Bridging loans have long been part of the property investors tool box. Their benefits are numerous and include
- Lending on property that is not yet in a lettable condition, derelict, or not even in a habitable condition in order to carry out improvement works
- Fast completions when funding is required to meet auction deadlines. Also, to refinance property and access funds within weeks
- Provide funds whilst planning is being sought to enhance the value of the property, before refinancing onto long term mortgage
The above uses have been around for decades. The benefits of bridging are well known but the drawbacks have always been their historical high interest rates!
However, many investors aren’t aware of the following changes to this market that have occurred over the last several years.
The entrance of Banks and new entrants into the bridging loan market
A decade ago bridging loans were provided by lenders which were funded by high net worth individuals or institutional funds that wanted a high rate of return. Interest rates of 1.50% per month (which is 18% per annum) were the norm.
Over the last several years regulated Banks and other lenders, with access to cheaper funds, have come into the bridging market. The price competition between the new and existing lenders have brought interest rates down dramatically.
Current examples are :
Shawbrook Bank – up to 50% Loan to Value – Shawbrook charge an interest rate of only 0.43% per month or 5.16% per annum
Octopus Property – up to 70% Loan to Value – Octopus have launched a limited tranche fund at only 0.60% per month or 7.20% per annum .
Both products are for standard bridging loans including light refurbishment works so comparing both these products with the 12% or 15% per annum previously and you can see that Property Investors are benefiting in this price war. Long may it continue.
David Tonks – Director Advocate Finance Ltd
In addition, Heavy refurbishment products and higher LTV products are also available from both lenders. Please contact me for a free, no obligation personalised illustration.
Tel: 01206 544333 Professional landlords only. Any property used as security, which may include your home, may be repossessed if you do not keep up repayments on your mortgage