The [tag]Bridging Finance[/tag] market is reported to be currently worth about £2 billion per year, which would make it a significant part of the UK property finance market. Despite its size the [tag]Bridging[/tag] market is surprisingly under represented in the mainstream media.

Bridging Finance is set to continue to be a major component in the overall mortgage market, and in fact some analysts predict that it could be worth over £5 billion by 2010. One of the reasons why Bridging will remain a viable option is because it would appear to be immune to the state of the overall property market. This is because in a rising market there are plenty of property entrepreneurs willing to pay a premium to move property quickly, however in a declining market there are more distressed sales creating the need to “bridge” a shortfall.

One fascinating aspect of bridging is the role of the mainstream banks, typically they have wanted to keep at arms length from bridging finance. This is because by its very nature a bridging lender has to be willing to step in quickly to repossess a property at the first sign of trouble, something that a bank's PR department are keen to avoid.

However, on the occasions that a high-street bank does get involved in [tag]bridging loans[/tag] it is normally in a very tightly controlled environment. What is interesting is that when a property dealer approaches an independent property finance lender they don't necessarily realise that around 65% of the loan amount is usually sourced from a high-street lender from the wholesale markets. Not that any of this matters, but it is nice little irony.

The public image of Bridging Finance is changing as more independent lenders get involved, we would like to hear from property developers and entrepreneurs about their experiences of using bridging finance, good and bad.

Leave a comment below and let us know what you think.

Are [tag]HIP's[/tag] delayed or cancelled? The government (in the form of Ruth Kelly) has now said that [tag]Home Information Packs[/tag] will be required for all properties with four bedrooms or more from 1^st August 2007. The whole affair has been an embarrassment to the government, with the original proposals stripped to the bare bones.

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div align="right"> More on Home Information Packs take a dive

Some of the companies who have invested the most in the provision of Home Information Packs have started to release so of their pricing plans. LMS are believed to be the first to market with their offering. Their report will consist of an Energy Performance Report (EPC) and all the necessary local searches.

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div align="right"> More on Home Information Pack Pricing Details

For some people, such as property developers and investors, Bridging Finance is a tool of the trade - and a very powerful one at that. Bridging Finance has the qualities of flexibility, convenience and speed of implementation. And it is the speed that makes it such an effective and valuable resource.

Bridging finance is often the only facility that can make things 'happen' within a very limited time span. Where else, for example, is it possible to access finance of between a few thousand and over a million pounds within a few days. Bridging lenders will proceed without the usual string of references, credit checks, accounts, CVs etc.?  The choice is either to accept the costs of bridging and open the doors to a substantial profit or abandon the project and make nothing. Obviously if the potential profit is only very small, then the relative cost of bridging could become significant. It is for the borrower therefore to assess the merits of the project and decide whether the cost of bridging outweighs the benefits.

This ability to take advantage of a profitable deal makes bridging akin to a credit card purchase. Sometimes substantial bargains can be secured simply by being in the right place at the right time. If the necessary cash is not available at the time it is still possible to make the purchase and arrange for the funds to be released at a later date. The higher than usual interest rate is considered acceptable because it has enabled the purchaser to strike a profitable deal which otherwise would not have been possible.

However, the parallel stops there because buying from a shop or a supplier carries none of the additional complications of buying a property. And this is where the costs of bridging arise. Although legal fees, valuations, etc. are an integral part of any property purchase, there is the added requirement of speed in a bridging transaction. This puts pressure on everybody involved and entails a good deal of commitment from lawyers and requires valuers to rearrange schedules and priorities. The need for contracts to be drawn up can require a solicitor to have to put other items 'on hold'. This all comes at a premium and it is this concentrated professional activity that tends to be overlooked.

The question of whether bridging finance is expensive has to be viewed in the light of what is being requested and what it is enabling the borrower to achieve. It is, in fact, the means to an end - and often a very profitable end!

[tags]bridging finance[/tags]

Estate agents, mortgage brokers, and solicitors are all well aware of Home Information Packs (HIPs).  But how many consumers are aware of what's install for them when the new regulations come into force on the 1st June 2007.

The original intention behind the introduction of  Home Information Packs was to speed up transactions within the UK housing market. The original idea would have seen the HIP include a Home Condition Report and Search details included by the seller when the property was put on the market. Two years later and the project looks a little watered down. In the summer of 2006 the Government had to concede that including the Home Condition Report (or basic survey) in the pack was not going to be viable, not least because the required 7,000 home inspectors could not be recruited and trained in time.

The Home Information Pack that will come into force this year looks a lot different to the original proposal.  The Home Condition Report has been replaced by the Energy Performance Certificate (EPC)  The EPC is intended to give consumers information about the energy efficiency of the property they intend to purchase.  Although this is a noble idea in itself,  it is difficult to see how it enhances the stated aims of the Home Information Packs, namely speeding up the house buying process.

