Paying-back-bridging-loan-early

Can I Pay Back a Bridging Loan Early?

A lender will almost always allow you to pay the loan back earlier than initially planned. Depending on the lender and the circumstances of the loan, you may be charged a fee for paying this back early, known as an early exit penalty. This fee is not always charged, so it’s important to check whether it applies to you before opting for an early repayment.

A bridging loan is intended as a short term means of finance, with regulated companies typically offering a maximum loan period of 12 months, while non-regulated providers will offer up to 24 months. It’s expected that borrowers won’t hold onto the loan for too long, however paying it off earlier than the agreed-upon date is something else entirely.

Here, Octagon Capital answer some commonly asked questions around paying back a bridging loan early, as well as providing a deeper insight into how the bridging loan process works.

 

Will I Get Charged for Early Repayment?

You could potentially get charged by your lender for early repayment. This is known as an early exit penalty. Some lenders will charge this while others will not – check your loan agreement terms to see if you’ll have to pay this or not.

 

Calculating-costs-for-bridging-loan

 

Borrowers can potentially save money on their interest payments for a bridging loan if they pay back early, as this is charged monthly for as long as it takes for full amount to be repaid. This is why bridging loan lenders may charge an early exit penalty, as they are losing money they would’ve otherwise received from you in interest if you were to have completed the loan to its full term.

 

Can I Get Out of a Bridging Loan?

You can only get out of the money owed from a bridging loan by paying what the lender is owed. This can be done via an early repayment of the loan, which, as previously mentioned, almost all lenders will offer.

In contrast to this, if you are unable to pay the loan back for the set repayment date, you can discuss refinancing options with your lender. While you might be able to arrange a more manageable payment plan with the lender when this issue occurs, you’ll still have to pay for the bridging loan you took out.

As a final resort, if a new payment plan can’t be worked out or the lender can’t get hold of you for some months, the property/valuable asset secured on the loan may be repossessed.

 

How Do Bridging Loans Work?

As the name suggests, bridging loans work by effectively “bridging” the gap between the purchase of one thing and the sale of another.

For example, if you’re looking to purchase a new house, but are waiting for the sale of your current home to go through, you can take out a bridging loan to help temporarily cover the cost of the new home.

 

Moving-house

 

Bridging loans are also great for development projects, enabling property developers to access hundreds of thousands or millions of pounds to cover the cost of their projects – with Octagon Capital, you can borrow from £50,000 to £25 million for up to 24 months.

As bridging loans are intended for short-term use, the loans are priced monthly instead of annually, borrowers having the option to pay their interest off each month as it’s charged, or “roll up” the repayments until the end of the loan term.

Below are some key features to expect with bridging loans from Octagon Capital:

  • Borrow a minimum of £50,000
  • Borrow a maximum of £25 million
  • Borrow for up to 24 months
  • LTV for regulated – 75%
  • LTV for non-regulated – 80%
  • Adverse credit histories considered

 

Open vs Closed Bridging Loans

The repayments for bridging loans can vary depending on whether you have a closed or open bridging loan.

A closed bridging loan is when the loan comes with a fixed repayment date. These types of bridging loans can typically be cheaper than open bridging loans, regarded as less risky. With a closed bridging loan, borrowers may still be able to pay the loan back early before the set repayment date.

An open bringing loan is when the loan does not come with a fixed repayment date. This helps give borrowers more freedom over their payment of the loan. With an open bridging loan, you’ll still have to have an exit strategy to ensure that the loan will be repaid.


mezzanine-finance

How Is a Bridging Loan Different to Mezzanine Finance?

Mezzanine finance requires borrowers to give up equity in their development project or business, whereas bridging finance is secured against property, and is used on a much shorter term. Both types of finance must also pay interest.

Both mezzanine and bridging loans can be a great to help borrowers in certain situations, carrying different levels of risk, eligibility criteria, repayment plans and more. But how precisely do they differ? And which one is best suited to certain situations and circumstances?

