WHY USE BRIDGING FINANCE?
My answer, why not as it has so many benefits when getting you from A to B in the arena of property matters.
People in the know call it Bridging Finance and others, a Bridging Loan, both are correct in their terminology of this financial product which was created in the early 1960’s by the banking institutions. Now private companies and individuals who entered the market a little later on make up a very high percentage of lending this type of funding which, runs into billions in the UK. The big old banks still lend but more so to smaller financial companies who then re-lend the money to the general public and corporate borrowers. The lending market for bridging finance has circa 150 lenders of all shapes and sizes and all much of a much in basic lending criteria as they are mostly interested in the property you are offering them as security either residential, commercial or a mixture of the two termed as mixed use. Shop on the ground floor and apartment/s above is the easiest example.
Smallest funding I know of would be 25,000.00 pounds and the largest well, you have a guess as it runs into millions such as funding a 200 – 400 apartment build or office and residential complex, the skies the limit for a good corporate client and the proposition they bring to the table to the funders.
These types of funding are one part of the bridging finance arena and would be classed as non-regulated although, you can use a bridging loan / finance on a regulated basis such as, John and Jane or Bob and Bertha or Bill and Bob or Jane and Bertha who own their own homes respectively in their own prospective names and, wish not to lose the next palace they desperately want to buy to live within and their current cubby hole has just gone on to the market. They all woke up one day and remembered the saying – The fear of loss is a greater motivator than the home of gain and the light bulb went off for them all. They found a funder with an adviser or did they go direct either or it did not matter and so, they opted to take a bridge out on the new purchase to be and also offered their current properties as extra security to raise all the funds required to the value of the new purchase along with some extra dosh for SDLT otherwise known as, Stamp Duty just to please the Government, weren’t they good folks.
Anyhow, the reason for this regulated category was due to the fact that they intended to reside in their new palaces and as such only a regulated funder and or adviser could carry out the surgical procedure of funding. It would have been explained to all parties that the rate of interest would be higher than a longer-term residential mortgage and all the risks involved etc etc. Then their lawyers would have gone through all the details again before the funds are drawn down. The bridging funder would in this scenario have only lent if the properties being sold were on the market before the bridging finance was completed or a mortgage offer was in place on their current properties. Either way, the exit route has to be known at outset and we hope they lived happily ever after and paid back their borrowed bridging finance.
The list of reasons to take out a bridging finance loan are numerous and some are listed here from my experience of dealing with them and speaking about them on TV years gone by –
Going to your local auction to purchase an asset that has caught your fancy and you require some funds towards, said purchase. You win the bidding war and low and behold you have to part with 10% of your purchase price on the day. Additionally, you call Mark Thomas your funding advising guru who already had terms / an illustration worked out for you and you tell him the good news. Mark smiles as he’s going to make some money, the client smiles as the asset he is buying is going to require some work and then, be sold on for a nice profit with the solicitor smiling along with the funder, everyone is smiling. The client has 28 days and is concerned about timing to complete. Mark explains the process again and the funder has already got the ID and application form so, all systems are go with valuer booked in. Just in case the 28 days is not long enough to complete for one reason or another, the auction house will allow a further 10 days normally to assist all parties.
Land purchases – farmer Giles who recently had piles, has got some land that has planning permitted on it for three residential houses. He calls Mark and Mark say’s he can give him 100% of the construction cost which, is normal funding practice in this scenario. Farmer Giles is over the moon and supplies the building cash flow and the appraisal which shows in black and white the costing construction breakdown. You can class this as development funding that is within the bridging finance arena and good olde Farmer Giles will be able to have a draw down facility over the build term. If Farmer Giles decided to sell the land with planning and a developer required funding towards the purchase they would receive say a net loan of 55-60% of the purchase price and 100% for the development construction funding. The rates of interest may be around 0.75% per month and the interest will be rolled into the deal and the developer will pay off the debt once the houses are sold or refinanced. All being well, everyone will be happy.
Funds towards an investment property – You see an investment opportunity to turn an old Victorian property into a HMO or BTL. The Bridging funder can assist you with funds towards the purchase and extra monies towards the refurbishment if you require. Planning permission may be required so, do your homework at outset. Once you have completed your project odds on, you will refinance with a longer-term lender, redeeming the bridge funding and making some money.
These are but a few examples to show the uses of bridging finance, refurbishment finance and development funding.
Ask for Mark when calling