Are Mortgage Rates Going Down?
There has been a great deal of volatility in mortgage rates in recent months, especially due to the ongoing impact of the Coronavirus pandemic and rising inflation.
Most recently, mortgage rates seem to have been going down but it is debatable how long these drops will last. Here, Octagon Capital explores the latest on the falling mortgage rates, including:
- What’s happened to mortgage rates in recent months
- Whether mortgage rates are actually falling
- The impact of COVID-19 on rates
And more…
Want to get the best rate on your mortgage? Explore ways to get the best rate on your mortgage.
What Has Happened to Mortgage Rates in Recent Months?
Despite expert predictions that inflation would cause mortgage rates to be pushed higher, recent months have seen the mortgage rate fluctuating up and down but with no real changes.
The average interest rate on the 30-year fixed-rate mortgage for November was almost identical to that of October, despite inflation rising to 6.2%.
Are Mortgage Rates Falling?
Looking at the last few weeks, mortgage rates have been falling but by a negligible amount. Data shows that the average contract interest rate for 30-year fixed-rate mortgages decreased from 3.24% to 3.16%.
For a 15-year fixed-rate mortgage, rates dropped by seven basis points to 2.271% APR, according to data from NerdWallet.
In general, the 30-year mortgage has been fluctuating in recent months but has generally demonstrated an upward trajectory, assisted by high inflation rates and rising employment.
The recent drop in fixed mortgage rates is largely due to the omicron variant of the coronavirus.
Due to the falling rates, mortgage application volume increased 5.5% (week on week) according to data from the Mortgage Bankers Association. When mortgage rates drop, it also helps to boost refinance demand.
Increased Demand for Refinance and Mortgage Applications
As a direct result of falling mortgage rates, there has been an increase for refinance demand (7% increase week-over-week). However, when comparing the figures to 2020, it was 28% lower.
Mortgage applications to purchase a home also increased following the drop in mortgage rates. This figure increased by 3% (week-over-week) but was 4% lower than the same week in 2020.
Although the drop in mortgage rates is brief, the increase in mortgage applications and demand for refinancing shows how sensitive the market is to these small changes and how buyers can be brought back.
End of 2021
In the end weeks of 2021, the majority of mortgage experts predicted that mortgage rates will rise again (73% of mortgage experts surveyed in Bankrate’s weekly poll).
18% of experts thought that the mortgage rate would remain steady over these last weeks of 2021 leading up to the end of the year. A small proportion of experts (9%) predicted that the mortgage rates would continue to drop.
The Impact of COVID
As we have seen from the changing mortgage rates in recent weeks, the emergence of the omicron variant has led to market volatility and a small drop in mortgage rates.
The new wave of COVID cases and its variants is thought to put downward pressure on economic progress and mortgage interest rates.
However, according to the Federal Reserve, this economic slowdown is likely to be short-term only. In general, experts are predicting that rates will continue to be volatile but that rising mortgage rates will be the long-term trend going into 2022.
Mortgage Rates in 2022
As we come further out of the pandemic, mortgage rates are predicted to climb throughout 2022. Below are some facts on mortgage rates throughout the pandemic and into the new year:
- Mortgage rates are not set to go down in 2022
- In 2020-2021, the COVID pandemic directly affected mortgage rates
- Mortgage rates during 2020-2021 were ultra-low
- The ultra-low mortgage rates benefited many homeowners and buyers
With inflation predicted to remain elevated, it seems as though short-term interest rates will also be raised in the new year. Experts from the Mortgage Bankers Association and the National Association of Realtors forecast that the 30-year fixed-rate mortgage will rise about three-eights of a percentage point as we enter 2022 leading to a rate of just under 3.5%.
Are Mortgage Advisors Free?
Sometimes - mortgage advisors may be free for customers to use, the advisor getting paid through other means (e.g. commission). However, some may charge for their services. Whether or not you'll have to pay for a mortgage advisor's services will depend upon various different factors, including:
- The product in chosen
- The mortgage value
The cost of a mortgage advisor will also depend on a range of factors. A mortgage advisor should be clear about the cost for their services up-front. If the service is “free”, it is usually because the mortgage advisor will receive a commission from the lender.
