Benefits of a second charge bridging loan

An increasing number of people in need of extra funds are turning to second charge bridging loans to purchase investment properties, inject capital into businesses, or make refurbishments in order to prevent disturbing their existing attractive mortgages.

Demand for second charge lending is set to increase throughout the year. In a sustained low-interest rate environment, it now often makes more sense for a borrower to release equity on a property by taking out a second charge, rather than the prospect of refinancing away from their current deal.

A second charge bridging loan could be the ideal solution for those who already have a mortgage secured against their property but requires further funds for a short period of time.

Second charge bridging loans can be used for many reasons, such as purchasing an investment property, business expansion, and redevelopment of an existing property to name but a few.

What is a second charge bridging loan?

A second charge bridging loan sits behind an existing loan or mortgage. If there is enough equity left in the property to secure another loan against it, a second legal charge may be taken out.

A second legal charge can be secured on all property types, including buy-to-let, residential and commercial assets, and typically has a 12-month maturity, unlike a secured loan which is a form of longer-term financing.

As it sits behind a first charge loan, a second charge will always require consent from the first charge lender and is usually more expensive than a first charge, reflecting the additional risk taken by a finance provider.

When are second charge bridging loans beneficial?

  1. If you are on a low rate/interest-only mortgage

Using a second charge bridging loan means you keep your existing mortgage rate. There would be no changes to the existing mortgage terms and conditions. A second charge could allow for more flexible repayment terms, which could potentially save thousands of pounds in interest.

  2. If you’re locked into a fixed rate with early repayment charges

If you must pay a large penalty for stopping/switching your existing fixed rate mortgage early, a second charge loan may be cheaper as the existing mortgage stays in place and the penalty is not charged.  It would be beneficial to run a cost comparison in this scenario.

   3. You’re unable to secure further funds from your mainstream lender

Mortgage rules have become stricter in the past couple of years, with lenders applying tough ‘stress’ tests to make sure borrowers can meet repayments if interest rates rise.  However, second charge bridging loan providers don’t rely on the same tests and can tailor a solution to suit your individual borrowing needs. Second charge bridging loans are also particularly helpful for those with unusual income structures, such as the self-employed, or those with complex financial backgrounds.

4. You need the funds quickly

Where a mainstream bank may take several months to put together a loan for a borrower, a bridging finance company is often able to make lending decisions within hours of initial enquiry, so funds can be released quickly, sometimes even in less than a week. A second charge bridging loan can be a useful tool for those who simply need a rapid cash injection.

How much can you borrow?

You can borrow a maximum of 70% loan-to-value and loans can be arranged from £100k to £5m. The actual amount will depend on the available equity in the property and affordability of the loan.

How can MT Finance help?

At MT Finance, we believe a second charge bridging loan is about empowering borrowers to enable them to take advantage of time-sensitive opportunities that can make or save them money.

As an example, we helped a client who required £349,000 second charge loan on her £8.5m property. The client was part way through refurbishing her investment property, but the process had been delayed. She didn’t want to remortgage as she intended to sell the investment property as soon as the refurbishment works on it were complete and didn’t want to be penalised for early repayment.

In just 12 days, MT Finance provided a £349,000 million second charge bridging loan at 39% LTV. Interest was retained over 12 months, with no exit fees or early repayment charges. No personal guarantees were required.

Our second charge bridging loan gave her time to carry out the works and significantly increase the value of her investment property. The client will sell the investment asset to exit the bridging loan, against the higher value.

Second charge bridging loans will continue to offer significant financial savings for a wide range of borrowers, not just those who may struggle to obtain finance through traditional routes.

MT Finance is a multi-award-winning bridging finance lender and we have many years’ experience and know-how when it comes to second legal charges. We assess every single application for a second charge loan on a case by case basis, assessing each case on its own merits. Our flexible approach means we can structure your second charge bridging loan to your exact requirements and allows us to make quick decisions and deliver funds at speed. We also do not charge any exit fees or early repayment fees and do not have any lengthy and tedious application forms for you to fill out.

Our entire application process is quick and easy and with highly competitive interest rates and no upfront fees, we offer a fast, transparent, and stress-free service.

Contact us today by calling 0203 051 2331 or filling in our contact form. Our team are on hand to discuss your second charge bridging loan enquiry and will be happy to answer all your questions and allay any concerns. Please note that if the second charge loan is secured on a residential property, it must be for business use only.

2018 Bridging Trends revealed

Despite the turbulence in the financial markets, bridging finance displayed positive development in 2018 and maintained favourable liquidity, particularly in the second half of the year, according to the latest Bridging Trends data.

