Specialist Finance
PK Mortgages - Specialist Finance
At PK Mortgages & Protection Advisor, we recognise that our clients have increasingly varied and diverse scenarios, personal situations and aspirations. We developed strong partnerships with a range of specialist lenders who are able to cater for this broad range of client needs..
We have seen a number of specialist lending categories evolving rapidly in recent times, including bridging finance, auction finance, second charge loan, commercial lending and development finance.
We’ve worked hard to build an excellent reputation for finding practical solutions to challenging client requirements. Our network of lenders ranges from the little-known specialist departments of some large high street lenders to challenger banks and smaller bridging providers. We are also constantly scanning the market to ensure we are abreast of new lenders and new products innovations.
Whether you are acquiring a commercial unit with flats above, refinancing a hotel, facilitating the expansion of a rental portfolio, buying a property to develop, or simply completing on a purchase before selling your existing property, we will help you explore your options and find the best solution.
Bridging loan/finance
A bridging loan is taken out to ‘bridge’ the gap between the purchase of a new property and the sale of an existing one. It can also be used to purchase a property in need of renovation to a standard that is acceptable to a mainstream lender, who will then repay the bridging loan. Bridging loans are generally short term and almost always taken out on an ‘interest only’ basis. While you can make repayments monthly, the lenders are happy for the borrower to make no repayments for the duration of the loan and repay it all at the end of the term.
Some bridging loans are not regulated by the Financial Conduct Authority. Your home or property may be repossessed if you do not keep up with mortgage repayments.
Frequently Asked Questions for Bridging Loans
What are first-charge and second charge bridging loans?
Whichever bridging loan you agree to, the lender will put a ‘charge’ on your property. This means they will be able to take repayments from the property sale if you fail to repay the loan.
First charge bridging loan: bridging loan lender uses this when you do not have other loans secured on your property, such as a mortgage. It means that the lender will get their money first if you cannot repay your loan.
Second charge bridging loan: This is used when you already have a loan or mortgage against your home. This means that if you fail to repay the loan and your home is sold to cover this shortfall, the bridging loan lender can only take repayment after the mortgage provider has recovered its costs.
Second-charge loans cost you more than first-charge loans as the second lender might not get their money back if you fail to keep up with the repayments.
It is important to note that your mortgage provider needs to consent to a second-charge loan.
What can I use a bridging mortgage or loan for?
Bridging loans can be used for a variety of reasons.
Renovations: If you are purchasing a property that is not suitable for a mortgage (due to its condition) but are funding a renovation, a bridging finance loan can transform a non-viable purchase into an opportunity.
Buying a property at auction: Typically, a buyer must complete within 28 days of an auction purchase. This might be challenging with a standard mortgage, especially if the property needs work. Bridging finance on a property gives you the money quickly.
Fixing a broken property chain after a sale falls through : A bridging loan can fix a broken chain as you will not need to rely on the sale of your home to complete on your new property.
Investing in a buy-to-let:A bridging loan lets you act as a ‘cash buyer’ or buy a property ready to ‘flip’ for a profit.
Can businesses use bridging loans?
Businesses can use commercial bridging finance loans for virtually anything. However, as these loans have high interest rates and are only designed for short-term financing, they are usually used for large purchases like property. For example, if you are a property developer, you might use a bridge loan to buy land quickly.
How does a bridge loan work?
“Bridging loans are secured loans, so they work in the same way other secured loans do. The amount you can borrow depends on how much your security is worth (i.e., the value of your home).
Bridging loans can last anywhere from a month to three years, but most bridging lenders will not let you borrow money for longer than 18 months. If you need longer than this to pay back the capital, you might want to consider other forms of finance such as a long-term personal loan.
As with all loans, you are charged monthly interest. You will need to pay this each month or as a lump sum at the end of the loan.
It is worth remembering that the longer you have your loan, the more interest you will need to pay, so it is better to repay the loan before the term ends to save money.”
How much can I borrow with a bridging loan?
The amount you can borrow with a bridging loan depends on your current financial situation and your credit history. You can usually borrow up to 80% loan to value (LTV) of the property you are buying. You can normally borrow more for a first-charge loan than a second.
How much does a bridging loan cost?
Bridging loans often work out more expensive than other types of loans. Open bridge loans are the most expensive.
Bridging finance rates vary by provider but will range anywhere from 0.5% to 2%. Although this sounds like a low interest rate, it is important to remember that these bridging finance interest rates are charged monthly. This means that the difference between a 0.5% interest rate and a 2% interest rate can be significant. You will also need to pay additional fees such as:
Arrangement fees
Legal fees
Valuation fees
Exit fees (for early repayment)
Administration fees
Development finance
Development finance is used to build a new property or convert an existing one. It covers residential houses, shops, offices and industrial buildings, and can be used for investment purposes or owner-occupied properties. It can be taken out by a first time or experienced developer or builder. The maximum you can borrow to purchase the site is anywhere between 50 to 65% of the purchase price, depending on the project.