Do All Mortgage Advisors Charge a Fee?
Mortgage advisors may or may not charge you for their service depending on the situation. Most often, the product you choose (i.e. the type of mortgage) and the value of the mortgage will affect whether or not you will be charged a fee.
If they charge you a fee, this might be a flat rate or an hourly rate, depending on the mortgage advisor. In addition, it could also be a percentage of the amount you borrow.
Sometimes, the service of a mortgage advisor will be free to you. In this case, the mortgage advisor will be receiving commission from the lender; this is information that will be shared with you.
It is understood in these scenarios that there may be a conflict of interest meaning that the mortgage advisor may be working for the commission from the lender rather than acting in the best interest of the client and opting for the best deal available.
How Do Mortgage Advisors Make Money?
Mortgage advisors will either receive money from the client for their services or will be paid by the lender for any business they bring in on a commission basis.
If payment is received by the client, this could be in one of the following forms:
- A percentage of the amount borrowed
- A flat fee for their services
- An hourly rate
When receiving money from the lenders, there will be an agreed commission rate between the mortgage advisor and the lender. For each client that the mortgage advisor brings to the lender, they will receive a commission.
How Much Do Mortgage Advisors Charge?
Mortgage advisor fees vary between different advisors but typically range between 0.4% and 1%. If they are independent, it is unlikely that they will not charge a fee, however the exact amount will vary.
In general, it is understood that advisors should not ask for a fee that exceeds 1% of your mortgage.
If working on commission, mortgage lenders will typically pay a commission, or procuration fee, of around 0.35% of the loan amount.
A mortgage advisor should be up-front about any and all fees you will be charged for their services. It's important to understand the full cost of using the mortgage advisor before moving forward with their services.
What Does a Mortgage Advisor Do?
A mortgage advisor is a specialist with expert knowledge of the mortgage market. Also known as independent mortgage brokers, these advisors are able to offer impartial advice helping you to compare and contrast different mortgage products to suit your personal needs - a key thing to consider before buying a house.
The mortgage advisor will act as a liaison between the borrower and the mortgage lender. Regardless of whether you are buying a home or refinancing, the mortgage advisor will be able to assist you and assess the best course of action for your personal circumstances.
Their job is to find you the most competitive rates and prices as well as ensuring that the mortgage product is well-suited to the needs of the client. Mortgage advisors can help borrowers determine the size of mortgage they are able to qualify for.
The mortgage advisor is not a lender of mortgage funds but instead sources the mortgage loans from a lender and matches them to the client.
One of the key benefits of working with a mortgage advisor is that they have access to a range of mortgage products across different banks and lenders. This means that the borrower is not limited to the mortgages available at one particular bank.
Does a Mortgage Advisor Do Everything?
It is worth remembering what service a mortgage advisor is able to provide and what services you may need on top of that in order to budget accordingly.
Mortgage advisors offer you advice about what mortgage suits your needs and can recommend different lenders based on your personal circumstances. However, they cannot advise mortgages that are exclusively available if you approach the lender directly.
Can Mortgage Advisors Negotiate Fees?
Depending on the mortgage advisor that you are working with, it is possible that the mortgage fees are not set in stone and there may be the potential for negotiation.
However, there is also sometimes the option to cut out the middleman and for homebuyers to negotiate mortgage rates and fees with banks and mortgage lenders directly.
Commercial and Residential Properties - What Can I Use them For?
In the UK, the two main classifications of property for buyers and investors across the country are commercial and residential. Both property types are distinctly classified by way of building regulations, planning permission and intended uses, all of which are useful to know before investing, buying or leasing the property in question.
Any property investment can seem daunting from the outset, but the more informed an investor is as they enter the negotiations, prior to exchanging contracts and completing, he better position they will be in once they receive the keys to the property in question.
Commercial properties are those that must be used for business [commercial] purposes of various natures which can range from a run-of-the-mill office space to a laser hair removal clinic or a shop; whereas residential properties are solely intended to be a place of residence and a place of abode for the property owner or tenants who rent from the owner.
