including some or all of the following: monthly interest, completion fee, exit fee. As this is a short term product headline interest rates therefore carry a health warning and borrowers should calculate the total cost of the loan to include all financial charges, legal fees and valuation fees.

In theory status loans should be cheaper than semi or non-status, and there is some truth in this but it is not always the case. We try to avoid lenders who require full disclosure and underwriting but charge penal rates more appropriate to non-status loans. If applicants have a strong financial position, a clean credit file, are prepared to provide full disclosure and have a realistic exit route then ‘reasonable’ pricing can be sourced.

It would be misleading to quote specific charging structures in this text but the following link will bring you to the Bridging Loan Products suite.

To enable you to compare products and pricing you can input the details into a bridging loan calculator which can be found on the Resources page.

Is bridging finance available throughout the UK?

It is available in England, Wales and Scotland but there is little appetite for Northern Ireland, although one lender is very active in the province, albeit at sensible LTV’s.  Many lenders are now less London/SE centric than a year or so ago but LTV and pricing are often determined by local liquidity.

What is the maximum loan available in the market?

At Optima we broker property bridging loans from £250k (smaller loans are available from £30k). At the top end there are lenders offering funding of £25M +

Sole traders, partnerships, LLP’s, Ltd Co’s and offshore vehicles.

When the vehicle is to be a Ltd Co, lenders will often prefer it to be a Special Purpose Vehicle, or SPV, set up for the specific project and owning only the project asset/liability.

Where the borrower is to be an offshore vehicle full disclosure and audit of the directors and beneficial owners is required.

What security will the lender require?

All borrowers  1st charge                                 1st charge on project asset
Ltd Co’s/LLP’s                                                 1st Debenture & Personal Guarantees
                                                                            (normally for full debt)

All borrowers 2nd charge                                 2nd charge on project asset
Ltd Co’s/LLP’s                                                 2nd / Debenture & Personal Guarantees
                                                                           (normally for full debt)

How will the property be valued?

Lenders will appoint a valuer of their choice (sometimes they will work with an existing valuation) to value the property and depending upon their underwriting criteria will request a figure for one or more of the following:

MV or Market Value
MV with a restriction which can be 90 or 180 day

There will normally be a reduction in valuation for the 90 day sale value (and sometimes the 180 day) and this will depend upon location, property type, demand etc.

If the project includes improvements to the property which will increase the value the lender may ask for both the ‘as is’ value and ‘end’ value.

How quickly can Bridging Loan lenders operate?

Very quickly. The good ones are geared up to provide indicative terms within hours, an offer (subject to valuation in 24 hours or so) and they can often complete the transaction in a matter of a week or so.

Can you provide examples of currently available Bridging Loan products?

For a comprehensive list of currently available products visit Bridging Loan Products

What resources are available to property developers, traders and investors to assist them in raising finance?

We have provided a number of tools which you may find of us (Aide Memoirs, A&L Templates/Calculators etc.); to view and download please visit the Resources section.

We have provided a list of industry links that you may find of use (RICS/RIBA/Law Society/Planning Portal/ Warranty Providers/Sales Data etc.); to view visit the Industry Links section.

How can Optima help property developers, traders and investors with their finance application?

There is such an array of bridging loan lenders and products it would be impossible for a property professional to keep  tabs on them and even when a lender is chosen the applicant has no way of knowing if they will perform, Many don’t.  At Optima we have the experience and the contacts to broker market leading bridging loan products (some of which are available from the challenger banks only through accredited brokers) and would be pleased to discuss either a specific project or the market in general with you; and of course in confidence.

To get an understanding of how we offer a professional and transparent brokerage service please view the About Uspage and take a look at the Successes page where we have posted both testimonials from satisfied clients and examples of project case studies.


If you have a specific enquiry or wish to discuss the market in general, or indeed require clarification on anything you have read on this site please either call us on 0207 205 4200 or click on the link below:

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What our customers say about us:

Optima are well connected in the development finance market but we get much more than a lender introduction. Gary uses his experience to foresee and address hiccups which enables us to proceed with the project with some confidence that we will get it across the line.

duncan

For further testimonials and Case Studies click here

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