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Cross Charge Bridging Loan – Case Study

The Client

A client had an initial enquiry for bridging finance. The client was looking to purchase a commercial property for £150,000 and carry out £25,000 of works to convert it to the upstairs commercial area into residential accommodation under Permitted Development (PD) Rights.

At the time, the client had no cash to purchase the property, therefore needed to raise the funds elsewhere.

Contact us today to discuss Bridging Loans and how we can assist you.

The Solution

As the client had an unencumbered property worth £100,000, we sourced a lender who could provide a “Cross Charge Bridging Loan” across both properties at 75% LTV. This allowed the client to raise £75,000 against their existing property and provide a loan of £112,500 on the commercial property. The capital raising covered the initial £37,500 deposit for the commercial property purchase, and the remaining £37,500 covers the cost of works, legal fees and interest costs on the loan.

The rate secured for the bridging loan was 0.85% per month due to the commercial property involved, however as it was a cross charge application, it meant only one application was required and one set of legal fees for the lender to help reduce time and money.

As the clients intention is to remortgage the finished semi-commercial property, the benefit of the lender used is that the client can refinance both properties with the same lender onto individual mortgages with minimal legal work, reduced arrangement fees of 0.75% (standard 1.50%) and reduced re-inspection valuation fees to provide a seamless transition from the bridge.    

To know more and speak to one of our Bridging Finance Expertscall us now on 03303 112 646. You can also fill in this short online form to get started. Our team of Bridging Loan Experts will get back to you straight away.

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First time Bridging Loan – Heavy HMO Refurb – Case Study

The Client

We recently were successful in assisting a First time Landlord client in purchasing a standard 3 bed Victorian terrace. Their goal was to turn the property into 6 bed HMO by extending to the rear and converting the loft space.

The client only had enough funds to cover the initial deposit, stamp duty, fees, and the initial tranche for phase one of the works.

The Property

Since the property was to be heavily refurbished and developed, obtaining a traditional mortgage for such a property development is just not possible. Typically, lenders will only lend you the money to buy the property, meaning you wouldn’t be able to carry the conversation. Plus, with such significant works being carried out lenders would have major concerns about their security, probability of the works completing and future value.

Contact us today to discuss Bridging Loans and how we can assist you.

This is where a Bridging Loan works perfectly and really adds value.

Most Bridging Lenders can lend up to 70/75% net of fees to help buy the property, based on its current value, pre conversion. In addition to this, they can also lend a further sum of money to assist the completion of the major building works. Typically, a facility of up to 70% of the Gross Development Value is available.  (GDV = value of the property after the works have been complete).

In this clients’ particular scenario the property was purchased for £345,000. After the works were completed, the property was worth £650,000.

Note – 100% LTV for bridging finance is available if you have additional security in the background.

To add even more difficulties to the equation, the client had never completed such a development / refurb project before, nor had any building or landlord experience. Most bridging finance lenders would require you to have some exposure in this type of environment.

The Resolution

Despite the limitations, we were able to secure the client a competitive deal that enabled to them to complete the transaction and finish off all the works needed.

However, it doesn’t end there… Like any form of finance, bridging loans also need to be paid back, usually within 12 months.

Typically, there are two repayment strategies for bridging finance:

  • Sale of the asset, OR
  • Refinance the loan onto a traditional term mortgage

In this client’s scenario the exit plan was to refinance as they wanted to benefit from the rental income.

This posed another problem however, as the client was considered a first-time landlord, having never let a property before. On top this the tenancy was for an HMO and the property was to be owned/let via a Limited Company.

The majority of Buy to Let lenders will not lend to applicants looking to arrange a HMO having never had any Landlord experience before, as they consider this type of buy to let very specialist and high risk. However, this wasn’t an issue for us, we were able to source a competitive HMO Mortgage deal for the client enabling them to pay off the bridging loan within the loan term and achieve their HMO landlord dreams.

To know more and speak to one of our Bridging Finance Expertscall us now on 03303 112 646. You can also fill in this short online form to get started. Our team of Bridging Loan Experts will get back to you straight away.

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Bridging Finance for Residential Purchase Case Study

For this study we are looking at the benefits of bridging finance for a client looking to Purchase a new residential property by using a “Let to Buy” mortgage to raise funds for the deposit.

