bridging-rates-fall-50%

Dan Kettle Comments on Bridging Volumes Halving in Q2

According to the latest report by Bridging Trends, bridging volumes halved during Q2 as a result of the covid-19 lockdown. £79.4m worth of bridging deals were completed from May to July 2020, down from £184m in the same period of 2019 and from £123m in Q1 2020.

As a result, in the six months to the end of June 2020, bridging volumes declined by £168m to £202m, compared to £370m in the first half of 2019 - something that brokers and lenders considered as 'inevitable' given the circumstances.

How bridging fell by 50% in Q2

Bridging interest rates rose during the period, perhaps reflecting the increased risk and more limited product availability during the period.

The average weighted monthly interest rate in Q2 2020 increased to 0.85 per cent – up from 0.8 per cent in Q1 and 0.75 per cent in Q4 2019. This is the highest average monthly interest rate recorded in Bridging Trends data since Q3 2016. Investment purchase and re-bridging saw notable increases as the reason for borrowers accessing bridging finance.

A quarter of deals were completed for investment, up from 20 per cent in Q1, while 13 per cent were as re-bridges, up from 8% between January and March.

In contrast, chain breaks made up just one in 10 bridging deals, down from 20 per cent in Q1, while heavy refurbishment dropped from 13 per cent of transactions to 10 per cent.

Dan Kettle of Octagon Capital commented: “The drop in bridging volumes is unsurprising. During the covid-19 lockdown, very little action could really take place, since there was no property valuations, certainly no auctions and most lenders had temporarily turned off their lending.”

“But that does not mean that things won’t improve. There has been real enthusiasm to get deals done and get out there at the moment, especially whilst covid-19 threats are relatively low and if a second wave comes back to bite us.”

 

 


What is Regulated and Unregulated in Bridging Finance?

Bridging loans or bridge finance, will typically fall under regulated or unregulated activity - and this can have quite an impact on the application process, eligibility and terms that you receive. In this article, Octagon Capital aims to explain the difference between regulated and unregulated bridging - and how you can find the best product for you.

As a rule of thumb:

  • Any residential bridging is regulated (if it is their primary residence)
  • Any commercial bridging is unregulated (including offices, garages, warehouses)

 

Regulated Bridging Unregulated Bridging
70% Maximum LTV 75% Maximum LTV
First and Second Charge Mostly Second Charge
Subject to Status All Credit Statuses Considered

What is the regulation for bridging loans?

When it comes to regulated bridging loans, the FCA is the main regulator in the UK for any mortgages or deals. Essentially, they have strict regulation and guidelines in place to ensure that borrowers do not risk losing their primary residence when borrowing and there is adequate protection in place.

So typically, you can borrow against residential properties, such as buying a place for buy-to-let purposes. However, you cannot borrow a regulated bridging loan if it is secured against your own primary residence.

Part of this is the Mortgage Credit Directive (MCD) which is an EU framework for mortgage firms and is overseen by the FCA. There are a number of measures in place to offer transparency to customers, such as showing them any rates beforehand as an APRC and also giving applicants a reflective period in case they want to change their mind or request more information.

For the regulation surrounding SMCR, this is for senior managers of investment firms under the FCA - and does not apply in this case.

 

regulated-bridging

Borrowing against flats and places of primary residence will typically fall under regulated activity

 

Regulated bridging loans and mortgages are available by first charge or second charge

First charge loans

This refers to the 'first charge' that is taken from your bank account each month, so often refers to as your first mortgage, which could be against your main residence and property that you live at, or an investment.

Second charge loans

This refers to the 'second charge' from your bank account, taken out after your first charge. So you could have a mortgage against your home (this is your first charge) and then another mortgage or bridging loan against an investment product (this is your second charge). You can also get a second charge against your existing home, known commonly as a second mortgage.

Importantly, the amount you can borrow on your second charge is less than your first charge, since it is second in the queue when it comes to repayments each month.

You can use the same lender for both first and second charge, or use a different one for each.

 

What is unregulated bridging loans?

