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How does a bridging loan work?

2 February, 2021

What is a bridging loan?

A bridging loan is a short-term funding option primarily used ahead of either:

  1. an alternative longer-term funding solution becoming available; or
  2. the sale of an alternative asset or even the asset being borrowed against.

Or it can simply act as a short-term loan option for a variety of purposes.

Bridging loans were historically designed to help people complete the purchase of a property before selling an existing one i.e. bridging the gap between the purchase and the sale.

However, they have evolved over the years. A property is offered to secure short-term funding for a range of different purposes rather than just purchasing a property whilst a sale is awaited on another.

Invariably they are now unregulated loans.

In simple terms, a bridging loan involves offering a property – usually a residential property – as security to a lender, such as MSP Capital, and using the value/equity within the property to secure a loan – normally on a short-term basis of no more than 12 months to suit a borrower’s requirements.

They can often be organised at short notice with bridging providers, such as MSP Capital, specialising in providing these loans quickly and easily.

Usually the funding will be via a 1st mortgage over the property. Sometimes, however, if there is sufficient equity, they will assist via a 2nd mortgage – subject to 1st charge holder approval.

Each lender will have their own lending parameters that dictates the maximum that can be lent.

MSP Capital’s standard lending parameters are up to 70% of the value of a residential property or 65% of the value of a commercial property.

The value of the property will be assessed by way of a formal independent valuation, which is undertaken on behalf of the lender but payable by the borrower.

The lender will charge fees and interest for the Loan with the amount of the charges depending on:

  1. the amount borrowed;
  2. the percentage borrowed against the property value; and
  3. the term the loan is required for.

The terms are then detailed in an Offer of Finance, which once accepted, will allow the lender to formally begin the lending process.

The mortgage and loan paperwork will then be dealt with by the lender’s and the borrower’s solicitors and once all formalities are completed the funds can be released to the borrower.

Repayment will be expected before the agreed term has expired although an extension will sometimes be required subject to agreement.

 

How long can you have a bridging loan?

MSP provide bridging loans for various periods of time to suit the borrower’s individual requirements. Bridging funding is generally considered as ‘short-term funding’.

The standard period for a straight forward bridging facility on a residential property would be up to 12 months. That said, 6-month terms are common place, although the loan can be repaid at any time from the day it is drawn.

Facilities can be agreed and provided in a very short space of time and provide the ultimate flexibility that enables clients to have confidence that funding is in place to either raise short-term cash for acquisitions or general business cash flow.

MSP has recently launched a medium-term bridging loan facility more akin to a standard ‘Buy to Let’ that can be for either a 2 or 3-year period. This provides certainty for a longer period, although can be agreed as quickly and easily as the ‘standard’ short-term bridging facility.

Bridging loans are generally taken to provide the borrower time to either sell the property asset or arrange longer-term finance.

 

Where can I get a bridging loan?

MSP Capital can provide bridging loans to any legal entity including limited companies, limited liability partnerships and in sole names.

As an unregulated lender, MSP bridging loans focus on the property value (we lend up to 70% of RICS valuation) more so than debt serviceability, which adds to the speed and flexibility when providing the facility.

MSP Capital can act quicker than its competitors in the bridging loan sector, which is a major factor in securing funding. As MSP Capital lends its own funds, the loan is usually approved and credit backed within 24 hours of the initial enquiry. Draw down of funds with MSP Capital can occur in matter of days if the legal and valuation process can be expedited efficiently.

 

MSP’s Bridging Loan Products

 

Premium Bridging Loan

Premium is a new residential bridging product designed by the team at MSP to facilitate loans between £75,000 and £4m. Designed for completed units, Premium enables property professionals to raise finance from completed residential stock to assist with cash flow to purchase future development projects or refinance an existing lender during the sales process.

 

Standard Residential Property

This type of bridging loan is ideal for purchases, refurbishments, or refinancing of residential properties.

 

Development Exit

When a project has reached practical completion a development exit loan can work well to bridge the gap of finance whilst the unit/s are awaiting sale.

 

Commercial Bridging Loan

They can be used for the purchase of a commercial or part commercial/part residential property, brownfield sites before planning approval is given, run down commercial premises that are hard to get mortgages on or they’re often used for the purchase of commercial properties at auction.

 

Light Refurbishment Bridging Loan

Refurbishment bridging loans, also referred to as refurbishment finance, are specialist loans issued to cover the costs of property refurbishments. The value of the property with a refurbishment bridging loan relates to its projected value when the refurbishments have been carried out.