It is also possible to borrow up to 100% of the build cost if it is within 60 to 70% of gross development value (GDV). The maximum borrowing term is 12 to 36 months. The exit strategy is usually the sale of the property or switching to a mainstream mortgage’s product.
Frequently Asked Questions for Development Finance
What is development finance?
Development finance is a type of financing used to fund property development projects, including residential housing and commercial buildings. It’s sometimes also referred to as property development mortgages or developer loans. It typically consists of short-to-medium-term secured loans with high interest rates and a drawdown facility.
What can property development finance be used for?
Development finance is a bespoke solution, so how you use the funds will depend entirely on the nature of your project. Common uses include:
- Land acquisition
- Construction costs
- Conversion of existing buildings
- Renovation or refurbishment of existing properties
- Infrastructure costs
- Marketing and selling costs
- Professional fees
- Working capital to cover costs during development
How does property development finance work?
The way development finance works is different from other types of loans in a few key ways.
Approaching lenders
Traditional banks typically view development finance as a high-risk, specialised form of finance, so it’s better sourced from a specialist provider.
It’s best to enlist the help of experienced brokers when approaching specialist lenders. They will usually only initially speak with brokers as intermediaries. Brokers can also help you put your best foot forward, streamline the application process and secure more favourable terms.
Receiving funding
After the initial release, the lender releases the funds in phases, typically corresponding to key stages of the development process. This prevents you from paying interest on funds you can’t spend yet and gives you the flexibility to keep your costs down as your project unfolds, while also allowing the lender to monitor the progress of your project.
Auction finance
When purchasing a property at auction, you often have to complete the sale within 28 to 56 days. On the fall of the auctioneer’s gavel, you are exchanging contracts which are legally binding. You are also required to put down a non-refundable deposit immediately. If buyers are unable to complete the purchase there can be steep penalties, legal action and the risk of compensating out-of-pocket sellers. As time is critical, auction finance can be an ideal way to secure the purchase until a more permanent form of finances such as a mortgage can be arranged.
Frequently Asked Questions for Auction Finance
- When purchasing a property at auction, you often have to complete the sale within 28 to 56 days. On the fall of the auctioneer’s gavel, you are exchanging contracts which are legally binding. You are also required to put down a non-refundable deposit immediately. If buyers are unable to complete the purchase there can be steep penalties, legal action and the risk of compensating out-of-pocket sellers. As time is critical, auction finance can be an ideal way to secure the purchase until a more permanent form of finances such as a mortgage can be arranged.
Second Charge loan
A second charge loan is a type of loan that is secured against the equity in your property, sitting behind your first (primary) mortgage. It’s an option for homeowners who need additional funds but prefer not to alter their existing mortgage. Second charge can be secured on Residential and BTL properties.
Frequently Asked Questions for Second Charge Loan
Why do people take second charge loans?
Home Improvements
If you’re thinking about renovating your property or adding an extension, a second charge loan can give you the funds you need for bigger projects. These improvements could potentially increase your property’s value, making it a long-term investment. Many homeowners use this type of loan to update kitchens, bathrooms, or add extra living space like loft conversions or home offices.
Debt Consolidation
A second charge loan can be used to combine multiple high-interest debts, like credit cards or personal loans, into a single loan with a lower interest rate. This could help reduce your monthly repayments and make managing your debt easier. It also gives you a more structured way to pay off what you owe over time.
Education Costs
If you’ve got large university tuition fees or private school bills, a second charge loan can help spread the cost. This can be especially helpful if these fees come all at once, making it easier to pay for your or your children’s education without affecting day-to-day finances.
Business Investments
You might be considering starting a new business, expanding an existing one, or covering day-to-day business costs. A second charge loan can provide capital for these investments without needing to apply for a business loan, which can sometimes be harder to secure.
Large Purchases
Whether you’re looking to buy a new car, a holiday home, or finance another significant purchase, a second charge loan can offer the funds you need upfront. Spreading the cost of large purchases over the loan term could make it more affordable than paying all at once, especially if you’re unable to use a typical loan or credit arrangement.
Tax Bills
If you’re hit with an unexpected tax bill, such as a large income tax payment or inheritance tax, a second charge loan could help cover the cost. This can be useful if you don’t have immediate access to cash but need to pay off the bill quickly to avoid further penalties or interest from tax authorities.
Key Features of Second Charge Loans
Security
The loan is secured against the equity in your property, which means your home is used as collateral. This loan is considered a “second charge,” so if you already have a mortgage, the lender of this second loan will rank behind your first mortgage lender. If your property is sold, the first mortgage is paid off first, followed by this second loan.