When bridging loans are unregulated, they are conforming to some essential guidelines, but there are a lot of flexibilities when it comes to the criteria and lending to people with adverse credit histories. Loans in this nature are commonly by means of second charge, and with faster processing and applications, they typically make up around 50% to 60% of all bridging deals (regulated rarely gets more business than unregulated in this sector).

Unregulated business is often for commercial properties including:

  • Offices
  • Petrol garages
  • Schools/ Hotels/ Farmhouses
  • Warehouses
  • Factories
  • Gyms
  • Other business purposes

 

unregulated-bridging-loans

Offices will typically fall under unregulated activity

 

What does non-status bridging loans mean?

Non-status bridging means that it does not take credit status into account. So where regulated mortgages and most financial products require a strong credit score, this is not the case with non-status lending. Therefore, lenders are willing to take a view on adverse credit histories or limited credit histories and may look at other factors such as the potential value of your property and the opportunity.

 


rishi-sunak

Chancellor Sunak Proposes Immediate Change to Stamp Duty

Rishi Sunak has stated that a stamp duty cut will not be delayed, following warnings that this would cause considerable damage to the housing market. Talk of delaying the stamp duty cuts have raised fears that property purchases would grind to a halt, as many would simply wait until these cuts were implemented to save themselves thousands of pounds.

Economists and property experts have voiced their concerns over implementation of the cut, originally suggested to be put in place Autumn this year. Such experts have claimed that waiting until this long to put the cut in place could cause a deep freeze to the housing market.

Institute for Fiscal Studies’ Paul Johnson has commented that Sunak must choose to launch the stamp duty cut tomorrow or rule it out entirely, and furthermore that “To do otherwise could ruin the housing market for months to come”

Economist Julian Jessop commented the following on the matter: “the announcement of a stamp duty holiday, but not until the autumn, could kill the housing market in the meantime.” 

“There has been similar speculation of an across-the-board VAT cut, which could delay spending on other big ticket items too.”

Others have claimed that this cut to stamp duty could help to drive the demand for housing throughout the U.K., former Tory Chancellor Philip Hammond commenting on the BBC Radio 4 Today programme that:

'Cutting stamp duty, reducing VAT in particular sectors, are certainly ways to bring forward or manage demand. 

'But I think the Treasury officials who will have been working up all sorts of proposals for him during the lockdown will be telling him that the history tells us that cutting VAT or cutting stamp duty can bring forward demand but it doesn't overall increase the level of demand, it simply shifts the pattern of it.' 

This cut is expected to be part of Sunak’s coronavirus recovery package, including ‘holiday’ from the charge of six months. Sunak is under increasing pressure to set out future plans for financial support for businesses, as many sectors continue to struggle from the effects of the COVID-19 pandemic.

The stamp duty cut is said to be the focus for the Chancellor’s financial address tomorrow, which is also expected to discuss the £2 billion to be used for homeowners to better insulate their properties, and the £1 billion that will attempt to make hospitals and schools greener.


Gareth_Lewis_mtf

Mortgage Brokers Expect a 6 to 9-Month Recovery

The COVID-19 lockdown has had a considerable impact on the property industry, potential property buyers limited in viewing new potentials, whilst those in the bridging finance sector were forced to stop all lending, able to only work on existing deals they were already managing.

It’s been confirmed by mortgage lenders all over the U.K. that there will be significant restrictions to lending criteria. On top of this, there have not been any property auctions to have taken place recently – an important source for generating commercial deals within the industry.

An MT Finance survey found that 54% of participants predict the economy to take 6 months to a year to recover from the impacts of COVID-19, 14% seeing a recession in the foreseeable future.

In the same survey, 40% of mortgage industry brokers feel the property market will need six to nine months to recover properly from the impacts of COVID-19.

Additionally, MT Finance also found that 27% expect it to be a year or more for the market to fully recover.

Gareth Lewis, MT Finance commercial director, commented: “These results offer an interesting insight into just how long those working in the industry believe the UK property market and wider economy will take to recover.

“While the government’s furlough scheme has evidently had a positive impact on unemployment- some further government stimulus would be very welcome to resurrect the property market once lockdown is lifted, such as a stamp duty holiday or concessions.”


christoper-woolard

Homeowners Offered Additional Three Month Mortgage Holiday

During the beginning of the U.K.’s lockdown period, a near 1.8 million households took advantage of the three-month mortgage payment holiday as a means of support during this difficult time.

