There is no denying that the property market has been impacted heavily by the outbreak of the coronavirus. Fortunately, the property market has remained open over the latest of the lockdowns, and with the government releasing their roadmap out of lockdown the future is certainly looking brighter.
Over the last year, we have supported homeowners, businesses and landlords with their varying needs. Our expert team have provided financial solutions for those looking to secure regulated bridging finance to purchase a property while they sell another, while also supporting those who need access to refurbishment finance to complete a project and increase the value of a property.
If you are a homeowner or buyer that needs access to finance quickly, trying to understand the different finance options available to you may be a confusing process. Luckily, irrespective of whether the bridging finance would be classified as regulated or unregulated, as a specialist financial broker based in Birmingham, our expert team are on hand to outline the different bridging options available and how they may be used:
What is a regulated residential bridging loan?
A regulated residential bridging loan is a short-term finance option that allows you to access funding to cover you until the sale of your existing property is complete or your mortgage is in place.
One of the main benefits to bridging finance as a whole is that often the application can be turned around very quickly. In certain circumstances, this can be in just a few days.
When would you use a regulated residential bridging loan?
There are many situations in which you may want to use a residential bridge loan. For example, in a property chain, there is the risk that a buyer will pull out. A bridging loan can cover the gap until a new buyer has been found. As well as this, a bridging loan may be used to purchase a property while you wait for your existing property to be sold.
Bridging finance may also be used in projects involving the refurbishment of a property in order to increase the property’s value. It may be used for developments such as adding an extension or replacing old fixtures.
Using your loan to purchase the property, you can refurbish it and either sell or re-mortgage based on the improved value of the property. The facility can also incorporate the refurbishment costs, which would be released on a drawdown basis.
What is a refurbishment bridge loan?
You may consider a refurbishment bridge loan to cover the costs of property refurbishments or renovation.
There are two primary types of refurbishment bridging loans available: Light refurbishment and heavy refurbishment.
A light refurbishment-bridging loan would be valuable when a property requires minor developments. Typically, this would be suitable where no planning permission is necessary.
You may use this type of loan for central heating installation, rewiring a property’s electrics, installing new windows or doors, kitchen and bathroom remodelling and most other non-structural improvements.
The definition of “heavy” refurbishment will vary between lenders, though it usually applies to projects that require planning permission as well as internal and external structural works, property extensions and conversion projects.
Some lenders work out whether your refurbishment is “light” or “heavy” depending on the cost of works against the current value. For example, some lenders may allow up to 50% of the current value of the property, regardless of the work being undertaken, as a “light” refurbishment project. Over the 50%, they may classify the project as a “heavy” refurbishment.
How much does residential bridging and refurbishment finance cost?
The overall borrowing costs will depend on a number of factors such as what you need the loan for, how long you need the funds, your exit strategy and your Loan-To-Value (LTV) and whether the loan is classed as regulated or unregulated. Usually, the higher the LTV, the higher the interest rate.
Longer bridging loan repayment periods will mean higher overall borrowing costs and the lender you choose will also make a big difference to how much you can expect to pay. Monthly interest payments tend to be rolled up or retained within the facility amount, therefore meaning you don’t pay anything monthly and just pay a lump sum upon redemption.
If you work with a specialist financial broker such as Finance 4 Business, you can rest assured knowing you are finding a competitive deal to suit your requirements. We will compare the deals available across our wide panel of lenders to find the right terms for you.
If you would like to find out more, contact our expert bridging finance team on 0121 309 0444 today.