Beating the deadline with bridging
Jonathan Sealey is chief executive of Hope Capital
So, what is stamp duty land tax (SDLT)? Stamp duty is a tax charged when anyone buying a property or piece of land over a set price has to pay a mandatory charge.
However, the taxable amounts vary depending on whether the buyer is someone purchasing a residential property as their primary UK residence, or whether it is instead a second home or for investment.
A stamp duty holiday was introduced by the Chancellor on 8 July 2020, as part of an economic response to the COVID-19 pandemic, to help boost residential property transactions.
From 8 July 2020 to 31 March 2021, the zero-rate threshold for those purchasing a residential property, increased from £125,000 to £500,000, meaning there was a significant cost saving for anyone purchasing a residential property.
In his Spring Budget, the Chancellor then extended the help available until 30 September 2021, albeit the limit was then reduced from £500,000 to £250,000.
There is a higher rate band on properties that are NOT going to be the purchaser’s primary residence, such as an investment property.
Put simply, investors can still benefit from the no base stamp duty rate up to £250,000 until the end of September 2021, as they still only have to pay the “higher rate” on property purchase.
This stamp duty holiday has revitalised the property market, with investors and developers rushing to get deals over the line and as a result, house prices have risen rapidly.
Now, with the September 2021 stamp duty deadline already fast approaching, the trend of buyers racing to complete their deals to ensure they do not miss out on the tax break continues – potentially helping them save a significant amount of money!
This surge in demand has resulted in a bottleneck of cases and therefore mainstream mortgage lenders are feeling overwhelmed by the demand. That is where bridging finance comes to the rescue.
In that respect, a bridging loan is becoming an increasingly popular solution for investors and developers to consider if they want to beat the deadline in time.
Bridging finance can be used by property investors and developers in a wide range of situations. There are many reasons why people choose to take out a bridging loan.
Bridging loans solve problems for buyers because they offer many advantages, with one of the main features being the speed of application and turnaround time in receiving funds.
So, how quickly can someone get a bridging loan? In most circumstances, bridging lenders are able to arrange finance much quicker than mainstream lenders, often in days or weeks rather than months.
This is ideal for buyers looking to beat the September 2021 stamp duty deadline, especially with it currently taking significantly longer for sales to complete.
With property chains moving slower than usual, a bridging loan can be used to help speed this up. Bridging lenders, such as Hope Capital, are experts in processing applications under extreme time constraints as they are used to working to tight deadlines.
For example, bridging lenders are regularly approached by brokers who have clients looking to secure a property at auction, which usually has a 28-day completion limit!
A bridging loan can be used to ensure the investor or developer completes before the property chain is broken. Subsequently, once the buyer has completed their purchase with the help of bridging finance they can then refinance onto a traditional mortgage and repay the bridging loan, plus the other costs involved that way.
Alternatively, the borrower can redeem the loan by repaying the capital back at the end of the loan term or refinance onto another short-term loan. Either way, it completely depends on what is the most appropriate option for the borrower.
In the context of the looming September 2021 stamp duty deadline, bridging finance is a sensible decision for investors and developers to consider, especially with the average time it takes to complete a property purchase using a traditional finance option, currently being approximately three months.
While bridging finance is still an unfamiliar term for many, the sector is versatile, transparent and diverse. Hope Capital will work closely with brokers and their clients to ensure they can take advantage of the stamp duty deadline.
Hope Capital is renowned for being a highly flexible lender and is dedicated to delivering a solution quickly and efficiently. The short-term finance firm provides an excellent service and support to brokers and their clients from initial enquiry through to completion.