The mortgage payment holiday scheme saw around 20% of the U.K.’s total population benefit from its offerings, which not only included a break from mortgage payments, but also other financial support products such as credit cards, personal loans, interest-free overdraft facilities and more.

The Financial Conduct Authority (FCA) have confirmed a second term of mortgage payment holidays will be made available if the U.K. are hit with a second wave of COVID-19, and subsequent lockdown measures reappear.

Interim chief executive of the FCA Christopher Woolard confirmed:

 

“Clearly, if there are further restrictions that need to be placed for health reasons; if the situation becomes
more complicated in some way, then we’ll have to think about how we adjust to those circumstances,”

However, whilst a second mortgage holiday is now on the cards if a second wave were to appear, Woolard expressed that 50% of those who used these payment holidays initially were now able to make payments:

“About half of that group are people who perhaps thought they were going to lose a job or have some
other kind of impact, and in fact they’re in a position where they could still afford to pay now that that
ninety-day period is coming to an end,”

“It’s everyone’s best interest to actually get back towards payment wherever that is possible or even
partial payment, but we have to recognise that there’s an ongoing situation here,”

 

Specialist finance provider at OctagonCapital Dan Kettle commented: “Taking mortgage payment holidays
might seem like a healthy way to keep your finances in track and it certainly plays an important role for a
lot of homeowners. However, you may look to remortgage at some point or maybe even apply for a new
mortgage altogether if you plan to move home soon.

“With mortgage providers only getting stricter with their criteria, you probably don’t want to have any
payment holidays on your credit report, so if your job and income is stable, you should ideally try keep up
with payments and avoid holidays if you can.”


couple looking at finances

How Much Deposit do I Need for a Bridging Loan?

When you enter a bridging loan, you will usually need to put down a deposit. This is a lump sum paid upfront. The amount you will need to pay as deposit depends on the amount you want to borrow, the value of the property you are looking to purchase and the LTV (which is dictated by your lender). Your deposit will be at least 20% to 25%, as the LTV available on a bridging loan is 70% LTV or 75% LTV unregulated. The deposit represents the proportion of the property you own outright, the LTV is the rest of the property which you pay off with a bridging loan.

What is LTV?

LTV stands for loan to value; this is the ratio lenders use that shows how much you may be able to borrow versus the value of the asset you want to borrow against.

For example, if you wanted to purchase a property worth £100,000 and wanted to borrow £75,000, the LTV of the loan would be 75%. Your deposit would be the other 25% which would be £25,000.

What is the difference between regulated and unregulated LTV?

Currently only part of the bridging loan industry is regulated by the FCA. The FCA are the Financial Conduct Authority, which regulate financial services firms in the UK with the goal of protecting consumers and ensuring the integrity of the UK financial industry.

A regulated bridging loan would be one which falls under the protection of the FCA, these are usually residential ones. Regulated bridging loans aim to offer consumers a heightened level of protection and peace of mind.

At this time, all commercial bridging finance is unregulated, meaning the FCA does not supervise this area of the industry. If you’re securing a loan for an investment property, a commercial building, or for a buy-to-let it will not be regulated, meaning you VTL will be 75%.

Can I get a bridging loan with no deposit?

Bridging finance - is your provider regulated? | Business Law DonutYes, you can get a bridging loan without putting down a deposit. However, you may need to look at different types of products such as mezzanine finance. Mezzanine finance allows companies to give up some of their equity to secure a loan. You can find out more about mezzanine finance here.


remortgage

How To Use Remortgaging to Release Equity

Many homeowners in the UK are taking advantage of low mortgage rates and through remortgaging, are finding ways to release equity from their homes. According to Remortgage Quotes Online, you can switch your standard variable rate (SVR) from around 4-5% APR to a fixed remortgage rate of 1.3-1.7% during the introductory offer.

The result of record low mortgage rates means that you can potentially borrow more money against your home, whilst keeping your mortgage payments each month roughly the same.

Releasing money through remortgaging is mostly used for:

  • Home improvements
  • Debt consolidation
  • Christmas shopping and presents
  • Family holidays
  • Gifting to other family members

How Can You Release Equity Through Remortgaging?