When it comes to landlords, there are some grey areas which need to be considered as a residential property may be intended for the buy-to-let market and thus, there will be a degree of crossover.
What Can Commercial Properties Be Used For?
Before identifying the precise use of a commercial property, the location of the property in question is likely to be an important factor. For example, if the premises are to be used as a high street shop, it will of course need to be situated somewhere near the high street with good foot fall.
However, if the property is to be used as an office and workplace, it may be less important how close it is to high street retailers and more important how close it is to transport hubs in the area for the inevitable employees and staff. Once the location of the business premises has been established, it needs to be confirmed what the property will be used for and thus, if it is permitted to be used in the intended manner. Common uses for commercial premises include:
- Office spaces
- Shops
- Restaurants and cafés
- Showrooms
- Warehouses
There are some permitted uses for commercial premises which will need additional considerations. For example, if a warehouse will be storing hazardous materials or anything requiring additional safety measures, you will need to consider additional regulations and safety precautions prior to being able to commit to the space.
Using Residential Properties
Residential properties will typically be used as the place of abode and residence for a person, family or multiple tenants.
Generally speaking, a residential property will come in the form of a house or apartment. In the case of apartments for residential use there are various forms to consider. These include:
- House conversions
- Apartment blocks
- Maisonettes
- Houses of Multiple Occupancy
Each of which will require different procedures to be followed when buying or letting.
Unlike commercial properties where building work and development will typically require specific planning permission and potentially liaising with the local council or authority, residential properties’ refurbishments will often fall into the remit of permitted development and will therefore not require any specific planning permissions, unless the work falls outside of the remit of such permissions.
Many homeowners will factor into their mortgage, any works they wish to carry out on the property, for example, if a loft conversion or general refurbishment and refitting is required. However, where the works are not fully covered by the mortgage, a short term loan may be taken out or a property loan specifically for the intended works may be taken.
As a landlord, if you are looking to convert a large house to a house of multiple occupancy (HMO) however, you will need to seek planning permission and will need to liaise with the local council, as the intended use of the property will be altered.
Although an HMO will still be a place of abode, albeit for multiple people, the use of the property will be altered from a single to a multiple occupancy residence.
In addition, the landlord and property owner will be responsible for ensuring the necessary and required acoustic testing, such as sound insulation testing is accounted for and carried out prior to the property being inhabited.
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.
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 London 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.
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% LTV
- 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.
What Happens if You Default on a Bridging Loan?
Failure to repay a bridging loan could lead to repossession of the property/valuable asset that was used as security, however this is only ever used as a last resort. In addition to this, borrowers can also face adverse costs as a consequence for not repaying.
Lenders can work with struggling borrowers and rearrange their loan repayments to something more manageable.
As a secured loan, bridging loans will need a valuable asset as security. This means that those with bad credit histories can be considered for this type of finance, however, it also means borrowers run the risk of losing their asset when failing to repay – which can often be their home.
With a bridging loan, as with any type of loan, it’s vital to ensure you are able to pay back the loan to avoid more costs and the potential repossession of your home.
I Can’t Pay Back My Bridging Loan – What Should I Do?
If you can’t pay back your bridging loan on the required repayment date, you should contact your lender as soon as possible.
Unfortunately, issues can arise that make it difficult to keep up with repayments – whether this is from cash flow issues, delays to your building project or something else. If these issues come up, it’s important to be honest with your lender, and let them know right away that you won’t be able to pay the loan on the set repayment date.
Your lender might be able to help you refinance or “re-bridge” under different terms, either with them or with a different lender. The solution worked out between you and your lender when struggling to repay your loan will depend upon the details of the loan agreement and the situation you’re in that’s caused the repayment difficulties.
Will My Property Be Repossessed?
With Octagon Capital, your property will only be repossessed as a last resort. This means that if all other options have been exhausted, your property could be repossessed.
In addition to this, your property could also be repossessed if we can’t get in contact with you for a number of months. When struggling to repay, it’s best not to avoid your lender, as this can often leave them no choice to work with you on an alternative repayment plan, putting your property at greater risk of repossession.
How Do Bridging Loan Repayments Work?