Here, Octagon Capital explores the differences between mezzanine finance and bridging loans, and which one works best in different situations and circumstances.

 

Mezzanine Finance vs Bridging Loan: Which One Is Right for Me?

Mezzanine finance is used more long-term than a bridging loan, requiring the borrower to give up equity either in their development project or business, while a bridging loan is used on a much shorter-term basis, securing a property against the loan while repaying after a few months (the maximum length of time you can take out a bridging loan with Octagon Capital being 24 months).

 

bridging loan coins

 

Mezzanine finance can appeal to lenders as they not only get paid interest back by the borrower, but also get shares, which could potentially be more valuable than a standard repayment by the borrower. Mezzanine finance has been designed to accommodate for ventures that are potentially riskier, with funding available for a range of borrowing periods – from a few months to 10 years.

 

Mezzanine vs Bridging Loan: Uses

A bridging loan can be used for a variety of different purposes, but essentially helps to “bridge” the financial gap for borrower’s between the purchase of a property and the sale or influx of money from somewhere else.

In comparison, a mezzanine loan is used when the borrower can’t afford the loan, or the opportunity is considered too high of a risk for other types of lending. Mezzanine finance can be used to top up an existing loan, to help fund a business project or to help grow a company. While it’s high-risk, the lender could potentially reap the rewards of enormous returns via the shares they’re given.

 

Mezzanine vs Bridging Loan: Eligibility Criteria

As mezzanine finance and bridging finance operate differently, the eligibility criteria for each type of loan will also differ greatly.

To obtain mezzanine finance through Octagon Capital, applicants will have to meet the following criteria:

  • Must offer equity of up to 20%
  • Must be based in the U.K., Scotland or Wales
  • Must be a limited company
  • Adverse credit histories considered
  • Both commercial and residential properties considered

Bridging finance in comparison will require applicants to meet the following eligibility criteria:

  • Minimum borrowing amount of £50,000
  • Must have an exit strategy
  • Residential, commercial, mixed properties and HMOs considered
  • Must be over 18
  • Must be based in U.K., Scotland or Wales
  • Adverse credit histories considered

These two types of finance operate differently and will therefore have differing requirements and expectations for eligible borrowers to meet.

 

Mezzanine vs Bridging Loan: Repayments

Mezzanine finance is paid through both investment/shares in the borrower’s company as well as in cash or PIK (payment-in-kind) interest. Bridging finance is paid either once a sale has gone through on a property or the borrower manages to refinance with something longer term.

The interest for bridging finance is charged per month, however, borrowers have the option to pay this back either monthly or to “roll up” these repayments and pay back the loan in full at the end of the loan term.

 

How To Find Mezzanine Finance with Octagon Capital

Octagon Capital are a U.K. licensed credit broker, working with a number of reputable mezzanine finance lenders.

 

octagon-capital-logo

 

We’ve worked on a big range of projects, and are able to advise you on how best to approach your borrowing needs.

To get started, simply call us on 0333 414 1491 or email us at sales@octagoncapital.co.uk, and speak to one of our dedicated team members to explore your options.


Bridging-loan-for-house-deposit

Can You Use a Bridging Loan for Deposit?

You can use a bridging loan for a deposit on a new home. Bridging loans are commonly used for this purpose, helping homeowners to bridge the gap between purchasing a new home and selling their current one. The loan can then be repaid once the current home has been sold.

Bridging loans are great for those who need to borrow for a short period of time. They can resolve temporary cash flow issues, enabling property developers to go ahead with a new project, help homeowners secure their dream home and more.

For homeowners in particular, bridging loans can be great when wanting to purchase a new property but restricted, waiting for the sale of their current home to fund the purchase of the new one.

 

What LTV Can I Can on a Bridging Loan?

You can get bridging loans at 70% LTV if regulated, and 75% if unregulated, however there are also some cases where you can get up to 100% LTV. As a type of secured lending, borrowers will have to have a property/valuable asset to be used as collateral on the bridging loan.