To be effective, you will need to have the following:

  • Good amount of equity in your home
  • Good/fair credit rating
  • Good affordability to remortgage
  • Stable income (not recent fall)

In order to remortgage, you will need to meet the checks from the mortgage provider, which have become more stringent over the years. They want to seem a strong affordability, which means that your salary is stable or going up (not falling drastically) and your expenses are not going beyond your means.

If you have a poor credit rating since getting your original mortgage, this can impact your chances of getting a new mortgage deal - or you could be stuck on your standard variable rate.

Naturally, to release money from your home, you will need some equity in it, which is achieved by paying off your mortgage on time for several years.

We review some of the options below:

Release Money When You Remortgage

When applying for a remortgage, you can ask to release or borrow money too - and the payments will just be adjusted to your existing mortgage loan. You may have heard the phrase or your parents complain "Well, I will need to remortgage the house for that one." And this is exactly the case.

remortgage

The more equity you have in your home the better, otherwise releasing through a remortgage with little equity will just increase your monthly payments.

Second Charge Loan or Advance

You can get a 'top-up' when you remortgage, also known as an 'advance' or simply a second charge loan.

In this instance, you are getting an additional loan to your mortgage and this will mean having two loans on different terms. One could be fixed for 5 years and the other could be variable for 2 years. You cannot borrow as much with the second loan as with the first and the amount you can borrow is based on your affordability. Failing to keep up with repayments can have a negative impact on your credit history and cause you to lose equity in your home.

Equity Release

This is only available to homeowners over the age of 55 and this allows you to release equity from your home, and pay off your mortgage at the same time. This is becoming an increasingly popular for the ageing population in the UK and is currently used by around 60,000 households per year, who borrow on average around £80,000.

 

Through equity release, you are able to receive one large sum amount, upfront, which is completely tax-free. In exchange, you simply give up some equity in your home, which is claimed by the lender when you die or go into long term care. There are monthly interest repayments or you can choose to have an interest only or rolled up interest added to the full outstanding amount. You also benefit from the house increasing in value, which is then used to pay off your outstanding debt.

You can typically borrow around around 25% to 60% of your property's value through a lifetime mortgage, which is a type of equity release product designed to last your lifetime. Or if you want to borrow money, you can use a home reversion scheme to borrow up to 80%, but this will mean physically selling of your home and you will not be able to benefit if it goes up in price in the future.

 


first-time-buyers

Will first time home buyers benefit from Brexit?

Brexit, despite not even being in full flow yet, has had a huge effect on the property market in the UK. This is especially the case in London, where prices have been falling rapidly.

how-brexit-has-affected-house-prices

The Brexit referendum has caused a lot of uncertainty for the property market and in other industries too. However, could the falling prices be positive for first-time buyers? It is obviously very negative for current homeowners who want to sell their homes during this time, but what about if you are moving from rented accommodation, and therefore own no property, into a property which is to be purchased by yourself?

It is true that before the result of the Brexit referendum, many had predicted that a vote to leave the EU would depress the housing market, but in fact, benefit first-time buyers. However, this may not have come true now that Brexit is only months away without a deal in place.

Current Homeowners and Brexit

A report conducted by Unbiased named “Buying a Home in Brexit Britain”, found that many people were becoming very cautious when it came to buying and selling in Brexit Britain.

The survey, of 250 UK adult, which was done concluded that there were clear signs of the uncertainty of the market. Around 15 per cent of current homeowners believed that the value of their property had gone down as a result of the 'leave' result of the Brexit vote. Half as many believed that the value of their property had actually increased as a result.

1 in 5 people questioned who were planning on moving houses in the coming year said that they did feel a sense of pressure to sell their property fast.

Prices Falling and the Benefit for First Time Buyers

Interest rates on mortgages are now at record lows and therefore a more affordable mortgage is finally a reality for people. However, the irony of low-interest rates is that they will make it all the harder to grow savings. Thus, too many would-be buyers simply will not be able to raise a large enough amount for a deposit for the property they wish to purchase.

property-ladder

There is actually no shortage of people who want to get themselves on the property ladder. But at this point, it is merely a dream rather than a reality for those who are living in the capital, especially.

