Article by Daniel Owen-Parr, Head of Professional Sector & Auction.
It’s now 10 full years since the financial crash of 2008, and one of its lasting legacies has been a tightening of the rules around access to borrowing. Banks who got their fingers burnt have been reticent to offer lending, relying on rigid tick box criteria to help them decide whether applicants qualify.
Some, however, are swimming against the tide. Often described by those in the industry as a ‘specialist lender’, Together has been in business for over 40 years, but really thrived over the last decade.
Together say no to 'Computer says no'
Operating under a banner of what it calls ‘Common sense lending’, they say no to ‘Computer says no’. This approach means they can often lend when others won’t. For instance, they’ll consider most circumstances, including typical ‘red flags’ like self-employment, imperfect credit history, and difficult-to-mortgage properties like nightlife venues, ex-council properties, and mixed-use developments.
Many building owners in prime London locations could take advantage of the demand for retail and restaurant space by converting ground floor and basement spaces into rentable units. This typically requires planning permission for a change of use, which can take several months to be granted.
Securing the required funding can be tricky until planning permission is granted, especially on a mixed-use property. And meanwhile, you have to contend with upfront costs such as architects.
In circumstances like these, a bridging loan can be used to span the gap between the start of planning and the completion of works – and, with it, longer-term borrowing based on the redeveloped property’s increased value.
These short-term loans typically span 12 months, although you can often repay them early with no exit fees. Interest is charged monthly, but there are no monthly repayments. Instead, the interest is totted up, and you repay the loan in full (complete with any interest and fees) when the term ends.
Regulated and unregulated Bridging Loans
Broadly speaking, there are two types of bridging loan – regulated and unregulated. In simple terms, the difference is whether the property used to secure the loan is your residence.
If so, you’re looking at a regulated bridging loan. These are designed to help you overcome a broken chain when moving house, or secure a property at short notice; this can be especially helpful if you’re buying your new home at auction. This is because you must pay the full balance of the purchase price within 28 days – and this is faster than some mortgage providers can operate.
Unregulated bridging loans are those that apply to investment properties (like buy-to-let and development opportunities), and those secured against commercial premises. These have a wide range of applications, particularly in the business world.
Property investors in particular benefit from the lack of repayments, which frees up cash to perform necessary renovation works. Having secured distressed properties at knockdown prices, they have time to complete upgrades and sell on at a profit. They then repay the loan using the proceeds, with interest and fees making only a small dent in their revenue.
Bridging loans are often available even if you already have a mortgage on the property – helping you to unlock equity tied up in your premises. This can be used, for instance, to invest in staff or raw materials to complete a large order, remodel the premises, or solve cashflow problems of all varieties.
Daniel Owen-Parr, Head of Professional Sector & Auction at Together, says: “We’re seeing more innovative uses for bridging loans, and a larger appetite for lending over shorter time periods as customers look to expand their portfolios, increase yields, and change the uses of their properties. All these factors are nudging bridging finance away from being what was, perhaps, once seen as a niche product.”