 

Secure-bridging-loan-on-property

 

You will be able to borrow a certain LTV (loan to value) on your property’s equity, the precise percentage of this being dependent on a few different factors. This can include:

  • Your income
  • Your credit score
  • Your affordability
  • The amount you need to borrow

Speak to Octagon Capital on 0333 414 1491 to discuss bridging loans. With Octagon Capital, you can borrow from £50,000 to £25 million, with loan terms of up to 24 months and rates from 0.44% per month.

 

What Else Can a Bridging Loan Be Used For?

Bridging loans can accommodate for a range of different borrowing needs. As well as being used by homeowners wanting to purchase a new property before the sale of their current home goes through, these types of loans can also be useful for property developers looking to refurbish a property with the intention of selling it at a higher price.

 

 

development-finance

 

Borrowers can also use a bridging loan to raise finance for investment opportunities. This type of loan is great for short-term use, helping with temporary cash flow issues, repayments able to be made either monthly or altogether at the end of the loan term.

 

Do Bridging Loans Require a Deposit?

Yes, bridging loans will typically require a deposit. This deposit is paid upfront and in a lump sum.

The amount borrowers will have to pay for the deposit will depend on various different details of their borrowing circumstances, including the following:

  • The amount wanting to be borrowed
  • The value of the property wanting to be purchased
  • The LTV (loan to value)

Deposits for a bridging loan will be a minimum of around 20% to 25%, and represents the proportion of the property that the borrower owns outright, while the LTV is the rest of the property the borrower pays off through the bridging loan.

 

What’s the Eligibility Criteria?

The eligibility criteria for a bridging loan with Octagon Capital includes:

  • Minimum borrowing amount of £50,000
  • Must be in the U.K., Scotland or Wales
  • Must have an exit strategy
  • Must be over 18
  • Bad credit considered
  • Residential, commercial, mixed properties and HMOs considered

With Octagon Capital, you can also find non status bridging loans, meaning the lender is willing to consider those with bad credit histories, as well as those with no proof of income, being interested instead in the value your property potentially has, and your plans with it.

 

Is a Bridging Loan Right for Me?

Bridging loans are a great way to borrow, provided you borrow for the right reason. A bridging loan is best used to temporarily bridge a financial gap, whether this is for purchasing a new house when waiting for your current home to sell, to help fund property development projects or more. If you need short-term access to funds for any of these reasons, it could be worth considering a bridging loan.

 

octagon-capital-logo

 

Octagon Capital are a London-based broker, who have partnered with SPF Short Term Finance to process all enquiries and provide a quality service. Make an enquiry with our team today by calling 0333 414 1491 or emailing us at sales@octagoncapital.co.uk


Extension-on-bridging-loan

Can a Bridging Loan Be Extended?

Yes, borrowers can extend their bridging loan term for a few weeks or even months. However, whether this extension will be granted, and by how much, will depend upon the lender and the circumstances in which the borrower finds themselves needing an extension.

Due to the nature of a bridging loan, the borrower’s ability to repay the loan can be contingent on certain factors moving forward in their purchasing process. Some of these can unfortunately become delayed, which can have a chain reaction on other aspects of the project, meaning the borrower may be unable to repay their bridging loan by the date they initially thought they would be able to.

 

Can You Refinance a Bridging Loan?

Your lender may be willing to let you refinance your bridging loan. Lenders used to be hesitant in offering this option, however now there are lenders willing to offer this to those who need to extend the date for repayment.

 

Calculating-bridging-loan-cost

 

There are various different issues that can impact when a borrower is able to repay their bridging loan, including delays to a building project, cash flow issues, or something else entirely. It’s important to be completely honest with your lender if you know you won’t be able to make the repayment by the expected date.

Your lender may be able to help you work out a solution that makes the repayment of the bridging loan more manageable.

 

How Long Can a Bridging Loan Last For?