The report from Unbiased went on to find out that only one in ten prospective buyers sees a realistic chance of getting on the property ladder at all, which is a pretty devastating statistic. This in itself could slow the property market, and maybe even be a large player in the drop in house prices. It is not that people are not wanting to buy, it is that they feel so uncertain that they feel they can’t.

The Silver Lining

It is not all doom and gloom! However, despite early predictions, it does not look as of yet that the Brexit result will make buying your first property any easier. In the current climate, any slack at the lower end of the market is being dominated by those who are buying to let.

Meanwhile, more homeowners are planning to extend their mortgages rather than move. This may well be a sign that they would rather not sell in such an uncertain climate.

For anyone is trying to get onto the housing ladder, there is a ray of hope. Several mortgage providers are now offering 100 per cent mortgages to keep up with the demands of the market. Basically, what this means is that these mortgages do not require any deposits. There are also some providers which are offering very long-term fixed-rate deals of up to ten years.

The fact remains that interest rates have never been so low, so such deals present a unique opportunity for first-time buyers.

Bridging Loans

If you want to sell your property quickly and move into a new property the effects of the Brexit hit, but you do not have time to wait for a mortgage to clear, why not try a Bridging Loan.

They essentially work to bridge the gap between the sale and the mortgage coming through, giving you the flexibility to move when you like.


Secured-Loan

Reasons You Might Be Declined For a Secured Loan

If you are looking to apply for a secured loan, it is important to know that there is a possibility that you may be rejected and if you know the reasons for that, you may be able to prevent it. You may have already applied for a secured loan only to be declined, but are unaware of why this has happened.

In this guide, for your clarity, we are going to look at some of the reasons that you may be declined for an application on a secured loan. But first, let’s look at what a secured loan actually is.

What is a secured loan?

A secured loan can also be referred to as a homeowner loan because a secured loan has the debt associated with it linked (or ‘secured’) to the loan borrower’s property. Secured loans, thus, are only available to be taken out by people who already own or are buying their own homes. A secured loan can be used to borrow anything from the £5,000 mark and upwards.

With a secured loan, the amount you are entitled to borrow, the duration of the loan agreement and the amount of interest which will be offered is wholly dependent on personal circumstances and the amount of free equity which you have in your property.

But if you do qualify as a homeowner, why might you be rejected by a lender for a secured loan?

Poor Credit History

Like with any type of monetary lending, your credit score can make or break your chances of borrowing or can affect the kind of deal available to you. You can read more about your credit score here.

If you have a history of missing payments or failing to repay your previous loans or on your credit card, this can seriously damage your credit history and thus, make you look like more of a risk to a lender.

If this is the case for you, there are things that you can do to improve your credit score including:

  • Always paying your credit card statement in full, each month
  • Only applying for loans when you need them – too many credit search footprints on your file could decrease your credit score
  • Always pay back loans in full, with the interest

Have Made Applications For Payday Loans

Some secured lenders consider payday loans to be a very high risk financial solution and means that you might have been desperate for funds. Not all secured lenders view it this way. One major mortgage provider recently said that payday loans (Source: MY JAR) were fine provided that they were paid off on time. Some providers will not consider it an issue if it was several years ago. Other similar high-cost credit products include cash advances, pawnbrokers and logbook loans.

A Spouse with Poor Credit History

You may have a good credit score, but in actual fact, your legal spouse's credit history may be your downfall when applying for a secured loan. Seeing as marriage ties you in more ways than one, one way is being financially linked, you are seen as a risk if your husband or wife does not have a good credit history attached to their name.

Especially with secured loans, since they are for homeowners, it is assumed that you help either out financially and that the mortgage and so on will be a mutual responsibly.

Your Collateral is Not Valuable Enough

The collateral that you have to offer in order to secure it against the loan may not be seen as valuable enough to the lender. To them, if your collateral is of less value, it is more of a risk lending to you as they will not get their payment back if you fail to pay it.

For a secured loan, your collateral could be your property or a car, for example. If neither of these is deemed valuable enough, your loan request may be denied.