Bridging loans are intended for short-term use, priced monthly rather than annually. Interest on the loan is charged for each month that the loan is open and can be paid monthly or all together at the end of the loan term.
The fees involved for a bridging loan can vary depending on the situation. Below is a list with some of the fees typical for this type of loan:
- Interest rate
- Arrangement fee
- Legal fees
- Broker fees
- Exit fees
- Valuation fees
It’s vital to understand the full cost of any potential loan before taking it out, ensuring that you’re able to keep up with the repayments and thereby avoiding the risk of costly consequences.
Can I Get Out of a Bridging Loan?
You can refinance if struggling to or being unable to pay your bridging loan in London or the UK. However, this does not mean you can avoid repayments of the money the lender is owed. Once you’ve made an agreement with your lender and have borrowed the money, you will have to pay for this loan.
When unable to pay your bridging loan, your lender can work with you to try and come up with a viable solution, making repayments on the loan more manageable.
Are Bridging Loans a Good Idea?
Bridging loans can be a great way of accessing the funds you need when you need them. They can be applied to various different situations, such as buying a new property while waiting for the sale of a current one, property development projects and more.
While bridging loans can be an effective aid for temporary cash flow issues, it’s important to only use them short-term, and be confident in your abilities to repay the loan back as and when required.
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).
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 lenders 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 in London 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.
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.
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.
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.
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 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
Can I Get a Bridging Loan on My House?
Yes, you can get a bridging loan on your current house. Most bridging loan providers will require property as security on the loan. They accept a range of different properties for this purpose, including residential, commercial, semi-commercial and land.
Bridging Loans are a great option to consider when in between a property sale and a property purchase, used to “bridge” the financial gap and help you move into a new property before selling your existing one.
These types of loans should only ever be used as a means of short-term finance, as if it takes a while to sell your current property, or the sale falls through completely, you could then be stuck with a substantial amount of secured debt.
Here, we’ll take your through the key features of bridging loans, including who they’re really for, eligibility criteria, the cost of the loan and more.
Who Are Bridging Loans For?
Bridging loans are a dynamic means of finance, and can be used effectively in a range of different situations, including the following:
- Moving house
- Property development projects
- Raising Finance
When applying for a bridging loan, you’ll also have to meet the lender’s eligibility criteria. Some lenders will require applicants to have a good credit history, however others may be willing to consider those with adverse credit histories.
What’s the Criteria for a Bridging Loan?
Octagon Capital’s eligibility criteria includes:
- Must be over 18
- Available for residential, commercial, mixed properties and HMOs.
- Must have an exit strategy
- Available in U.K., Scotland and Wales
- Minimum borrowing amount of £50,000
We can also offer non status bridging loans, meaning we can consider those with no proof of income and adverse credit histories. With these types of loans, we’ll be interested in the value your property could potentially have, and your plans for it. For these types of loans, you can help to build up your application with a plan of action, an exit strategy and an indication of costs.
What Can I Use a Bridging Loan For?
A bridging loan can be used for various different purposes…
When moving house, homeowners might want to purchase a new property before selling their existing one, worried that they’ll lose their new property by waiting too long on the sale of their current home. Bridging loans can be useful for these types of situations, giving homeowners access to the money they need so that they can purchase their new property before selling the old one. The loan is then repaid when the old property is sold.
Bridging loans can also be great for property development projects. If a property developer wants to refurbish a property to sell at a higher price, they can take out hundreds of thousands, or even millions of pounds via a bridging loan for this, with money able to be sent through quickly and efficiently.
Those wanting to raise finance for investment opportunities can also do this with the help of a bridging loan. For those already with one of these loans, or a mortgage, this is known as a first charge. You can then take out another one of these loans (known as a second charge) using any leftover equity you have.
How Much Do They Cost?
As bridging loans are only meant to be used for a short period of time, they’re priced monthly instead of annually. With this type of loan, you may find yourself facing monthly fees between 0.5% and 1.5%.