Bridging loan volume transacted by contributors hit £766.9 million in 2018, an increase of £232.8 million on the previous year. This is the highest annual gross lending figure to date and comes as four new contributors joined Bridging Trends in 2018: Clever Lending, Complete FS, Pure Commercial Finance, and Y3S.

The split between 1st and 2nd legal charge bridging loans remained consistent throughout 2018, with first charge loans accounting for 83% of the market in all four quarters. Second charges accounted for an average of 17% of total market volume in 2018 – the same average volume as in 2017. In 2016, 18% of bridging loans transacted by contributors were second charges.

A significant portion of bridging loan activity was unregulated in 2018, at an average of 64% of all transactions. Whilst regulated bridging loans decreased market share on previous years to an average of 36% in 2018, compared to 46% in 2017, 44% in 2016, and 37% in 2015.

Average loan-to-value levels increased in 2018 to an average of 55%, from 47% in 2017, and 49% in 2016. This could be attributed to higher LTVs being made available by new entrants in the space.

Average monthly interest rates continue to fall year on year, demonstrating how bridging finance has become cheaper. The average monthly interest rate in 2018 was 0.81%, lower than in 2017 (0.83%) and 2016 (0.85%).

Funding property refurbishments was the most popular reason for obtaining bridging finance in 2018, with the average proportion of loans advanced for property refurbishments increasing from 23% in 2017, to 28% in 2018.

Demand for bridging loans taken out for business purposes also increased in 2018, increasing on average from 12% in 2017, to 14% in 2018.

2018 was evidently a year where borrowers decided to opt for fast and flexible bridging loans to make improvements to properties and bolster yields, against the backdrop of Brexit uncertainty and legislation that has made it tougher to purchase new properties. Consequently, bridging loans for mortgage delays fell in every quarter in 2018.

The average loan term in 2018 was 11 months. down from 12 months in 2017. The average completion time of a bridging finance application averaged 45 days in 2018, up from 43 days in 2017. Average loan completion times were also 45 days for the year in 2016.

To view the Bridging Trends 2018 infographic, please visit www.bridgingtrends.com

bridging-trends-2018

Funding business expansion in just 12 days

There have been a number of challenges for business in 2018. From economic pressures and ongoing Brexit negotiations to rising interest rates- all of which are set to create further challenges for the SME community in one way or another.

Access to finance, however, continues to be a critical challenge for UK small businesses. There is an ongoing lack of flexibility and for companies trying to react quickly to the new challenges in the market, that makes it hard for them to seize new opportunities.

Small business owners need a wider, more versatile pool of liquidity to draw from that is tailored to meet their needs. One major source of capital available and willing to fund the SME space is bridging finance.

Case in point

As an example, mtf recently completed a bridging loan for clients who were looking to raise funds to invest in their growing retail business.

On the strength of the cash flow from their first retail premises, the clients had been able to obtain a commercial mortgage for a second location. However, an opportunity had suddenly come up to purchase the premises next door. To achieve faster growth, the clients wanted to purchase both premises- expanding their storefront, as well as purchase stock for the new, larger store.

The sellers had a specific completion date which meant the clients needed to move quickly to take advantage of the opportunity and were unable to obtain a commercial mortgage in the time-frame required.

Faced with roughly a fortnight to complete the purchase, the clients needed to act quickly. As time was of the essence, they were immediately introduced to us by one of our long-standing brokers.

On receipt of the enquiry, mtf was able to give an immediate decision, and we issued the offer of loan that day. The clients needed 100% of purchase price, so released equity in their principal residence by way of a second charge to increase funding.

Given that the commercial property and the residential property now needed to be valued, it was imperative that the valuation was undertaken as soon as possible. Therefore, we instructed the valuation at the same time as going to offer. Our team then worked around the clock to ensure all the legal requirements were addressed to ensure everything was ready to be sent to our lawyers as soon the valuation report came in.

In just 12 days, mtf provided a £450,000 bridging loan spread over both assets at 65% LTV, based on the open market value of both assets. Interest was retained at 0.95% per month, over a 12-month term, with no exit fees or ERCs. No personal guarantees were required.

Our loan meant the clients were able to purchase the property by the proposed completion date- capitalising on a fantastic investment for their business. What’s more, the 12-month term gave them plenty of time to pay for the initial operating costs and purchase additional stock. The clients would then work with their broker on the exit by refinancing on the main residence and by taking out a commercial mortgage on the new premises.

The client’s broker later commented:

“This case was difficult initially as the clients had tried to secure their own funding before coming to me. With such a short deadline in which to complete the purchase, I knew I had to place the case with a lender that could perform. mtf was the obvious choice here and whilst the clients had themselves received indicative terms from other lenders at lower rates, I carefully explained that there were aspects of the case that many other lenders would not have understood which would be relevant to this case.