The duration of bridging loans can vary, depending on the lender, your borrowing needs and the type of bridging loan you opt for. With Octagon Capital, you should expect to see the following loan durations:

  • Regulated companies – 12 months
  • Unregulated providers – 24 months

The way your repayments work can also vary depending on a range of different factors. As bridging loans are intended for short-term use, they’re priced monthly rather than annually. Borrowers can either pay the interest monthly or pay for it all along with the rest of the amount owed at the end of the loan term.

 

Difference Between an Open and Closed Bridging Loan

Put simply, an open bridging loan won’t have a set repayment date, whereas a closed bridging loan will. The way a borrower’s repayments work for a bridging loan will differ depending on whether they opt for an open or closed loan.

 

Consider-bridging-loans

 

Open bridging loans are used by borrowers who are unsure exactly when they’ll be able to repay back the loan. This could be down to a number of different reasons, providing flexibility to the borrower on their repayment of the loan.

While this type of bridging loan offers flexibility to borrowers, they’re known to be more expensive as they’re more of a risk for the lender to agree to.

Closed bridging loans in contrast have a set, concrete repayment date in which the borrower needs to repay their loan back. These types of loans are great for borrowers who know exactly when they’ll have the funds to pay back the bridging loan and are often offered at lower interest rates than open bridging loans. Borrowers are also more likely to accept these types of loans over open bridging loans, however they offer less flexibility in repayments.

 

What Happens if I Can’t Repay My Bridging Loan?

If you’re unable to repay your bridging loan on the agreed upon date, you could face adverse costs, and as a last resort, repossession of your property/valuable asset. Repossession is typically only done once all other options have been exhausted.

If you’re struggling with your bridging loan and feel like you need an extension it’s important to let your lender know right away, and try to work with them to find a solution that works for both of you.

With Octagon Capital, you can borrow for up to 24 months, with adverse credit histories considered and a minimum borrowing amount of £50,000. Get in touch with our team today to discuss your bridging loan options.


Live-in-house-for-bridging-loan

Do I Need To Be Living in the Home To Get a Bridging Loan?

No, you do not need to be living in the property you’re using the bridging loan on in order to get one. Bridging loans are a secured form of lending, meaning the lenders require a valuable asset/property to secure the loan. The security typically used for this is the property you’re wanting to purchase/use the loan on.

Your borrowing facility will be based on the potential value of the property, as well as other details of your application (e.g., credit checking and affordability). The borrowing facility is also based off of whether the lender would be able to recover the debts if having to repossess the property, however, repossession of the property is usually only used as a last resort when the borrower defaults on their bridging loan.

 

Can I Take Out a Bridging Loan Without Security?

You cannot take out a bridging loan without security. Bridging loans are a type of secured lending, which requires a valuable asset as collateral in the event that the borrower cannot repay their loan.

 

Secure-bridging-loan-on-property

 

While you can’t take out a bridging loan without security, there are a number of other loan options available where you don’t need to secure something to be approved for the loan.

An unsecured loan, as the name suggests, can be taken out without security, the lenders looking instead at other details of the prospective borrower’s application, including their credit history.

With an unsecured loan, you’ll also find the maximum amount you can borrow is significantly smaller than with a bridging loan – unsecured loans commonly offering up to £25,000, whereas bridging loans with Octagon Capital start at £50,000.

When looking to borrow money, it’s important to understand the lenders requirements as well as your own borrowing needs, and to explore loans you’re eligible for that can also accommodate to your circumstances.

 

Will I Need a Survey?

Yes, a bridging loan will be subject to a survey, helping the lender to ensure that the loan is safe to proceed with and isn’t too high of a risk.

As part of the survey process, a qualified surveyor will be sent to the property that is to be secured on the bridging loan. This surveyor will inspect the property for its value and provide a valuation once the inspection is complete.

Homeowners can often overvalue the property, which is why it’s important to get a valuation from someone qualified in assessing the true value of the property.

 

What’s the Eligibility Criteria?

