Long gone are the days when the only realistic option of a secured loan involved a ‘traditional mortgage.’ Today there are more bespoke offerings when it comes to property finance than ever before.
Specialist lenders and brokers can arrange sometimes very specialised finance for specific purposes against your home or another property.
There are some fundamental differences to consider too. Whereas a regular mortgage on a property will follow a fairly drawn out process and there are no guarantees of being accepted, other finance options give you an increased number of options. Being ‘made to measure’ also means that they are more likely to accept an application so long as it is fit for purpose.
There is no shortage of lenders and brokers who can provide these property funding options, with many offering a range of options. This includes the likes of bridging and auction finance, self-build and other provisions to get you on the right track of property financing (Source: SPF Loans).
The bridging loan industry has grown massively in the last few years, now being worth around £4 billion in the UK. These loans are a speedy and convenient way to literally ‘bridge the gap’ between property purchases or to tide you over in the short term until a pre-arranged or determined event to repay the loan. This type of loan is applicable and very handy in several cases and property purchases.
A common use of these loans is when a property owner is looking to sell a property to fund the purchase of a new property.
They may have sourced the property they wish to purchase and have found a buyer. However, the purchase falls through at the last minute. Should they not go ahead with their new property’s purchase, they will lose their deposit and the property altogether. They will also lose an opportunity to improve their property portfolio as the new property may well be larger and more valuable.
To still be able to get the property required before another buyer, the proprietor can take out a bridging loan to cover the value of the new property. This loan is secured on the property and once they have purchased the new property, it is simply a matter of selling the first and using that money to pay off the bridging loan.
Any extra charges such as Capital Gains Tax or similar can be paid for by refinancing the new property with a mortgage, completing the bridging loan repayments.
Building one’s own home requires specialist finance that will likely be needed to ensure the build goes ahead; uninterrupted, to plan and to budget.
Unlike other specific property loans, such as bridging loans, because these loans are typically used for a person's primary residence, these self-build loans are deemed Regulated Mortgage Contracts. This means that applicants and borrowers will be more accustomed to the terms and conditions attached to the loan.
A fundamental advantage of these loans is that rather than releasing all the money in one go, the funds are released in stages, corresponding with the stages of the property’s build and the associated phases. This means that the lender doesn’t need to lay out quite as much as with other loans, making this type of financing lower risk. This tends to be reflected in the lower interest on the amounts released at each stage.
The lender will send an assessor to ensure nothing untoward occurs and to ensure that the loan is being used properly and nothing is overspent. Being funded in stages also allows the land and property owner to manage the project more efficiently, as each stage of funding will correspond to another stage of the build and the staged repayment structure makes it a lot more manageable than other loans too.
It is very important that each stage of the build is properly accounted for and nothing is missed. For example, all new builds will require air tightness testing to ensure compliance with Building Regulations; Approved Document Part L (RJ Acoustics).
Mortgages are by no means defunct and can be used in conjunction with bespoke finance options. They are also a great way to tie in refinancing to a property business.
For example, a developer with a large portfolio has all their money tied up in assets but owns a few properties worth £500,000. They are looking to buy another property and may utilise both a bridging loan and a mortgage. Say the second property is worth £600,000, they may use both types of finance.
The second property will likely need to be purchased quickly. Therefore, a bridging loan will cover the £600,000 for the new purchase. The developer will then refinance the property with a traditional mortgage once the purchase is complete, to pay off the total amount of the bridging loan.