So, from the 1st June 2007 sellers will be able to  market their homes as soon as the EPC and the key legal documents are provided. A HCR can be included if the seller wishes to commission one, but it is no longer compulsory.  Surprisingly, searches will not need to be included in the pack, they simply need to have been "commissioned".

A cynic may suggest that the biggest benefactor of the introduction of Home Information Packs will be Estate Agents, as they will naturally pick up most of the fees.  Considering that Estate Agents are the least regulated and least accountable parties involved in the house buying process (and also amongst the most complained about) it will be interesting to see how they perform.

Properties which go on the market before 1st June can stay "HIPs" free until March 2008, rather than the original October 2007 deadline, this was possibly intended to try and offset a surge in properties going on the market.

What do you think about the introduction of Home Information Packs? Are you intending to Market your property before the deadline?  Let us know what you think.

[tags]home information packs, hips[/tags]

Some people regard 100% property development finance as the holy grail of property funding.  So it is not surprising that it is one of the most often requested types of loan.  We should say right at the outset that 100% development finance is possible, however there are several important criteria that a lender will look for.

Firstly, the project will always need to show a substantial profit.  This can be a refurbishment or development scheme, but either way the sales figures will need to show at least 25% return on costs.  For a crude calculation simply add together the purchase price and development (or refurbishment) costs then multiply by 1.25.  For example if a site costs £200,000 and the developer is expecting to spend £33,000 the total costs are £233,000.  The sales price would then need to be at least £295,000.  Obviously this is a very rough calculation but it does give a good "rule of thumb".

The next major question that a property development lender will ask is "why is the developer asking for 100% property development finance?"  It is not unusual for a property developer to have all their available capital tied up in one project whilst looking for the next scheme, but there are a number of other acceptable answers.  The challenge comes when a property developer asks for high levels of finance with no provable experience and little support.

Over time a property developer will assemble a team of professionals to support them, this will be suppliers, tradespeople and specialists such as architects, quantity surveyors and solicitors.  This team becomes an asset and a good quality team can go a long way towards impressing a property development lender.

Because the risks to the lender are so high it is not unusual for them to monitor a project very closely, some developers have commented in the past they they find this quite uncomfortable!

100% development funding can either be supplied by one lender or, more often, be provided by a combination of a main lender and a second specialist lender "toping up" the funding.  Either way 100% property development finance is a very specialised form of funding and using a specialist broker can make all the difference.

[tags]100% property, property development finance[/tags]

The UK secured loan market has grown rapidly over the last 10 years, according to figures from Datamonitor the market is now worth around £6 billion. Any market this size is bound to attract its share of suspect operators and the UK secured loan market is no different.  There is still very limited regulation covering second charge loans with most of the legal stuff designed to protect the lender's interests and not the borrower's.

Anyone who owns a television will definitely be aware of the promises that a secured loan will solve all their worldly problems. Few people will be aware that the vast majority of advertisers are brokers and not lenders, further they may not be aware that in order to become a finance broker you only need a Consumer Credit License from the Office of Fair Trading. Although the system is set to change in 2008, at the moment a Consumer Credit Licence costs less than £300 for 5 years which makes getting a license easy.

Most of the advertisements seen on television tend to focus debt consolidation, which is a shame as this undervalues the concept of a secured loan. It is also something of a myth that a secured loan is always cheaper than credit card debt. If a borrower has to "self-cert" their income, which is not unlikely if there are significant debts to be consolidated then the interest charged can easily exceed credit card rates.

Secured loans are NOT regulated by the Financial Services Authority (FSA). The FSA took over control of the mortgage industry in 2005 but secured loans, buy-to-let mortgages and commercial loans were excluded from their authority. If a secured loan exceeds £25,000 then it is not covered by the Consumer Credit Act and you are likely to see very high early repayment charges. There are a couple of self-regulating organisation such as the Association of Finance Brokers (AFB) but as membership of such bodies is voluntary it is difficult to imagine how effective they can be.

It is not all bad news about secured loans though, there are plenty of examples of how a secured loan can be a cost effective and efficient way of raising capital quickly. Given that the legal implications of taking out a secured loan are similar to your mortgage it makes sense to talk to your mortgage broker first. As all mortgage brokers are regulated and vetted by the FSA it is far less likely that you are going to encounter any dodgy practises or non-disclosed fees.

All financial advertisements offering secured loans are required (by law) the carry the FSA risk warning stating that your home is at risk if you fail to keep up payments on a secured loan. Take note of that warning and don't just assign your home to someone you have no reason to trust other than the fact they have hired a celebrity to endorse their products on television!

[tags]secured loans, debt[/tags]

It is estimated that of the 200,000 new homes built in the UK last year approximately 20,000 were self-build developments, this is a two-fold increase on the previous ten years. This trend is also expected to increase, perhaps following in the steps of popular tea-time TV shows. The driving force behind the self-build explosion is probably the rising costs of buying a property coupled with an increasing awareness of the tax advantages of building a new house. Naturally the desire to have an individually designed home might have some small bearing too.

