What can you use a Large Loan for

A large loan can come in many shapes and sizes, all depending on what you need them for. However, the type of large loan that would work best for you is all dependant on your personal circumstances and what you plan to do with the loan

Defining a large loan is also tricky. For some people a large loan could be £30,000, £40,000 or £50,000. For others, a large loan could be £250000 or £500000. Consequently there are many options to consider depend on your requirements and circumstances as follows:

Choose an option below to skip to that section

• Large Mortgages / Buy to let Mortgages
• Large Buy to Let Mortgages
• Large Secured Loans
• Large Unsecured Loans
• Large Business Loans
• Large Bridging Loans

Large Mortgages

What is a Mortgage for purchase?

A mortgage is a loan taken out that allows you to buy property or land. Most mortgages run for around 25 years, but this is dependant on the lender as well as your circumstances. As a mortgage is used to buy an asset such as property, the loan is secured against this asset. This means that the asset is then at risk if you are unable to keep up with the mortgage payments.

What is a remortgage?

A remortgage is used to refinance a property you already own. You could own the the property outright or there may be a more in place already. Often a remortgage is used simply to change the product or get a better rate of interest, without additional borrowing. However, more often, borrowers take the opportunity to raise extra cash for a variety of purposes.

How much could you borrow against your home?

The definition of a large mortgage depends on the particular lender you are talking to. Lots of lenders consider a large mortgage to be above £500,000. You are able to borrow up to £2 million in some cases, and depending on the lender maybe more. However, the amount you can borrow depends on your circumstances.

With regards to the loan to value available to you, most lenders will normally offer between 60% to 85% of the value of the property.

Generally, the smallest deposit that lender would accept is 5%. However lenders offering 100% mortgages do occasionally enter the market when the economy and property market is favourable. But, these products are reasonably rare, with 15% being much more prefered. However, as with any mortgage, the bigger the deposit you can offer the more likely it is that you will be offered a better deal. The bests deals from tenders tend to be for loans below 60% loan to value.

This video will help you understand the main issues lenders look at.
Getting prepared can help you get better deals or larger loan amounts.

Potential Issues

With any large loan or larger mortgages, there are larger risks for the lender. As well as credit worthiness and ability to afford the mortgage. these can include the property itself.
Is it mortgageable in the first place, and so has a working kitchen or bathroom? Where is it located and could that affect saleability? If it is a large property it could have restricted saleability as less people can afford it.

Often, particularly outside the southeast, Larger properties may come with land and outbuildings. Not every residential lender has an appetite for this, especially if the buildings or land are used for any commercial purpose. Knowledge of these factors comes from experience which is why the help of a whole of market mortgage specialist is vital.

Large Loan for Buy to Let Properties

What are Buy to Let mortgages?

Buy to let mortgages are loans that are specifically designed to allow borrowers to purchase or remortgages a residential property which is / will be rented to a third party. Remortgages are very common after renovation to help landlords to release cash. This cash is then often used as a deposit to help for another purchase to help build their portfolio.

How much could you borrow

Buy to let mortgages can be very similar to a regular residential mortgage with regards to the basic requirements. However, in most cases the requirements are much stricter. Because the primary source of repaying the mortgage will be the property you are purchasing, you will have to prove that the property will generate enough income to cover repayments. However, the projected income of the property may not be enough after the lender puts it under stress tests. These simulate worst case scenarios, allowing the lender to safeguard their investment.

There are two main stress tests

Interest coverage ratio.

This test checks whether you will be able to keep up with repayments if the interest rate is higher. The increased interest rate is usually either 1.5% to 3% more than your current interest rate, normally whichever is higher. A way to overcome this is to consider a five year fixed rate. Because the rate is fixed for this long, the lender no longer needs to allow for increases in base rates. Therefore the interest coverage ratio isn’t applied. However alway speak to an adviser and don’t assume this is best for you.

Rental cover.

In this test, lenders will test whether the property will be able to generate enough income to cover repayments if the property was not rented for a number of months. For example, if your monthly repayments are £6,000, the lender could apply rental cover of 150%. This means that you will have to prove the property will generate £9,000 to cover the potential interest rates. The size of the rental cover is dependant on the lender, sometimes going up to 165%. Most lender however, apply a cover of 125% on residential property.

The actual amount that you would be able to borrow on a residential mortgages is dependant on a wide range of factors. These can include the property, your own circumstances and the lenders you choose. Mortgages should always be offered on a fully advised basis. It makes sense to talk to an adviser who covers the whole market. Not a single lender or restricted number of lenders.

To find out how much you could borrow the best step is to get in touch with an adviser.