“It was the combination of good advice and robust performance from mtf which made the deal happen with days to spare. The new shop is now open, and we are working through the exit for the clients now.”

mtf’s bridging loan products are designed to meet the many diverse needs of business owners. As a non-status lender, we do not require evidence of trading history, accounts or proof of income, and do not require personal guarantees. This allows us to take a practical, common sense approach to lending.

To find out more, speak a member of our team on 0203 051 2331 or click here to fill out our quick enquiry form.

IN THE SPOTLIGHT: commercial bridging finance

The UK commercial sector has endured some tough times in recent years- with events such as the EU referendum, UK elections, and Donald Trump’s presidency all having their effect on the market. However, in light of slowing growth in the residential market, investors are seeking out opportunities in the commercial market and demand is continuing to increase.

According to the latest data released by HM Revenue & Customs (HMRC), UK commercial property transactions hit a nine-year high, with a total of 127,280 purchases made in 2016/17 –a six per cent rise over figures recorded the previous financial year.

Commercial property is becoming more popular with private investors, many of whom are being driven away from the residential buy-to-let market by the increasing regulation and rising taxes.

Auction house Allsop recently announced it had seen three times the number of buy-to-let converts dipping into commercial property since the cuts to mortgage interest relief for residential buy-to-let properties were announced. Yet, the sector is still greatly under served by mainstream lenders, mainly because of the risks involved due to the volatility of commercial property prices.

Commercial finance is a multifaceted form of finance- there is not a ‘one size fits all’ approach, each loan must be assessed individually and priced according to the risk. The underwriting process is complex and some lenders can be inflexible in their decisions.

london-skyline

Borrowers seeking commercial finance need more innovative options, tailored to meet their needs and one such source that has become a critical tool to fund this community, is bridging finance.

Bridging finance has presented a real-time solution by providing a quick and flexible injection of liquidity to fulfil funding needs. The market is famed for constantly adapting to change and for its product innovation. For example, mtf recently introduced a commercial loan product with a 24-month term, due to demand from our brokers.

A commercial bridging loan can be secured on many property types, including semi-commercial, commercial property, and land. In addition, many income sources ranging from employed, self-employed and sole traders to partnerships and limited companies will be considered. Funds can be used for all existing investments to re-finance and improve cashflow, or to purchase business’s such as hotels, land or retail units.

What’s more, because bridging loans are now much cheaper, they are more appropriate for a wider range of borrowers and a wider range of circumstances.

mtf’s bridging loan products are designed to meet the many diverse needs of commercial property investors. As a non-status lender, we do not require evidence of trading history, accounts or proof of income and do not require personal guarantees. This allows us to take a practical, common sense approach to lending.

As an example, a property development company needed funds to purchase a £4 million commercial asset based in Peterborough, which they intended to convert into offices.

The developers had a specific completion date and were unable to obtain a commercial mortgage in the time-frame required.

As time was of the essence, our broker partner approached mtf and we provided a £1.8m commercial bridging loan, at 45% LTV based on open market value. Interest was retained at 0.95%, over a 12-month term, with no exit fees or early repayment charges.

In just under 3 weeks, the clients were able to purchase the commercial investment asset and the 12-month term gave the client plenty of time to refinance with a commercial mortgage.

At mtf, we remain committed to offering sensible, flexible, non-status bridging finance loans to commercial property investors and SMEs.

Product highlights:mixed-residential

 

  • Rates from 0.95%
  • Up to 65% LTV on open market value
  • Loans from £100,000- £5,000,000
  • Terms from 3-24 months
  • Commercial/ semi-commercial/ HMOs
  • No exit fees
  • No ERCs
  • Whole of England coverage

why use mtf?

mtf is here to work with you to get your commercial bridging loan completed in a matter of days. As a non-status lender, we can take a view on CCJs, defaults and arrears, and we do not always require evidence of credit history, accounts or proof of income- instead we focus on the property and your future plans.

  • No personal guarantees required
  • No credit scoring
  • Lend to foreign nationals and offshore companies
  • Underwritten offers issued within the hour
  • Average completions within 9 days

Don’t miss out on an investment opportunity, call mtf on 0203 051 2331 or apply online to see how we could help turn your aspirations into achievements.

Refused finance due to affordability issues?

Bridging finance can present a real solution to those who are asset rich but lack liquidity, providing a quick injection of funding to finance acquisitions and expansions.

For example, we recently helped a client who required £1,000,000 to expand his business abroad. Funds were required very quickly so that the client could take advantage of a great business opportunity.