Interest Rates
Interest rates for second-charge loans are generally higher than those for first-charge mortgages. This is because the lender faces more risk. If you default and the property is sold, the first mortgage must be cleared first, meaning the second lender has less security and could get back less of what they are owed.
Loan Amounts
The amount you can borrow varies widely, depending on the equity you have in your property. Equity is the difference between the value of your property and what you owe on your mortgage. Lenders usually only allow you to borrow a percentage of this equity, so the higher the equity, the larger the potential loan.
Term Length
The length of a second-charge loan can range from just a few years to several decades, depending on the lender and the agreement. Shorter terms mean higher monthly repayments, while longer terms can make the monthly payments lower but could mean paying more interest over time.
Priority in Default
If you default on repayments and your property is sold, the money from the sale will first go towards paying off your first mortgage. Only after that is paid will the second-charge lender receive their payment. This is why second-charge loans are considered riskier for lenders.
Repayment Structure
Repayment options for second-charge loans can vary. Some lenders offer interest-only payments, where you only pay the interest each month and the full loan balance is repaid at the end of the term. Others offer plans where you pay off both the loan amount and interest over time, so by the end of the term, the loan is fully repaid.
Why Use a Second Charge Loan?
Retain Existing Mortgage Terms
If your current mortgage has a low interest rate, or if you would face high penalties for early repayment, a second charge loan allows you to borrow more money without having to change your first mortgage. This can be useful if you’ve locked in a good deal on your first mortgage and don’t want to risk losing those favourable terms by remortgaging.
Insufficient Further Advance
Sometimes your existing mortgage lender may not be able to offer you enough money through a further advance on your current mortgage. In this case, a second charge loan can bridge the gap, giving you the extra funds you need while keeping your primary mortgage unchanged.
Higher Loan Amounts
Since second charge loans are secured against your property, they often allow you to borrow more than you could with an unsecured personal loan. This can be helpful if you need a significant amount of money for things like home renovations, debt consolidation, or large purchases, and a personal loan wouldn’t provide enough funding.
Commercial
Lender Requirement
Equity
To qualify for a second charge loan, you need to have enough equity in your property. This is the difference between your home’s current market value and the remaining balance on your mortgage. Lenders usually look for a combined loan-to-value (CLTV) ratio — this includes both your first mortgage and the second charge loan — of no more than 85-90%. For example, if your home is worth £200,000, and you owe £150,000 on your mortgage, you may be able to borrow up to £30,000 to £40,000, depending on the lender’s criteria.
Credit History
A good credit history often improves your chances of securing a second charge loan at better rates. Lenders want to see that you’ve managed past debts responsibly. However, some lenders offer second charge loans to people with less-than-perfect credit.
Proof of Income
To ensure you can repay the loan, lenders will require proof of your income. This could include tax returns or bank statements showing regular income if you’re self-employed. They use this information to check that your income is stable enough to cover the repayments on top of your existing mortgage.
Consent from First Charge Lender
Before you can take out a second charge loan, your first mortgage lender must be informed. In most cases, the first lender’s consent is required because the second loan affects the overall security on the property. The first lender needs to agree that, in the event of a sale or default, they remain the first to be repaid.
Valuation
A professional valuation of your property is needed to determine its current market value. This allows the lender to calculate how much equity is available for the second charge loan. The valuation ensures the loan is based on up-to-date figures, which helps both you and the lender understand the risk involved.
Affordability Assessment
Lenders will conduct a thorough review of your financial situation to ensure you can afford the extra debt. This includes looking at your income, current outgoings, and any other debts. They also stress-test your finances to see how you’d manage if interest rates were to rise. This assessment is done to prevent you from taking on more debt than you can realistically manage, keeping both you and the lender protected.
There are two types of commercial mortgages:
Semi commercial
These are for shops with residential flats above.
Full commercial
These cover offices, warehouses, pubs, factories, land, certain buy to lets, guest houses, farms, care homes, schools, football and other sports clubs, hotels.
As with any other financial product, commercial mortgages depend on the lender’s belief that the loan will be repaid without difficulties. They can be split in the following ways:
Owner occupied
The accounts for the business will be scrutinised by the lender to ensure the borrower will not struggle to make the monthly repayments.
Investment
The monthly payments on the mortgage will generally be covered by the rental payments received from the tenant. The lender will carefully review the comments made by the valuing surveyor so that they are satisfied that the expected rent plus buffer will easily cover the monthly mortgage payments, that the property is in a sought after location for prospective tenants and that the condition of the property will allow immediate occupancy, should the property not already be let.
Commercial Property Loans can additionally be used for business expansion or improvements to a property, or even to help with relocating the business.
You can often borrow up to 70% of the property value, sometimes more where the potential rental yields are high.
If you require the best commercial or semi-commercial mortgage rates and advice, we will be happy to assist you.
“Your home may be repossessed if you do not keep up with repayments.”