This growth in the self-build market has not gone unnoticed by the mortgage lenders either, and you can probably expect to see more marketing money being spent by some of the established lenders to ensure they maintain their market-share. Obviously the mortgage requirements for this type of project are vastly different from a standard residential mortgage. Specialist self-build mortgage lenders (and brokers) have created specific products to cater for the diverse needs of the self-builder.

Property development is carried out in stages, and the funding of a new-build house is carried out in the same way. The first stage is to secure the site, there are websites around that are devoted to marketing single building plots. Most self-builders will be on the look out for plots that are complete with planning permission and require only slight modifications to the plans and confirmation of building regulations. The construction of the house is then carried out in stages, with a funding structure designed to work around each completed phase.

The type of funding that is put in place for a self-build is dependant on whether the borrower/builder intends to occupy the property, rent it out or sell it. For true self-build projects where the borrower intends to live in the property there some quite incredible deals available, including up to 100% of all costs – which alleviates the need for the applicant to sell their existing property.

Where the self-build in more speculative in nature, such as buy to let, there is slightly less flexibility. However it should still be possible to get some very competitive loan-to-values.

One final thought, property owners with a lot of land are choosing to build new houses in the garden and split the title of the property in two. If you're not too fussy about having acres of space it could be a useful way to top up an endowment or pension shortfall!

[tags]self build, property development finance[/tags]

It seems that with the arrival of spring the builders come out of hibernation. There are several apparently dormant sites locally which seem to have miraculously sprung into action, with ground clearance works and foundations appearing. The speed at which new build flats and houses are built is a credit to the building trade, which seems to have mastered the art of Lego-construction.

The true value of a new-build property is always subject to debate. There is all round pressure to push the prices as high as possible, the builder being eager to obtain the highest sales prices possible the local estate agent is usually only to pleased to also push for the highest value. New build properties are generally 10% higher than their second hand equivalents, however it is not unusual to see the first phase of a development hit the market at significantly higher margins.

You would think that these higher purchase prices would cause problems for investors? Well they do!

In order to justify the higher prices builders will often throw in some incentives to make the deal appear more attractive. A few years ago builders started offering "early bird discounts" or "gifted deposits" during the build stage to investors (or investments clubs). The pitch would promise guaranteed tenancies, and thereby guaranteeing impressive yields on investment. Some of these developments in London, Manchester and Birmingham were being offered to the market at fantastically inflated prices. The developer would simply add 15% to the sale price and then offer the same 15% back as a gifted deposit.

Lenders stated to get wise to these types of deals and started to block certain types of purchases, so developers then started to shift the incentives to post-completion deals. It is much harder for a lender to spot a cash-back incentive or carpets/white goods type deals. Another tactic employed to try and sneak an above value purchase under the radar was for the borrower to purchase the property on a bridge. Bridging finance is usually based on the reported Market Value of a property and not the purchase price, the borrower would then immediately re-mortgage the property on to a buy-to-let mortgage.

Having recognised that builders will offer incentives to investors, particularly if the investor is buying off-plan or as part of a group, there are now some lenders willing to accept a "builders deposit" provided that the applicant is putting in at least 5% cash. Also, there are lenders willing to accept immediate re-mortgages.

It is probably testament to the value of the buy to let market that lenders are wiling to play cat-and-mouse with developers and investors. It is ironic that this practise of pushing the new build buy to let market to its limits is in tern guaranteeing tenancies for the landlord as higher prices push more first time buyers out of reach.

[tags]buy to let, property funding[/tags]

For some time the government has been trying to introduce legislation to help protect tenant's deposits from landlords who retain money unfairly.  In the past there was no central scheme specifically set up to arbitrate a dispute between a tenant and landlord where damage to the property is alleged to have occurred.

Tenancy Deposit Protection (TDP) comes into effect on 6th April 2007 and will affect all new tenancies created after this date.  This tenancy protection will cover all tenancies that fall under the Housing Act 2004 (which is the vast majority of tenancies).

There are just three approved national schemes, briefly these are:

1. The Deposit Protection Service (DPS) which is a free to join custodial scheme where the deposits are paid into the scheme.  The interest on the funds is used to fund the scheme.  More information from www.depositprotection.com
2.  Tenancy Deposit Solutions Ltd (TDSL) which is an insured scheme.  There will be a fee for landlords to use the scheme, but under it they may be able to continue to hold deposits.  More information from www.mydeposits.co.uk
3. The Tenancy Deposit Scheme (TDS) is an insurance backed deposit protection and dispute resolution scheme run by the Dispute Service.  This scheme is a little more complex as it was in existence prior to the legislation. Formerly it was only open to letting agents, but it would appear that they are modifying it so that landlords can use it too.  More information at www.tds.gb.com.

If you use a letting agent to manage your properties there is a very good chance that they will have already written to you to outline their proposals for dealing with this additional legislation.

Talking to several professional landlords and letting agents the advice seems to be that a properly written tenancy agreement and inventory (including details of existing damage/marks) together with regular inspections of the property will greatly help avoid problems.

[tags]tenancy deposit scheme[/tags]