Archive for January, 2016

Question: What Are Bridging Loans?

Tuesday, January 19th, 2016

The first question asked by many individuals when undertaking any area of property based finance is what are bridging loans?

Bridging finance products are a relatively unknown and complicated area of property finance but once understood it can be easy to see that the facility provided has many benefits over traditional forms of finance provided by the high-street banks.

So what are bridging loans? Bridging loans are financial products used mainly by property developers as a short-term facility that can be actioned quickly to raise finance on a property asset. The loan is usually secured as a first or second charge on the asset in question and should only be obtained for a short-time period with a clear cut exit to repay the loan.

Bridging facility products can be far more riskier and cost a lot more to take out than high street finance and most people go down the bridging finance route when their banks simply will not lend on the terms they wish, bad credit situation, or if you want to buy a poor condition below market value property for a property investment for which you would be unable to get a high-street mortgage.

Bridging products are offered as a loan against the value (LTV) of your property, with most companies offering the facility at 85-75% of market value. Most of the largest principle lenders in the UK can provide as low as £25, 000 with a view to lending maximum £25 million for the right project.

Bridging finance is provided from private clients funds usually from principle lenders in the UK, the top firms have vast funds for bridging and are usually backed by large institutions, wealthy high-net individuals or commercial banks.

Most bridging lenders will pick and choose what they will lend against and for how much they are willing to lend. Some lenders will only lend within the prime spots in the area. (major cities and metropolitan centres). So now we know the answer to the question what are bridging loans, we need to find a summary of what can they be used for.

Typically a bridging loan is used for one or more of the following:

• Property renovations
• Auction property buying
• Unexpected tax bills
• Land acquisition/refinance
• Home Improvements
• Short-term cash flow problems

And for many other reasons.

Bridging Finance is usually categorised as full status lending or non-status. Full status means you have to be a credit worthy individual and non-status means they lend to people with adverse credit.

Most of the bridging finance provided is done through non-status finance products as this should be the only reason to use secondary banks such as bridging lenders.

If you were an A class credit rated individual/business you would simply go to your bank and speak to your relationship manager to borrow the funds on a short-term basis.

Non-status bridging finance is when a loan is issued based solely on the project, there are no credit scores/checks that would affect the lenders decision. Non-status bridging finance is ideal for individuals with low credit scores, ccjs, arrears and credit defaults.

What Are Mutual Funds and Different Types of Mutual Funds

Tuesday, January 19th, 2016

Mutual funds are a type of certified managed combined investment schemes that gathers money from many investors to buy securities. There is no such accurate definition of mutual funds, however the term is most commonly used for collective investment schemes that are regulated and available to the general public and open-ended in nature. Hedge funds are not considered as any type of mutual funds.

Mutual funds are identified by their principal investments. They are the 4th largest category of funds that are also known as money market funds, bond or fixed income funds, stock or equity funds and hybrid funds. Funds are also categorized as index based or actively managed.

In a mutual fund, investors pay the fund’s expenditure. There is some element of doubt in these expenses. A single mutual fund may give investors a choice of various combinations of these expenses by offering various different types of share combinations.

The fund manager is also known as the fund sponsor or fund management company. The buying and selling of the fund’s investments in accordance with the fund’s investment is the objective. A fund manager has to be a registered investment advisor. The same fund manager manages the funds and has the same brand name which is also known as a ‘fund family’ or ‘fund complex’.

As long as mutual comply with requirements that are established in the internal revenue code, they will not be taxed on their income. Clearly, they must expand their investments, limit the ownership of voting securities, disperse most of their income to their investors annually and earn most of their income by investing in securities and currencies.

Mutual funds can pass taxable income to their investors every year. The type of income that they earn remains unchanged as it gets transferred to the shareholders. For e.g., mutual fund distributors of dividend income are described as dividend income by the investor. There is an exception: net losses that are incurred by a mutual fund are not distributed or passed through fund investors.

Mutual funds invest in various kinds of securities. The various types of securities that a particular fund may invest in are mentioned in the fund’s prospectus, which explain the fund’s investment’s objective, its approach and the permitted investments. The objective of the investment describes the kind of income that the fund is looking for. For e.g., a “capital appreciation” fund generally looks to earn most of its returns from the increase in prices of the securities it holds rather than from a dividend or the interest income. The approach of the investment describes the criteria that the fund manager may have used to select the investments for the fund.

The investment portfolio of a mutual fund’s investment is continuously monitored by the fund’s portfolio manager or managers who are either employed by the funds manager or the sponsor.

Advantages of Mutual funds are:

1) Increase in diversification.

2) Liquidity on a daily basis.

3) Professional investment management.

4) Capacity to participate in investments that may be available only for larger investors.

5) Convenience as well as service.

6) Government oversight.

7) Easier comparison

like its advantages, the Mutual funds have disadvantages too. Here are some of them:

1) High fees.

2) Less control over timing of recognition of gains.

3) Much lesser predictable income.

4) No opportunity for customization.

There are different types of Mutual funds as well. Here are some of them.

Open-end funds

In open-end mutual funds, one must be willing to buy back their shares from investors at the end of every business day at the net asset value that is calculated for that day. Most of the open-end funds also sell shares to the public on every business day. These shares are also priced at a particular net asset value. A professional investment manager will oversee the portfolio, while buying or selling securities whichever is appropriate. The total investment in the funds will be variably based on share buying, share redemptions and fluctuation in the market variation. There are also no legal limits on the number of shares that can be issued.

Close-end funds

Close-end funds generally issue shares to the public just once, when they are created via an initial public offering. These shares are then listed for trading on a stock exchange. Investors, who don’t wish any longer to invest in the funds, cannot sell their shares back to the funds. Instead, they must sell their shares to another investor in the market as the price they may receive may be hugely different from its net asset value. It may be at a premium to net asset value (higher than the net asset value) or more commonly at a lesser to net asset value (lower than the net asset value). A professional investment manager will oversee the portfolio, in buying or selling securities whichever is appropriate.

Unit Investment Trusts

UIT or Unit Investment Trusts issue shares to the public just once when they are created. The investors in turn can cash in on the shares directly with the fund or they may also sell their shares in the market. UIT’s do not have any professional investment managers. Their portfolio of securities is established by the creation of the UIT’s and does not undergo any changes. UIT’s in general have a limited life span, which is limited at their creation.