Bridging | Searchlight Finance

Auction Finance. Don’t get caught.

Here is a simple guide for reviewing an auction pack when purchasing a property at an auction:

Read the legal pack: The legal pack will contain important information about the property, such as title deeds, searches, leases, and any restrictions or covenants affecting the property. You should read through the legal pack carefully to understand any issues that may affect your purchase.

Check for any additional costs: In addition to the purchase price, there may be additional costs associated with the purchase of the property, such as auction fees, VAT, and stamp duty. You should check the auction pack for details of any additional costs so that you can budget accordingly.

Check the condition of the property: Check online to look at its location and the surrounding area. Always visit the property and if you can’t, send someone you can trust who has the relevant experience to identify potential issues. You should review these carefully to get an idea of the condition of the property and any repairs or renovations that may be required.

Check the auction terms and conditions: The auction pack will contain the terms and conditions of the auction, including the deposit required, the completion date, and any special conditions. You should review these carefully to understand your obligations as a buyer and to ensure that you are comfortable with the terms of the auction.

Register with the auction house to ensure that you are updated with any changes in documents that may be uploaded. It’s surprising how many important documents go online on the day of the auction!

Try and find out why it is in the auction. It is usually one of two things. Firstly certainty of funds such as a repossession or probate or secondly the seller is trying to hide something.

Seek legal advice: Purchasing a property at an auction can be complex, and it is important to seek legal advice before making a bid. A solicitor who specialises in conveyancing for auction properties can help you understand the process and review the auction pack to ensure that there are no issues that may affect your purchase.

By following these steps and seeking professional legal advice, you can ensure that you are fully prepared and informed when purchasing a property at auction.

If you’re considering purchasing a property at auction, it’s a good idea to speak with a bridging finance broker before you bid. They have the expertise and knowledge to help you navigate the auction process and can guide you in arranging finance on the purchase and exit if needed.

A good broker understands which lenders to approach and which ones to avoid, and can help you avoid the pitfalls of buying at auction.

Bridging Finance for refurbishment of property

Pros and Cons of Bridging Finance when you Refurbish Property

Bridging finance is a short-term loan that can be used for a variety of purposes, including property refurbishment. It can provide quick access to funds for refurbishment projects, but it also comes with its own set of risks.

In this post, we’ll take a closer look at the pros and cons of using bridging finance for property refurbishment, as well as some tips on how to obtain it.

The Pros of Bridging Finance

One of the biggest benefits of bridging finance is speed as it can provide quick access to funds. This can be especially useful for property refurbishment projects, which have multiple property investors interested in the project.

Additionally, bridging finance offers more flexibility in terms of repayment options, which can make it easier to manage your cash flow during the project. Most lenders will allow you to pay the interest at the end, when the property has been sold or remortgaged.

Finally, it allows you to obtain finance on properties that are not mortgageable and allow you time to improve the quality and marketability of the property pending sale or remortgage.

The Cons of Bridging Finance

While bridging finance does have its advantages, it’s important to be aware of the potential downsides.

One of the biggest cons is that bridging finance often comes with higher interest rates than traditional loans.

Additionally, the repayment terms are often shorter, which can make it more challenging to pay off the loan in a timely manner.

Finally, there is always the risk of defaulting on the loan, which can lead to serious financial consequences.

How to Obtain Bridging Finance for Property Refurbishment

Obtaining bridging finance for property refurbishment can seem daunting, but it doesn’t have to be. Here are five steps you can take to make the process as smooth as possible:

Step 1: Research different types of financing options.

Before you apply for a loan, take the time to research different types of financing options. This will help you understand the market.

Yes, you can talk direct to the lender but remember they will be bias and won’t necessarily tell you the points you need to watch out for which may trip you up during the project.

We are also bias as brokers in the sector when we say that you should talk to an experience bridging finance broker who knows which lenders to go to, but more importantly the ones to avoid.

This will help you understand the different terms, interest rates, and requirements required for each option, and determine which type of bridging loan best suits your needs.

Step 2: Determine the amount of financing required.

Knowing how much financing you need is crucial in order to apply for the right type of loan. Consider all the costs of the refurbishment project, including purchase costs, solicitors, materials, labour, and any other expenses that may arise. Always include a contingency of at least 10%.

Step 3: Find a reputable lender.

That’s where we come in. When searching for a lender, it’s important to find one that is reputable and has a good track record.

Look for a lender that specialises in bridging finance for property refurbishment and some of them will also give you a long term Buy to Let Mortgage to pay it off. That reduces costs and increases your profits.

Step 4: Prepare a detailed project plan.

When applying for a loan, you will need to provide a detailed project plan and budget. This should include an estimate of the costs of the refurbishment, a timeline for completion, how it will get repaid and any other relevant information that will help the lender understand the scope of the project. We will help you with this.