In a similar way, you may only have little equity on your house at the point of application. Basically, what this means is that you do not own enough of the property to gain a secured loan.

How Much Are You Asking For?

Depending on your needs, you may find that you are needing to borrow a little amount or a larger amount. It is true that the amount you are wanting to borrow can play a part in the lender's decision on whether or not to grant you a secured loan.

What Are You Planning on Using The Secured Loan For?

Likewise, a secured lender may refuse you based on the reasoning behind your loan. Many lenders will ask you this question as part of the underwriting process and if it is something they deem unfit, they simply will not grant you a secured loan.

Bridging loans

You may find that you are struggling to get a mortgage in place and time is running out before you lose out on a property which you are hoping to purchase. An option for you might be a bridging loan.

Essentially, a bridging loan is a type of short-term finance which aid you in ‘bridging the gap’ between you and the mortgage, allowing you obtain the property without a mortgage in place prior. Rather than losing a potential property, you can apply for a bridging loan and receive the money in one lump within a few working days. Once the property has been purchased and has access to more finance, you will be required to repay the loan.


Do you have to tell your mortgage provider if you change jobs or get pregnant?

Since changing your job or falling pregnant can have an effect on your finances, you may be earning or less in your new job and obviously, having a child is another outgoing expense.

Therefore, is it protocol to let your mortgage provider know about either of these life changing events?

According to a recent survey created by uSwitch, one in ten women between the ages of 25-45 said that they felt as though they had been discriminated against by lenders once they had expressed their desire to start a family.

Affordability rules which came in 2015 mean that some firms are now required to ask questions about changes in income.

If you fall pregnant

Women have advised to be made aware of the pregnancy pitfalls when applying for a mortgage or are currently paying a mortgage. Due to the change in rules, new parents who are applying for a mortgage from some of the largest lenders are being asked to prove that they will be returning to work after their maternity and/or paternity leave before they can be included in their usual affordability checks.

If the couple or individual is not going to be returning to work within three months, their “return to work” income may not be included in the overall checks. As a consequence, the price of the mortgage may be calculated based on their pay during the period of maternity or paternity leave.

Lenders such as Barclays, RBS and NatWest base their decision on the salaries on the applicants will be receiving after they have returned to work rather than the pay they will receive whilst they are on leave, which seems far more logical.

What can lenders ask about pregnancy?

Lenders are prohibited from asking you whether you are currently pregnant, planning a pregnancy or on maternity leave when you apply for a mortgage. This question would go against the Equality Act 2010 as plain discrimination.

Nevertheless, tighter lending rules mean that they are lawfully required, not just entitled, to take into account any future changes to your incomings – this then works for if you are just changing jobs as well. Of course, having a baby can have an impact on both parties so this should be taken into account by the lender.

They will ask if you are aware of any changes to your income in the near future and if you answer yes because of a pregnancy, the underwriter will look at whether you are able to afford the mortgage as though you already have an additional dependent. This basically means they will factor in any child care expenses.

You can also expect to be asked about your salary on your return to work, the length of your maternity or paternity leave and if you are planning to return to work full-time or part-time.

If you are changing jobs

It is the same premise as if you were to fall pregnant, lenders are now required to take into account any income changes. This could work in your favour if you are getting a larger salary as this will mean you may be able to snap up a better deal on your mortgage if you can afford to pay more off each month. So if you change jobs with a mortgage in place, it is vital as well wise to let your lender know and inquire whether a better deal is available to you if your income has been increased.

According to the Council for Mortgage Lenders, the information about your change in financial situation is gathered to “try to reduce the risk of borrowers taking on debt commitments that could become unaffordable.” Therefore, lenders will ask if you are aware of any changes to your income in the foreseeable future (whether this is due to a new arrival or change in job).

Consider a Bridging Loan?

If you are in need of cash to buy a house urgently but do not have time to wait for a mortgage to clear, an option for you might be a bridging loan. A bridging loan is a type of short-term finance which essentially ‘bridges the gap’ between you and the mortgage, allowing you obtain the property without a mortgage being cleared. Rather than losing a potential property, you can apply for a bridging loan and receive the money in one lump within a few working days. Once the property has been purchased and has access to more finance, you will be required to repay the loan.