 


If you have an enquiry about our bridging loan product or if you are simply looking to chat through your options, we want to hear from you.

For further information about bridging finance, please contact the team at MSP Capital on 01202 743400.

Market Update: February 2021. What is next for house prices in 2021?

2 February, 2021

It’s the question that everyone is asking, tricky to debate and will be even more interesting to see unfold. Read on as MSP Capital’s Valuation surveyor Chris Wright shares his thoughts …

 

It feels to me though that this year could be that little bit harder to predict than most. Trying to forecast future house prices, particularly during these challenging and uncertain times is in one sense tricky but in other ways we all know that many opportunities can be found and created in the midst of chaos. So I’m going to dive in anyway as Covid-19 impact on the housing market so far appears to be having limited effect.

 

As the virus first hit us back in early 2020 and we entered into our first national lockdown, I doubt there were many of us who would have predicted the residential property market booming, with house prices ending up 6% higher in December compared to one year prior, and indeed the average price of a house reaching a new record high according to Halifax reports.

 

If we now look back at what drove this growth, we can point to a number of factors such as the stamp duty holiday, and after the lifting of lockdown restrictions prompting a surge in demand. This demand seemed to be largely driven from those city workers looking to escape to the country, as there was a shift away from office working to remote-working. This provided opportunities to relocate further afield and move to a property with access to outdoor space, a much desired commodity having been locked-up in our own four walls for most of the year.

 

Looking ahead though, in reviewing what the mainstream market predictors are anticipating, Halifax for example, forecast that values will drop in 2021, a prediction that currently seems to be shared among industry professionals including Nationwide and Rightmove. The Halifax cited that there are already signs of the market slowing – although house prices rose by 0.2% from November-December, this was the slowest monthly rise over the last six months. Was this a Christmas lull or will this pick up again and surge?

 

Savills have suggested that 2021 will be a “year of three parts” for UK house prices. Although they pointed to the now secured EU trade deal reducing some of the risk to the housing market, they still forecast that net house price growth in 2021 will be close to zero. However, they were keen to point out that there are many factors that could sway property values throughout the year.

 

For instance, although the stamp duty holiday is due to end on the 31st March 2021, there appears to be ever-growing pressure on the chancellor Rishi Sunak to extend the tax break or provide transitional relief. In addition, the on-going lockdown continues to have an affect on people’s desire to move, although other factors such as household finances, and the speed of the vaccination programme will also likely impact on the housing market. Perhaps the psychological effect of the third national lockdown is that it will positively affirm people’s wishes to move and ensure that their living space suits their needs. What issues were swept under the rug previously have now been firmly aired! Let’s hope that they find their happiness in the new projects underway across the country created by some of the most talented architects and developers to meet the new needs of space and nature.

 

 

From this perspective, most commentators widely agree that the first quarter of 2021 is going to remain resilient as many look to beat the stamp duty deadline of 31 March, thus helping to sustain the UK housing market.

 

The challenges ahead.

 

Unemployment is forecast to rise to 7.5% this year, from a current rate of 4.8%. With the Government’s furlough scheme ending in April, there are predictions that some 2.6 million people could be unemployed by mid-year. This combined with an economic downturn is why many believe there will be a break in activity that could lead to house price volatility, although the market for higher-end homes maybe more insulated against these factors.

 

Much of this will though depend on the speed of the vaccine roll out and whether the Government will, or indeed can, intervene to provide further stimulus to the UK housing market.

 

In summary then, nobody has yet managed to find the allusive magic crystal ball to predict the future. What we at MSP Capital continue to see at this time though, is an ever increasing demand for development finance and thus an appetite from developers on the south coast to build.  Furthermore, sales volumes of completed stock continue to remain strong, so we of course all hope that this continues through 2021 and beyond.

 

One element that’s worth mentioning as well right now is that due to our news sources we have access to the latest stats for developers to find new prospects and opportunities. We love writing the newsletter and communicating with you all each month, but we know that sometimes you might need the information quicker than that to base your decisions on. To that end, one of our 2021 commitments it to share information via twitter. It’s immediate and we’ve loved connecting with followers on there to share news, reviews and tips, particularly for helpful apps that can save time and stress. So click on @MSP_Capital to follow us on Twitter and on Linked In. We’ll keep you updated where we can.

 

Until next month, Chris.