In this instance, the client was in the process of a standard Let to Buy re-mortgage (a let to buy re-mortgage is when a client wants to retain their existing residential property and let it out, max 75% loan to value) but due to their complex income the underwriters wanted to see more payments from their current contract which had just started.

The client was purchasing their new residential with a mortgage which had already offered and was now in a position where they would not be able to secure the finance, they needed using traditional means in time to meet the stamp duty deadline. This is where we were able to suggest regulated bridging finance to raise the deposit funds and be able to facilitate the purchase.

Contact us today to discuss Bridging Loans and how we can assist you.

With bridging finance there are a few important factors that need to be considered;

  • You must always have an exit for your client before taking out the bridge – the lender will need to know what this and will require proof if the exit is a refinance by way of a decision in principle.
  • Bridging finance is more expensive than a standard mortgage and should only ever be recommend as a short-term solution.
  • The financing options are either for Serviced or Retained. “Serviced” is where a client makes a monthly payment like a standard mortgage and the client’s income will then need to be evidence to show it is affordable. “Retained” is where the interest is deducted from the loan at the outset, usually with a minimum of 12 months deducted.
  • The client will have to pay valuation fees at the outset.
  • Arrangement fees and cost of the lender’s solicitors will also be deducted from the loan at the outset.
  • This will then give you a gross loan amount and a net release to the customer on completion.

With this customer, they already have the exit planned and just need to ‘Bridge’ the gap between the purchase and the let to buy refinance. Though 12 months interest will be deducted from the beginning, the client will only ever pay for the period they use, so if they refinance after 2 months, they will only pay for those 2 months of interest when they exit the bridge.

There is typically a minimum period of 1 month before the client can exit the bridge but normally no exit fees, standard arrangement fees are 2% of the gross loan.

The other uses for bridging finance are if a property is non-mortgageable and needs refurbishment, change of use, an auction purchase or if a client needs to raise funds quickly.

To know more and speak to one of our Bridging Finance Expertscall us now on 03303 112 646. You can also fill in this short online form to get started. Our team of Bridging Loan Experts will get back to you straight away.

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Bridging Finance Case Study

A client had an initial enquiry for bridging finance. The client is resident in Bermuda and bought a property in 2018 in Suffolk. The client was prepared to spend about £850,000 for the developments on the property which has been valued at £1,000,000.

The property is unencumbered. He wanted to raise £300,000.00 net via bridging finance as he needs the funds quickly to complete the final stage of works.

Contact us today to discuss Bridging Loans and how we can assist you.

After further discussion with the client, we discovered that the client had other commercial properties which could alleviate any concerns for the lenders of it being a regulated bridging finance.

This suited the client’s needs as the exit strategy is an Expat BTL mortgage, which would be sourced through us as well as. This will give him a peace of mind that all his property needs will be dealt under the same roof.

Note: Current Max LTVs for Bridging Finance for 1st charge bridges are 75% but lower for 2nd charge bridges, typically 60%.

To know more and speak to one of our Bridging Finance Expertscall us now on 03303 112 646. You can also fill in this short online form to get started. Our team of Bridging Loan Experts will get back to you straight away.

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Bridging Finance Case Study 2

A client had an initial enquiry for bridging finance. The client had a residential property in London valued at £760,000.00 with a mortgage of £300,000.00

He wanted to raise £200,000.00 as a second charge via bridging finance as he needs the funds quickly to do work on another residential.

As this loan is a second charge regulated transaction the loan to value is limited to 60% at a rate of 0.8% it did not allow the client to raise the amount he needed.

Contact us today to discuss Bridging Loans and how we can assist you.

After further discussion with the client, we discovered that the second property had a value of £3,000,000 and a mortgage of £470,000.00. We were able to secure one loan against both properties, giving an aggregate 27% loan to value for the full amount the client needed and reducing the rate to 0.75%.

This suited the clients’ needs as the exit strategy was to sell the London property and only needed the funds for a short term and allowed the client to complete in a 2 week period.

Note: Current Max LTVs for Bridging Finance for 1st charge bridges are 75% but lower for 2nd charge bridges, typically 60%.

To know more and speak to one of our Bridging Finance Expertscall us now on 03303 112 646. You can also fill in this short online form to get started. Our team of Bridging Loan Experts will get back to you straight away.