A Troubled Bridging Market
With the whole financial sector seemingly emerging from it’s near 2 year slumber, you could be kidded into thinking that all was rosy in the lending world right? Wrong!
With the majority of lenders still not passing on the record low rates and “fees” increasing with every refresh of Trigold, it can be difficult for the mortgage broker to make sense of his world around him.
It is over a year now since I joined the NACFB, and on my travels up and down the country, I have talked to many of the members about bridging finance. We have discussed the way that it can help clients out of difficult situations and also how it can help them make the most out of usable equity that they may have in their own residential property or a BTL portfolio.
Bridging Finance companies are no longer viewed as the lender of last resort, but a sensible way for clients to finance cases that fall outside the criteria of mainstream lenders.
So, when would you use bridging finance?
One of the main uses for bridging loans at the moment is for the purchase of property at auction where you need to raise the cash usually within 28 days of the hammer falling. You may also need the cash to ease a temporary business cash flow problem, or to pay a tax bill.
A great deal of our clients use bridging finance to provide capital to add value to an existing property such as in a refurbishment project which they will then sell or let out.
Buy to Let investors use bridging finance to facilitate the purchase of property to add to their portfolio before remortgaging onto a traditional BTL mortgage.
So, why would you use bridging finance?
Speed – Investors are increasingly using bridging loans as a useful way to expedite the completion of their proposed transaction. Bridging lenders regularly provide funds to clients within seven working days, but in urgent cases funds can be released within 72 hours.
Condition of property – Traditional lenders, especially on buy-to-let mortgages, will often put 100% retention on a mortgage if the property has no kitchen, no bathroom or is in poor condition. Choose a bridging lender that does not operate this retention system and instead bases its lending on the value of the property in its current condition.
Chain breaking – You may have found your “dream house” but are unable to sell your current house within the necessary time frame. In these situations, a bridging loan secured against your current home in order for you to transfer your current residential mortgage to your new property. You will then repay the bridging loan from the proceeds that will be generated from the sale of your current home.
Non status – As with any property based lenders, Income multiples and rental calculations do not form part of the underwriting process and they are often open-minded regarding your credit history.
Second charge lending – Bridging lenders are often willing to provide loans even when there is an existing mortgage on the property. This service can be useful if you have a significant amount of equity in your property, require funds for a short period of time (less than one year) and would prefer a second charge loan rather than a remortgage or a further advance on your current mortgage.