The client was a main shareholder in a listed company and owned a property worth £2.25 million with an existing first charge of £460,000. However, the client’s mortgage lender refused him finance due to ‘MMR affordability issues’.

london-buildingAs non-status lenders, we were not concerned with the client’s income, only the quality of the property that would be used as security for the advance. MTF was able to secure a second charge bridging loan, on an 18 month term at 66% LTV, on open market value.

The client was able to expand his business abroad, using the funds to pay for the initial operating costs and the 18 month term gave the client plenty of time to arrange and secure a business loan with a bank, in turn settling the bridging loan.

At MTF one of our defining characteristics is that we are non-status lenders. We don’t require evidence of trading history, accounts or proof of income. Instead we focus on the property and the client’s future plans. This allows us to take a practical, common sense approach to lending, to assist those looking to unlock the capital from their assets.

Our non-status approach is equally helpful when dealing with larger, high net worth applicants who occasionally have difficulty in obtaining a loan as a consequence of tax efficient structures employed by them. Such applicants often struggle to demonstrate their UK taxable income to a lender.

Individuals or off-shore investment vehicles, whose income streams can be erratic or is derived from multiple sources, fall into an unconventional space and fail to tick the boxes required by some lenders. We regularly assist clients in refinancing or releasing equity from properties where the holding companies are based in the British Virgin Islands, Gibraltar and Guernsey

If you would like to discuss a potential case, call us on 0203 051 2331 or fill in our online enquiry form for an immediate decision in principle.

 

MTF takes part in Love Lending Week

love-lending-weekThe NACFB will be launching a national campaign called Love Lending Week, which will run from Monday-Friday next week. The aim of the campaign is to issue a strong message to the industry- that commercial finance brokers and lenders are successfully lending to small businesses and we want to lend more.

MTF are joining forces with finance experts across the UK to raise awareness about the wide range of alternative funding options on offer and to show small businesses the many different ways of accessing funds.

SMEs play a central role to the UK economy but many have struggled from a lack of liquidity following the financial crisis. With a change in market conditions it is essential for borrowers to be aware of the full range of options available to them.

There is an array of instances where short-term funding is the ideal solution for companies needing quick access to funds or to plug a gap that traditional lenders are unable to fill.

MTF has been providing loans since 2008 and throughout this time we have been delighted to have the opportunity to assist numerous businesses. Whether funds are needed to acquire stock, provide additional capital to stimulate growth or to facilitate a new venture, MTF are committed to providing liquidity to the SME sector.

For example, shareholders of a national brand of health food products needed  cash to inject into their growing business. With a large amount of retail distributors, the applicants faced a lag time between sales and booking a profit.

Despite being a large and growing business behind a major household brand, they were unable to obtain the additional funds they needed from banks. MTF were able to provide a £626,000 short-term loan in under a week, satisfying their liquidity needs.

Through increased innovation, alternative lending can also have positive impact on SMEs indirectly.  We recently provided a short-term loan to a client who invests in start-up companies in the technology sector and required £650,000.This was an attractive investment opportunity as the tech sector is one of the fastest-growing and most exciting industries in the UK. MTF provided the full £650,000 over an 18 month term. He was then able to use the funds to invest in SMEs.

At MTF we really do love lending. New businesses are born every day and it is critical they should be provided the opportunity to turn aspiration into achievement.

If you would like to show your support, please sign up to the NACFB’s Thunderclap. Or join the conversation on Twitter using the hashtag #LoveLending

Turning SME aspirations into achievements

In his Wealth of Nations, Adam Smith coined the phrase ‘a nation of shopkeepers’ when describing the British. The phrase rings true today. Small and Medium sized enterprises are a critical part of the UK economy, accounting for around 60% of private sector employment and half the annual turnover of all private sector businesses.

However, the restrictive approach to lending from traditional sources continues and has left the SME sector suffering. Business owners need more innovative options, tailored to meet their needs and one such source that has become a critical tool to fund the SME community, is bridging finance.

Bridging finance is one of the most efficient forms of lending and offers practical solutions for both small and large businesses. For example, we recently completed a bridging loan for a client who was looking to raise £150,000 to set up a fashion business.

new-business-openThe client’s mortgage lender wouldn’t agree to a further advance and it was not financially viable to remortgage as the existing mortgage was on a competitive standard variable rate and the client didn’t want to disturb this.

The client owned a buy-to-let property worth £1.25m with an existing first charge of £450,000. We were able to secure a second charge bridge on a 12 month term at 48% LTV.

The client was able set up her fashion business, using the funds to pay for her initial operating costs and the 12 month term gave her plenty of time to arrange and secure a business loan with a bank, in turn settling the bridging loan.

New businesses are born every day; some thrive, others fail but what is critical is that all good ideas, all sound businesses, should be provided the opportunity to turn aspiration into achievement and this is when a bridging loan is able to perfectly demonstrate its place in the market.