Bridge to Term Property Funding

Being able to access large scale funding fast can be vital to secure a property bargain.

If you are a developer, you will know there is always plenty of competition for any property with potential. 

A  commercial mortgage can provide long-term funding solutions, and specialist solutions exist for commercial property, buy to let and residential property. However, because of the needs for lengthy searches and valuations mortgages can take weeks or even months to arrange.

This can mean missing out on a deal - especially if your competitors are cash buyers.

There are many situations where a property deal must be completed quickly, and waiting for a mortgage to be arranged is impossible.

At Rangewell we can help, by putting our expert knowledge of the property market to work for you.

You need two types of funding

We have found that the answer is to have two types of funding.

• The first is designed for the short term - to let you secure the property deal fast.
• The second is a conventional buy to let or development mortgage - depending on the nature of your project.

Specialised short-term mortgage bridging loans are designed to provide the first part of the solution. Like a mortgage, they are secured on the property itself. However, unlike conventional mortgages, they can be arranged in a matter of days, helping secure a property deal.

They recognise the need to move quickly, and offer rapid access to funds - although they tend to be relatively expensive, and only used until another finance product designed for the long-term, such as a mortgage can be arranged.

About Bridging Loans

Bridging Loans are so-called because they are designed to bridge a short-term funding gap. Loan amounts start at around £25,000, and there is no maximum - but their main benefit is their speed: Bridging Loans can be arranged within a matter of hours, and funds released in as little as 72 hours with some lenders.

Large amounts are involved and lenders offering Bridging Finance will carry out detailed checks and apply conservative lending criteria but are able to make rapid decisions because they are able to work without the bureaucracy that slows down many traditional lenders.

When might you use a Mortgage Bridging loan?

A Mortgage Bridge could be used whenever there is a short-term need for large-scale property funding. This might be when one property is being sold to finance the purchase of another and when there is a delay in the sale of the first property, leaving a funding gap. As the buy-to-let market is a highly competitive one, moving quickly can be key to securing the right property before other investors move in. This can sometimes mean moving before you have a mortgage or deposit in place. In these situations, a specialised loan could be useful.

They may also be used by developers as short-term funding for a property which will require work - and in certain circumstances, they can even be used on properties where existing development funding has run out.

Introducing bridge-to-term loans

Bridge-to-term loans are specialised Bridging Loans aimed specifically at the investor market and you can use them for either commercial or residential properties. The exit strategy would be to refinance onto a conventional Buy-to-let mortgage, and renting the property out either fully or in part, or refinancing with a development mortgage as you progress with your refurb or conversion project.

At Rangewell, we can advise on the most appropriate form of funding at every stage of the project.

• They can be used when you’re buying a property – whether commercial, residential or mixed – to rent in the future but when you can’t initially afford the deposit or need to move fast.
• They can be used to buy a property for development, which will require development funding to add value.
• They can also be useful for buying properties at auctions, properties that need work or ones you need to move on quickly.

Repayments can be arranged in a number of ways. In some cases, it is possible to make no monthly repayments on the bridge finance and, instead, rolling them up into the single repayment cost which will be covered by the term fundings.

The high cost of bridge loans makes them expensive if they are used for long periods - and in any case, most will only run from 12-18 months. This means that, unless the project can be completed in a very short time and sold on, in most cases, a mortgage bridging loan is used as an interim solution for a property purchase. It needs to be paid off by a solution designed for the long-term, such as a Commercial Mortgage.

Bridge to term funding can be challenging for an individual to set up because it involves talking to different lenders simultaneously. At Rangewell, we have contacts with property lenders of all types and can provide the expertise to ensure that negotiations are straightforward.

Using a Bridge to Term Loan: an example

A local authority released a redundant primary school for sale. A number of developers were interested, and most saw the potential for turning the Victorian building into three or more homes, and a newbuild in the playground area.

A successful bid on the property was made by an experienced developer, but the bid was accepted with certain stipulations. The most important of these was timing - he was aware of the need to move quickly to meet the local authorities schedule for disposal.