Large Secured Loans

Secured loans are loans that are offered against a substantial asset that you have equity in. For example, if you apply for a loan of £30,000, then the lender will require collateral valued at more than £30,000 in return. This could include your car, or various assets, but in most cases it’s your home. This means, just like a mortgage, if you fail to keep up with payments then the lender could repossess your home. However they are required to follow a process to prevent repossession wherever reasonably possible.

In the context of most peoples understanding of secured loans, they are normally secured against a residential property. They are also registered a second charge on the property ranking behind the existing first mortgage. If the property is sold, the first mortgage is repaid in its entirety first. Then the secured loan. Hence they are commonly now referred to as second charge loans.

How much could you borrow

Large secured loans can take all shapes and sizes, with different lenders deeming different amounts as “large”. The sweet spot for secured loans is from £ 30,000 to £50,000 and more recently up to £100,000. However, in theory, a secured loan could be granted for £2 million.

Once you get too much higher loan amounts, the argument for a remortgage becomes much stronger. However there are pros and cons which is why the advice of an expert is so important.

As with all secured lending, the amount you can borrow is going to be very closely linked to equity and affordability. In equity terms, the larger the property the larger the amount of loan. However, lenders can be nervous of large value properties and start to reduce the LTV for property values over a certain amount EG £1million.

Obviously, the larger the loan, the larger the disposable income needs to be to support the loan. In the case of a residential house, this will be simply linked to the owners net income less their standard outgoings to provide a surplus of available to support the loan. With residential buy to let properties, the lenders will look to the rent from that property to support the repayments on the loan. In both cases, this is after applying the lenders own stress tests or income coverage calculations.

Large Unsecured Loans

Unsecured loans are loans that are offered without the need for collateral. Instead, you only have an agreement with the lender to pay back the loan over a certain period of time in regular instalments. Because the loan isn’t secured against anything, interest rates tend to be higher than secured loans. The assessment of your ability and likelihood of repaying the debt are based more on credit scores. This makes low cost unsecured loans difficult to obtain for many people. Additionally, as the lender has no security, the loan amounts tend to be capped. Depending on the lender, personal unsecured loans could be kept at anywhere between £7,500 and £30,000. For some people, that may not sound like a large loan. For others it is plenty.

Large Business Loans

Commercial mortgages

Generally, most lenders will only offer larger business loans if they are secured. This could therefore be a mortgage to purchase commercial property or a remortgage of property already owned. Typically, commercial mortgages are limited to 75% LTV which is based on the vacant possession value of the property. However, in certain sectors lenders will include the Good Will of the business and consider it as security enabling higher levels of borrowing. For example doctors and dentists could qualify for mortgages to purchase 100% of the value of the building plus further borrowing to cover the value of the business. Business finances are very specialist sector where the assistance of an expert should be sought.

Unsecured business loans

There are lenders which will lend up to £500,000 to established businesses with a good credit history and strong trading accounts. The directors or owners of the business also need to have a good credit history. The term of the loan is often restricted to around seven years. For a large loan this can make the repayments very high. However, a few lenders will consider large unsecured business loans of potentially £ 500,000 over terms of up to 20 years. Whilst the loan is technically unsecured, business owners should be prepared for lenders to ask them to provide personal guarantees for the debt. This means if the business defaults on the loan, the directors or owners of the business become personally liable.

Large Bridging Loans

A bridging loan is a form of finance that is paid back over a short period of time. As well as this, they are usually much faster to arrange than a standard loan or mortgage. This makes bridging finance very attractive if you need finance fast. Additionally, the criteria for bridging finance can be more flexible than conventional loans which may make them even more attractive.

Generally, bridging terms are up to 12 months, but can be up to 2 years with the right lender. However, due to the higher levels of risk perceived by lenders, the interest could be greater than a conventional loan.

There are many scenarios where bridging finance may be a viable option for those looking for finance. For example, if you are in the process of buying a house, but haven’t yet sold your current property. Bridging finance could allow you to purchase your next property before you have the funds available from your previous property. In these circumstances the lender will have an in-built exit plan for the loan, as the funds from the sale of the previous house can be used to pay off the bridging loan.

how much can you borrow?

The amount you can borrow with bridging finance depends greatly on your circumstances. So, you can normally borrow from £25,000 as a lower limit, and theoretically there is no upper limit to the sum of finance you could borrow. The amount of a bridging loan, is very dependent upon the property value. On residential properties, loans are generally available up to between 70% and 75% of the value of the property. On commercial properties and developments it made me more like 65% of the property value.

However, bear in mind that bridging loans often include rolled up interest and fees, all of which are deducted from the gross loan. If you want to understand how bridging works watch this video. Specialists in large bridging loans can offer up to £multi millions in the right circumstances. With this level of finance you will have to make sure you are ideally suited to the lenders requirements. This can include a very good credit history, valuable assets, a viable exit plan and many more requirements, each dependant on the lender.

For more information talk to an adviser today who can help you move forward.

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