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4th August 2026 | Baya financial

Month: March 2021

Cash Vs. investor or bridging borrowing  – which is king..??

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Happy Friday everyone.   I hope you are all digging deep, it seems a lot tougher nearing the end.

As we work with so many property investors, the question of whether they should use cash or bridging to fund a project often comes up… so I thought this week’s blog would give both sides of the coin.

Your Own Cash

It’s easy to say it’s cheaper as you aren’t charged interest or fees – and at the moment when bank interest rates are so low it is tempting, but tying up cash stops it being used for something else, which will give a return. You could use your cash to fund two or three rather than just one project if you used bridging finance too.  It’s really important to always look at all options and what the net cost actually is. It all depends on how many projects you are planning on completing at once, and whether you have contingency funds if your project runs over time or cost. If you want to grow quickly then having cash available for the right project is important.

If you are buying solely with cash then another consideration should also be to use a solicitor that is used to working with lenders solicitors. If the legal work has only been looked at as a cash purchase then it can make it difficult when refinancing.  There is more work involved when someone is placing a charge on the property, and this can then cause delays at the refinance stage of its not been dealt with initially.

Using Other People’s funds

This really does keep your cash available for a profitable opportunity, and is the lowest cost borrowing option if you can access it at a reasonable rate given that there are no arrangement fees, exit fees and lender solicitor fees. Considerations would be:

  • Is there enough profit in the deal to ensure that your investors are repaid within the timescales you have agreed, and what’s your back up option?
  • You will usually need to borrow the full amount for the full time period, so your interest payment needs to be calculated ok this basis.
  • If you are using it with bridging, Lenders need to ensure the right people are on the application, so you need to have some experience to bring to the project before the lender will be happy for you to use investor funds.

Bridging Finance 

So after all that, why would you use bridging finance? The biggest advantage is the security; of having a mortgageable property that a bank will lend on, and a lender’s solicitor having seen the legals and being happy with the property. There is never a guaranteed exit to a term mortgage but it does help.

As we touched on before, it frees up your capital to look at multiple properties, or it can allow you to look at bigger projects with bigger profits. If your total spend becomes a 25% deposit (and maybe refurbishment costs) suddenly your budget is much bigger.

There are ways to mitigate costs too, especially when you’re looking at keeping the property:

  • If you are borrowing the refurb costs as well as the acquisition, then you will obtain the refurb costs in arrears as you spend them. This reduces the interest payable by about 40% and therefore can balance out the arrangement fees, exit fees and legal costs.
  • There are some bridge to term mortgage options, where there is a reduction in arrangement fees, valuation costs and/or legals when you use both products with the same lender. This can mean that you’re not paying out as much, and may therefore mean it’s a lower cost option to private investor funds for example.

As always, it does depend on your circumstances and the project you are looking at so please feel free to give us a call and chat it through.

Straight forward bridge or borrow the refurbishment costs too?

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This is a question which has come up a lot recently so I thought I would try and untangle some of the pros and cons of both options. It is very case specific but hopefully this will help you think about some of the other considerations rather than the interest rate alone!

When does a simple bridge work? 

The most common scenarios for when you most likely to use a standard bridge are:

  • When the cost of your works is less than about £50,000 as you will always need some working capital so it really doesn’t add much benefit to you
  • When you have the funds available for the refurbishment for little or no cost and don’t mind having this money tied up (ie. no other projects on the horizon!)
  • When you need the maximum loan (usually 75%) on day one

There are benefits to doing it this way round too:

  • The overall costs are lower, not only because you are borrowing less. There are QS or asset manager costs associated with refurbishment bridges and there can be an exit fee.
  • You will usually get a higher loan on day one as we can usually get to 75% and all the lender fee on top of this.
  • You are more likely to have the option to service the loan (pay the interest monthly) if you want to and are able to. This does increase the amount you receive initially.

So how does a refurbishment bridge work in comparison? 

A refurbishment loan allows you to borrow the costs of works in arrears as well as a percentage towards to the purchase.  You may end up with slightly less on your day one loan, but his does depend on the project and how the figures work. You will always need capital to start the works, and as you spend that it will be reimbursed. The drawdown interest is estimated at the beginning based on the lender’s experience of how draw downs generally work (amounts and timings) and then paid on redemption of the loan.  Your broker will know how each lender works in terms of payment for QS for example.

Benefits of a refurbishment bridge?

  • You can borrow far more money, so less for you to put in
  • You only pay interest on the amount you have borrowed and this is calculated daily. This is a big one! You don’t pay interest on the whole amount, only as you draw it down, which can save about 40% of the interest costs if you borrowed the full amount for the full term.
  • This can mitigate the other costs, such as an increased arrangement fee and QS or asset manager fees

Clients are often put off by an exit fee and QS, but looking at the overall cost is so important here.

So what types of projects work for refurbishment bridges? 

  • Heavy refurbishment projects such as conversions to flats or HMOs
  • Commercial to residential conversions
  • Large scale refurbishments of single dwellings

But what about planning I hear you say! There are instances that we can complete without full planning. It’s a case by case basis, but if we have a favourable pre app or an alternative use with the current planning then that can work. We can also buy the property on a bridge and then switch to a refurbishment bridge once planning is granted to save you money and add some additional time in.

As always, give us a call if you want to talk through your options. And don’t forget we’ve got plenty of time to get these sorts of cases completed before the stamp duty deadline.

Completions are still possible within the stamp duty deadline

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Happy Friday everyone. 14 weeks till the end of lockdown, so hang in there…

This week I’ve got a case study on an auction case I just completed.  Its very poignant at the moment given the extension to the stamp duty deadline until June and then September for lower value properties.  Either way, its something towards your SDLT bill!