The precise fees will be dependent upon the property and the opportunity it offers, however, the typical fees you’ll see with a bridging loan include:
- Arrangement fee
- Interest rate
- Legal fees
- Valuation fees
- Broker fees
- Exit fees
Interest will be charged for each month the loan is open for. Borrowers can either decide to pay this back month-on-month, or also have the option to “roll up” these repayments, leaving this until the loan term end.
How Do I Get a Bridging Loan?
You can apply for a bridging loan with Octagon Capital. First, you’ll have to make an initial enquiry, either via the form on this page, sending an email to sales@octagoncapital.co.uk, or by calling us on 0333 414 1491.
Through this enquiry, you can tell us how much you need to borrow and for how long, as well as some details on the property in question, including your plans for it. During this discussion, we’ll be able to advise you on the next steps, and you could receive an Offer in Principle in a matter of hours.
Can I Get a Bridging Loan if I Am Self-Employed?
Yes, if you’re self-employed it’s possible for you to get a bridging loan. With more than 5 million people self-employed in the U.K., many of which have borrowing needs, for lenders it makes sense to accommodate to this group.
The affordability rules for bridging loans aren’t as strict as they are for mortgages, however, self-employed people applying for a bridging loan will have to prove their financial status with business accounts, as well as meeting other eligibility criteria in order to be approved for this type of loan.
Should I Get a Bridging Loan if I’m Self-Employed?
Bridging loans can be a great method of borrowing for those who are self-employed, useful for a variety of different funding requirements.
For example, if you’re self-employed and investing in redeveloping a property that was bought at auction and need to borrow a loan to help purchase the property within the allotted 28-day period.
Mortgages may take too long to be approved in time for this, whereas a bridging loan can come through in time to meet the purchase deadline. The bridging loan is then repaid once it’s “bridged” the financial gap.
Bridging loans are a short-term type of finance, and therefore not intended for long-term use, but rather for temporary issues with cash flow.
Will I Need Proof of Income for a Bridging Loan?
For self-employed applicants, lenders will typically need to see proof of financial status. This can be shown through business accounts, typically over the course of two years, however certain lenders may only need to review one year of such accounts if one year is all that’s available.
In addition to this, the lender might request to see copies of the applicant’s bank statements.
With bridging loans, lenders will be focused more so on the applicant’s exit strategy rather than their financial status. This exit strategy can therefore be more important for a self-employed person’s application than their income.
So long as the applicant meets all the necessary eligibility criteria, even when self-employed, they could be eligible for a bridging loan.
What’s the Eligibility Criteria?
Eligibility criteria for a bridging loan can include:
- Minimum borrowing amount of £50,000
- Available in U.K., Scotland and Wales
- Must be over 18
- Available for residential, commercial, mixed properties and HMOs
- Must have an exit strategy
When borrowing money in any form, a general requirement that can be expected is for the applicant to have a good credit score. However, with bridging finance this isn’t always the case.
At Octagon Capital, we’re willing to take a view on applicants with adverse credit histories, and also those with no proof of income. These types of bridging loans are often referred to as “non status bridging loans” and offer flexibility for those who have struggled to access finance before for these very reasons.
How Much Does a Bridging Loan Cost?
With bridging loans, you can expect to see typical monthly fees of anything from 0.5% to 1.5%.
Bridging loans are priced monthly rather than annually, due to the fact that they’re only intended for temporary, short-term use.
The typical fees you could see when borrowing a bridging loan include the following:
- Interest rate
- Legal fees
- Valuation fees
- Arrangement fee
- Broker fees
- Exit fees
The exact fees will depend on your unique case – e.g., the property and the opportunity offered with it.
You can choose to pay the interest each month (the interest being charged per month), or “roll up” the repayments and pay the full amount due at the end of the loan term.
The precise details regarding the cost of your loan and the fees charged will vary depending on the lender you go with, your circumstances and therefore the application you submit.
Where Can I Get a Bridging Loan When Self-Employed
Start your bridging loan application today with Octagon Capital. Simply make an initial enquiry via the form on this page, send an email to sales@octagoncapital.co.uk, or call us on 0333 414 1491.
We offer non status bridging loans and are willing to consider those with no proof of income as well as those with adverse credit histories.
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.
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.
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.