Step 5: Submit a loan application and provide all necessary documentation.

Once you have all the necessary information, we can submit your bridging loan application to the lender. Be sure to provide all the required documentation, such as schedule of works, ID and address proof, details of experience and any other information that may be requested by the lender.

Conclusion

Bridging finance can be a useful tool for property refurbishment projects, providing quick access to funds and the potential for higher returns on investment.

However, it’s important to consider the higher interest rates, shorter repayment terms, and the risk of default before making a decision. By following the five steps outlined above and doing your research, you can help ensure that you obtain the right type of loan for your renovation project.

For your next project get in contact with us so we can help you obtain the finance you need.

How to repay your bridging loan quickly.

You are relying on the property being sold or refinanced if you are keeping it.

These are the most common items which cause delays in the refinance process:

– Not starting the process early enough. If you have used a broker to arrange the bridging finance and they are doing the exit keep them updated and provide an expected finish date.

I’d expect to start the refinance exercise approximately one month before this for our clients. It’s surprising how many are so focused on getting the property finished they forget it needs to be repaid.

– Delays in information required by lenders. If we ask for a document we need it. Proof of income by way of accounts and/or tax year calculations and tax year overviews need to be on file. If you don’t it’s surprising how many accountants are on holiday when you ask.

– Bank statements. Check before they are released to make sure there are no items which will concern lenders.

– Make sure your ID is in date and signed and you have a current proof of address that has been posted to you.

Quite often a lender will be able to electronically identify you but if they can’t they will need paperwork to prove who you are and where you live.

– If you have more than four mortgaged properties you are a portfolio landlord so keep a spreadsheet with details of your properties including rental income, balances and mortgage payments. Also check that they have a valid EPC of E or better.

Some lenders may require a business plan and cash flow forecast. If your accounts are up to date this shouldn’t be an issue and your broker should be able to assist you.

– Update the EPC if you think after works it is a C or better as you may get a lower interest rate on the BTL mortgage.

– Buildings Insurance. With most lenders it needs to cover the rebuilding cost in the valuation. A lot of lenders require their interest (their name) on the policy and I’ve seen this delay completion many a time.

-Solicitors. Most are the busiest they have ever been so get regular updates and find out what is outstanding and what you need to do. If you reply on the same day enquiries are raised your solicitor and return paperwork quickly they are more likely to treat the case urgently.

With the odd exception BTL lenders are taking much longer at the moment to assess mortgage applications so have everything ready to submit to the lender at least two weeks before completion of the property.

This way you can send the mortgage application to the lender and by the time they have assessed it and instructed the valuation the property will be finished.

It’s frustrating paying extra bridging interest because completion has been delayed due to a lack of a document which could have been on file weeks ago.

Don’t delay, repay.

If you need any help on arranging bridging finance and/or getting it repaid we’d be happy to help.

Choose the Best Bridging Finance Broker for Property Investment

What do you do when you are looking for bridging finance? You’ll instruct a few brokers and see what they come up with. Sounds simple but could be one of the worst things you do!

Why do you ask?

The bridging and development world is very small. For some transactions there are only a few decent lenders. If a lender gets the same enquiry from multiple brokers it can go against you.

The lender may think you are desperate for the money which will concern them, it’s duplicated work for them and as each broker has their own questioning style they may get different facts on the same case which may put them off.

There is nothing wrong with contacting more than one broker but you only want to instruct one.

We’ve recently submitted a case for £2m to one lender who had received exactly the same enquiry from another broker. We had already received terms from that lender and they refused to issue any more until the client made a choice of the broker they wanted to work with.

Do your homework on the broker before you make a choice:

Do they understand what you need.
Do they arrange bridging finance daily or is it once a year.
Do they talk about how the bridge will get repaid.
If the exit is a remortgage can they arrange the finance as not all brokers do.
Are they regulated by the Financial Conduct Authority (FCA) . Now the FCA doesn’t cover most types of bridging, however it’s a badge of regulation within the finance sector. A lot of bridging lenders will only deal with brokers who have this registration. If the broker doesn’t, it means they don’t have access to a lot of the market.
Do they talk about the loan conditions, the legal process, what happens if repayment is late, are your solicitors any good, interest rate calculations, is the term long enough.

I use to be a director of a bridging company so ask questions a lot of brokers may not. We want you to sleep at night and not to be worried about your interest rate going up to 30% tomorrow, because the broker didn’t notice this when they arranged the bridging loan!

Refurbishment Lending for Costs

Criteria

Initial Loan 70% of the value
Refurbishment costs 100%
Gross facility up to 70% of end sales value
Loan size £250,000- £1.5m
Term – up to 18 months
Minimum value £300,000
Works must be lower of 50% of current value or £500,000
Experience essential

Suitable for

Extensions
Conversions
Planning
Permitted development
Heavy refurbishment
Structural works

Light Refurbishment Finance

Has your BTL mortgage been refused due to the condition of the property?