As we all know, the conveyancing side of property purchase is carrying all the weight at the moment.  That said, this shows that with the right team, we can still achieve the completion inside the 28 days.

The auction was on 12th February.

We didn’t know if the SDLT discount would be extended and lawyers are close to breaking point.  When the client confirmed his bid was successful, he didn’t even  have a lawyer!  I’m not sure he was expecting to win the bidding as so much was selling for well over the asking price.

The client worked within the military and most days was out of any communication. Some late nights were required, and as you know we are more than happy to accommodate where we need to.

The earliest valuation appointment was 22nd February.

The important thing was making sure we had the right solicitors. And solicitors who trust the broker and communicate effectively. A bit of coercing was required to get my favourite go to solicitor to act for our client.  It makes such a positive difference when we know how we both work, so we can manage any bumps. So thank you Heinrich Ferreira at Pure Law and Phillip Adam at Hooper Burrowes Legal, it made all the difference!

Trusting the lender to be able to achieve this is also really important.  Our reputation is on the line, so whoever we choose has to deliver.

We also chose Appraisers over VAS to organise the valuation – again, they are good communicators and even chased over a weekend to get the report back.  They pushed and chased to get the valuation booked in when we needed it to be when we all the surveyors were so busy and had a limited availability.

The property was pretty straightforward, but the clients address history was not. Due to working with the military, combined with COVID, it needed a common sense underwriter to understand the situation and what proof was acceptable and available.  Mark Whitburn and Joseph Lethbridge at  Shawbrook we absolutely on it, despite high business volumes.

This was probably our smoothest auction case in a while.

As always, really think about the route of least resistance. Although we can always dip into the 10 days right to complete, it is not without cost, usually on the stress plate and something we rarely do or like to do.  Chasing a low rate can end up costing you in other areas

Any questions, as always, just call.

Focus on HMOs: Hybrid Valuation and Specialist Lender

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Focus on HMOs: Do you need a hybrid valuation and why do you want a specialist lender?

So here we are at Friday again – for many of us the Friday we have been waiting for! We’ve also had a solid budget this week, with an extension to the stamp duty relief which is great news.  With all this, as well as a clear roadmap out of lockdown, it does seem like there is some vibrancy to the market this week.

I’d like to talk about HMOs this week.  It’s a hot topic at the moment and we have had many enquiries asking about how to value properties and what rates we can do.  These conversations don’t always go the way clients expect though, so I thought I’d explain it in a bit more detail.  As you know we are big believers in looking at the bigger picture and not chasing low rates so this should help explain why.

Do you need a Hybrid valuation or will a bricks and mortar work?

Before we go on to hybrid and bricks and mortar methods, I just want to mention commercial valuations.  The words ‘commercial valuation’ are used a lot in the property world, and not always correctly.  The lender decides on the type of valuation we use, so we can’t request what to have; and no, it doesn’t always mean a yield-based valuation!  We would only be able to use a commercial valuation for HMOs where it is 7 bedrooms or more.  There will always be a ceiling price for a property in an area based on the location, size, condition and demand and that needs to be taken into account when looking at the yield calculation.  It’s really important that as investors you do the same to be as accurate as you can.

Hybrid valuations are also something that I don’t believe are explained very well a lot of the time!  It is something that some lenders allow, but it is up to the valuer to decide what that means and what the figure would be.  I have written a blog on it here, but what I wanted to talk about today is whether it is important to you and your property.

I am a big advocate of using a hybrid valuation, but there are only a few lenders who truly use it, and it is more expensive.  So do you need it? 

If you have spent a significant amount on your refurbishment, and the total cost (refurbishment and purchase price) is significantly higher than the bricks and mortar comparables then it is worth exploring, but if not then it may not be.  I have had examples recently in Suffolk and Kent where the bricks-and-mortar value is significantly higher than the hybrid calculation, but areas in and around Manchester, for example, have lent themselves to a hybrid model.  It allows you to pull out what you have spent on the property when that figure is more than the bricks and mortar.  We do sometimes see the elusive ‘no money left’ situation sometimes, but that is rare, especially at the moment.  When we have seen it is where the client has done really well negotiating on the purchase price and they have made the extra money before they have even started works – you can only get this back out on a refinance through.

So why would you want to use a specialist lender?

There are so many benefits to using a true specialist lender.  Their rates will be higher than the ‘specialist side of vanilla’ lenders, but as you know we are big believers in looking at the bigger picture:

  • They work with property investors regularly, so they understand that your income may be low due to carrying forward losses.  There are generally no minimum income requirements as long as the situation makes sense
  • The required documents that you need to provide are simple and straightforward.  There is no new list once the initial requirements have been satisfied!
  • We are able to speak to the underwriter directly, so if there are any issues then they are usually quickly resolved with a phone call.  We have a good relationship with our lenders so are able to pre-empt any potential issues a lot of the time and have a good idea of what will work and what won’t.
  • They are far more open to investor funds, which is a big deal at the moment.  I have mentioned previously that there is plenty of money within the property world, with private investors looking for better returns than they can in bank savings.  There are also plenty of bounce-back loans within the property investor community, and both of these options aren’t acceptable to many less specialist lenders.  Even having a BBL in your account could present a problem, so if you want to take advantage of these funds then you need to know where to go.
  • You have far more choices of how to structure your limited company in terms of SIC codes, the number of directors/shareholders, and group structures.  Often specialist lenders have restrictions around this that can cause issues with the way your company is set up.

As always, if there is anything you want to chat through then give us a call.  Enjoy your weekend – the evenings are lighter and things are definitely on the up!