He approached us at Rangewell and we recommended a Bridge to Term Loan and set to work to arrange it as part of a comprehensive funding strategy.

First, we found a bridging lender who could offer funding to cover the purchase price. They saw the value of the property as it stood and the potential of the project. Our client was able to pay a deposit and meet the other criteria of the lender, and funds were released in under seven days. This allowed the purchase to proceed. 

Interest payments were relatively high - but they were rolled up into the overall cost which would be paid off by the longer-term funding.

At the same time as we contacted bridging lenders, we showed the project to providers of development mortgages and explained the potential to them.

The knowledge that the exit from the bridge was already being arranged as a term loan helped secure the bridge, while the ability to present a detailed funding case for the property helped persuade the mortgage lender.

After four months' funding from the Bridge, the developer was able to refinance. We arranged two types of funding. The first was a property development loan, clearing all costs for the first phase of his finance, and securing a very competitive rate on the second phase.

We were also able to arrange buy to let funding for the two flights which were created in the old school building, which the developer would retain as an ongoing source of income for the future.

What does bridge to term funding cost?

Short-term finance is always more expensive than long-term lending. However, although the fees and interest rates for mortgage bridging loans can be relatively high because loans are for the short-term, the overall cost may have little actual impact on the long-term costs of a major purchase.

Bridging loans are priced monthly, rather than annually like a mortgage.

They are relatively expensive: you could face fees of between 0.5% and 1.5% per month. That makes them much pricier than a normal residential mortgage. The equivalent annual percentage rate (APR) on a bridging loan is between 6.1% and 19.6% – far higher than many commercial mortgages currently being offered.

The actual interest rates will be quoted monthly, will vary, depending on your circumstances and your business, and the deal to be funded. An experienced property developer or investor may be able to secure a more attractive rate: a particularly challenging project may cause rates to be higher.

There are also set-up fees to consider, usually around 2% of the loan you want to take out, so it is advisable to only take a bridging loan out if you are confident that you won’t need it for a long period of time. 

How much can you borrow with a bridging loan?

In cash terms, bridging loan providers might lend anything between £25,000 to over £25m, but you’ll usually only be able to borrow a maximum loan-to-value ratio (LTV) of 75% of the value of your property. If you are taking out a first-charge loan, you’ll typically be able to borrow more than if you were taking out a second charge loan.

However, the costs may not stop here. In addition, there may be fees, including an arrangement fee which can be 2% of the loan amount, an exit fee which can equal one month’s interest, and surveyors’ and legal fees. If the loan runs over the agreed term, there will also be substantial penalty fees.

Repayment arrangements can vary. In some cases, all fees and interest can be rolled up into the loan, which can be settled with a single repayment.

Why you need Rangewell to find the short term property funding arrangements that are right for you

There are two very good reasons to come to Rangewell for your bridge to term funding.

The first is the cost of the short-term bridge. Most property loans involve large-scale funding, and getting the right deal can make a difference of tens of thousands of pounds. Even a fraction of a percentage point will make a  large difference to what you actually pay, while fees and penalties can drive up costs still further.

There are also many different lenders who may be prepared to offer funding. Each has its own approach to interest rates and fee arrangements, and comparing offers needs an expert eye.

At Rangewell, we know the lenders who can offer short-term property funding, and we can use our expertise to identify the deal that really is the most appropriate for you. Our knowledge can not only help you secure the funding you need - it can save you a great deal of cash.

The second reason to choose Rangewell is that we can answer all your funding needs. We can set up your bridge to term loan and start work on the term loan you will need to replace it.

It is important to get both steps in your funding strategy to work together.

Knowing that there is a clear exit strategy for you and your property project can make a big difference to short term lenders - and the amount that you pay.

So we can provide the complete service - helping you find short-term funding quickly, and then working to find the most competitive source of long-term funding to replace it in the most appropriate way.

It means reducing your costs in both the long and the short term.

Finding out more about bridge to term property funding

If you want to look at short-term funding for your property needs with a business bridging loan, contact us at Rangewell. Our experts can work with you to understand the solution that is right for you and your property projects and use our network of contacts to find the lender with the most competitive provider.