Improve the value and the rent on a tired property. Whether it be a new kitchen, bathroom, damp, electrics we have lenders for all of them at competitive rates up to 85% LTV with experience and 75% without.

When can bridging finance be used?

Standard bridging is ideal for customers looking to secure the purchase or refinance of a residential or investment property
including:

Chain break – whilst waiting for an additional property sale
Raising funds for short term requirements
Auction purchase
Capital raising for any legal purpose
Meeting tight transaction deadlines

Light refurbishment:

Light refurbishment is used where short term finance is needed for items such as:

Modernising properties
Replacing kitchens and bathrooms
Properties deemed uninhabitable/unletable by long term lenders

Heavy refurbishment:

Heavy refurbishment is where you may require short term finance for works that require building regulations or planning permission.This could help with:

Conversion and reconfiguration of residential property
Commercial to residential
Completing a development that is wind and water tight
Extension, loft conversion and basement digs

Bridging Loans

What can Bridging Loans be used for?

Bridging loans are used for a number of reasons. These range from conventional bridging, where a homeowner wishes to purchase a new home but hasn’t sold their current property, to auction finance, refurbishment and conversion.

What Can Go Wrong?

It’s a short time loan and not suitable for long-term finance. Make sure the term of the loan gives you enough time to repay it and don’t get fooled by lower rates for shorter-term loans.

Where’s the Exit?

You need to understand how the bridging loan will get repaid before you take it out. The more exit routes the better. You may lose the property if you don’t repay on time.

When can lenders repossess?

Read the loan agreement and get legal advice. Reasons include not paying the interest, repaying on the due date, or you breach a condition such as carrying out an unauthorised conversion.

We have arranged loans recently for:

• Conversion of office into a flat under permitted development
• Conversion of a mid terrace into 4 flats
• Conversion of 2 flats back into one house
• Refurbishment of a property with no kitchen or bathroom
• Loft and side extension to convert into a student HMO

Auction Finance at 75%

Yes 75%. Valuation instructed same day and a fast track legal process to reduce the stress. All the lender asks is that you have at least two rental properties.

Bridging Finance – How strong is your exit route?

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 to the client by either the broker or the lender.

1. A six-month loan at a low rate when the 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 broker put the exit down as a remortgage and the lender never checked.

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

4. A recent case has got me thinking about how little due diligence is done by some lenders on the exit. We have another broker introducing Steve to a bridging lender to convert 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 him about planning and he tells me it has established use. I say prove it as that’s what the lender will need. He then comes back to me and says it doesn’t have planning and has to apply for it. So he 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.

Bridging Finance-How does it get repaid?

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.

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.

Auction Finance in Leeds

We were approached by a residential mortgage broker who had a client that had purchased a residential investment property at auction. They thought they would be able to obtain finance from their bank but their request was declined.

Due to the tight deadline bridging finance was considered but we were confident that we could raise long term finance within the time limit. The loan application was received and due to our strong relationship with Shawbrook we rang them to ask them to put it to the top of their workload. This was done and we obtained agreement. As a partner of Shawbrook we are able to instruct valuations so the valuer was then instructed and visited the property the next day with the valuation report being received the day after.

A formal offer was then issued and it was down to solicitors to finish the hard work that all parties had put in. As we are copied in on all solicitors correspondence issues were identified early and dealt with quickly.

The deadline was achieved and the clients now have a new addition to their property portfolio.

Bridging Finance for Auction Purchase

We were approached by an IFA who had tried to obtain bridging finance of £350,000 on a property bought at auction. The client and IFA had approached lenders direct and the IFA had gone to a specialist bridging firm who couldn’t help.

A 10% deposit had been paid at auction and we had less than two weeks to obtain the finance. The buyer was very anxious about losing the deposit and being sued by the seller.

The property was almost derelict and was putting the lenders off. We found out early on that the family were wealthy and had other assets including a profitable hotel which was available as security.

We approached several of our lenders and we met with the owner of the bridging company chosen and gave a presentation to them which explained the transaction in detail and outlined all the risks. Due to this they didn’t want a valuation and the money was released the day before the deadline.

We negotiated the ability for the business to reduce the debt during the period of the loan to lower interest costs and the house is now being restored and will be back to its former grandeur in the Derbyshire countryside.

Cookie	Duration	Description
cookielawinfo-checkbox-analytics	11 months	This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional	11 months	The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary	11 months	This cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others	11 months	This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance	11 months	This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy	11 months	The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.

Posts Tagged 'Bridging'

The Pros of Bridging Finance

The Cons of Bridging Finance

How to Obtain Bridging Finance for Property Refurbishment

Conclusion