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Posts Tagged ‘Bridging’

Bridging Finance – How strong is your exit route?

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Do all lenders care about the exit?

Not wanting to be too controversial but various cases have led me to the conclusion that not all lenders look in detail on how they are going to get repaid. I must stress it is some and not all.

Being the rare breed that I am of broker, landlord and experience of running a bridging company the exit does concern me. Now three cases were all presented by other brokers to lenders with repayment coming from a remortgage. All had major holes in that strategy and the risks were never explained by either the broker or the lender.

1. A six month loan on a low rate when a client needs nine months. To extend costs far more than a nine month term with another lender.

2. A remortgage to a limited company whose main director/shareholder had adverse credit as long as your arm but the lender put exit down as a remortgage.

3. A valuer saying there was asbestos in the property but no specialist report being requested.

A recent case has got me thinking on how little due diligence is done by some lenders on the exit.
We have another broker introducing Steve to a bridging lender to convert and a guest house into an HMO. The deal gets done, refurbishment goes to plan and after several weeks of the client not getting the exit I get the call to sort out the repayment.

Steve meets the criteria of the HMO lenders. I ask the client about planning and he tells me it has established use. I say prove it as that’s what the lenders need. He then comes back to me and says it doesn’t have planning and has to apply for it.

So Steve has spent his money on a property that has planning for a guest house. Now he admits he missed it but this was never discussed by the lender or the broker. Surely their solicitors knew as well?

What does that mean to the bridging lender? Well the cynic in me says another two-three months of receiving interest and the bigger cynic the possibility of default interest.

Now I hope I am wrong but I can’t see any reason why the lender did not identify this and bring it to the client’s attention.

Now that’s four cases where their broker gave them a product that was never going to work. Clients weren’t aware of it and it has cost them all financially, never mind the stress and anxiety.

At Searchlight, we work on the exit first and if it can’t be provided by multiple lenders we won’t do the bridge.

Contact us now to see how we can help you as we don’t expect this product to be around for long

All products are aimed at UK business BTL landlords and subject to underwriting. Your home may be repossessed if you do not keep up repayments on a mortgage or any debt secured upon it.

Bridging Finance-How does it get repaid?

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I’m surprised at how many enquiries I get from clients who taken out bridging finance through another broker who has not got a firm exit in place.

If you don’t have the funds to repay it there are only two ways it can be repaid, either the sale of the property or a remortgage.

With the remortgage, before you take out the bridge you need to ensure that both you and the property meet as many lenders criteria as possible. If you have only one lender to choose from, then in 6 months they not be lending in that market or at that LTV. That’s dangerous and can cause you a lot of problems.

If you are late repaying the loan most lenders increase the monthly interest rate which will quickly wipe out any equity you have in the property.

So focus on the exit before you take the bridge.

 

Bridging Finance – The importance of the exit.

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When going into bridging always work backwards. How will it get repaid?  If you only have one or two lenders then be very careful as those lenders may change their criteria and you may not be able to remortgage to repay the bridging loan. The implications if you are not able to refinance, are higher rates and possibly repossession.

The longer the period between getting the bridge and it’s repayment the greater the risk. Any experienced broker should be able to tell you what options you have before you take out the bridging loan.

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Searchlight Finance Limited is registered in England and Wales No.07929050 Searchlight Finance Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (http://www.fca.org.uk/register) under reference 743220. The FCA do not regulate Business Buy to Let Mortgages or most Commercial Mortgages and Bridging Finance. ICO Number Z3109319. Your property may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it.

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