The eligibility criteria for bridging loans through Octagon Capital is as follows:

  • Must be over 18
  • Must have an exit strategy in place
  • Property is subject to a valuation
  • Must be a minimum borrowing amount of £50,000
  • Bad credit considered
  • Available in U.K., Scotland, and Wales
  • Commercial, residential, mixed properties and HMOs considered

Bridging loan lenders are interested in how much value your property could potentially have, as well as your plans for it. Having a clear and concise exit strategy and plan of action will help you in getting your application approved.

 

Can I Take Out a Second Charge Bridging Loan?

Yes, you can take out a second charge bridging loan, however the lenders of second charge loans will typically need to get permission from the first charge lender for the loan to go ahead.

 

Approval-from-first-charge-lender

 

Bridging loan lenders will always add a “charge” to the property that’s being used as security, which establishes a priority of debts if the borrower becomes unable to repay their loan.

If it comes to the property being repossessed, the first charge lender would be paid first, then following this would be the second charge lender.

 

What Happens if I Can’t Repay My Bridging Loan?

If you can’t repay your bridging loan you should contact your provider right away and explain your situation. Often, your lender will work with you to try and come up with a manageable solution. It’s only usually as a last resort that your property will be repossessed.


Rent-Out-Your-Property-for-Holidays

How to Rent Out Your Property for Holidays/Weekends Away

If you own a property that’s empty for a lot of the year, one great way to get some use from the house and earn some money whilst doing this, would be to rent it out as a holiday home.

This can not only provide holiday-goers with great accommodation, adding to the overall experience of their trip, but also increases the security of your property, working as an excellent (and free!) deterrent from thieves and burglars.

With numerous benefits for renting your property out as a holiday home, there is however a rather important to-do list when setting this up. We at Octagon Capital understand how confusing and tedious it can be trying to hunt down everything on this list, and have therefore created this informative guide to help you get to grips with the key things to consider when turning your property into a holiday house, including:

  • The makeover
  • Remember the taxman
  • Pricing it up
  • Putting your property out there

 

Rent-out-property-for-holidays

 

The Makeover

As with many wanting to turn their property into a holiday home, odds are it isn’t used a lot, and therefore can often do with a new lick of paint. Refurbishing your property is a great investment for any new holiday home, increasing the appeal of the property, the number of guests who use it and subsequently the amount of money earnt from this. Refurbishing doesn’t have to break the bank either, its best to look around online and get a few quotes to find great deals for home renovations at the best prices.

It’s also important with the revamping of your holiday house to find its target market and to cater its new look around this. Assessing the location of your house, (is it near a city or in the countryside, is it near clubs/bars or historical landmarks etc.) in addition to its size are important steps to help figure out what type of clientele you’ll be mostly attracting, and therefore how to cater for this through the property’s appearance.

 

Remember The Taxman

When turning your property into a holiday home, one vital job to tick off the list as early as possible is to inform HMRC of these plans. This is required as you may have to pay tax on your earnings from the property, dependent on the amount of these earnings. To find out more information on this, please click here.

 

Pricing it Up

Another key thing to consider when turning your property into a holiday home and weekend getaway is to ensure that the price for renting it out is appropriate and in keeping with the rest of the competition in your area. As your customer base will typically be trying to find the best deals for their holiday, if your property is not at a competitive price, there is less chance it will be picked above those that are cheaper.

However, it is also important that you do not undersell your house, and if there are qualities making it stand out from the rest (e.g. a swimming pool, beautiful gardens etc.) these typically can add value to your property, and mean people will be willing to spend more money to stay there.

 

Putting it Out There

Once you’ve revamped your property, taken care of all the legalities that comes with making it a holiday house, (such as informing HMRC), and made sure your prices are at a decent, competitive rate, the next step is advertisement.

When putting your property out there, it can often be a challenge to get the consumer’s attention amidst a sea of other potentials. Therefore, getting your house added to such sites as Landed Houses can significantly increase its visibility and attraction, with owner of the company Edmund Cohen offering first-timers “consultancy over and above the ad-hoc support that comes with adding your house to Landed Houses; including web development and marketing advice.”