When is Bridging Finance the answer?

The first assumption we find when talking to people about bridging finance is that they assume it is a fast loan, with a rapid service from application to completion. Stereotypically the way to fund an auction purchase. Bridging finance is suitable solution for a much wider range of funding. It as a route from A to B with the bridging loan being the funding gap between A and B. Where there is a genuine need for a bridging loan, there has to be a clear exit route already worked out.

The use of bridging loans has evolved considerably since the credit crunch. As high street banks tighten the purse strings, bridging loans have become a viable option to fund a wide range of needs – as broad as tax bills to quirky properties. Another example is where pressing deadlines mean interim finance is needed before the intended finance can be put in place. This is the case perhaps in a divorce, where one party is paying a lump sum to buy out the equity share of the leaving partner. A mainstream lender may require the divorce to be fully settled, or not be able to release funds in time for the settlement deadline. Although there is the added cost of the bridging finance, it is viable short term loan in these circumstances.

At Harvey Bowes, we recently had a case where the property in its current state was not suitable for lending. Firstly there were 9 out-buildings and two residential bungalows all being sold as one lot. One of the bungalows was correctly registered with Land Registry, the remaining area was not. This is not unusual where ownership had not changed for some considerable years, however should nto be confused with pure unregistered land. There were Deeds of ownership, just not files with Land Registry.

To complicate this, the registered bungalow sat in the middle of plot with no legal access such as a shared access agreement or ‘right of way’ in place. And as if this was not enough, there was also a Cattery and Kennels on the site along with 16 acres of ground.

In that form, no residential lender would touch it. And commercial lenders did not like the aspect of having the two residential bungalows on the same site, even though less than 40% of the ground space was residential and therefore meets regulatory definitions of the commercial premises.

In an ideal situation, we would advise the purchaser to liaise with the vendor and have the titles, access and land registry sorted – perhaps even between and ‘extended’ exchange and completion. However, this was not a viable solution for this transaction. Therefore, a bridging loan funded the purchase along side the purchasers deposit. The property was then reformed into two titles, one for the commercial aspect and one for the two bungalows which had been linked in order to make one larger dwelling. With some fencing in place to visually split the bungalows from the commercial aspect of the out-buildings and legal ‘right of way’ and access sorted out, this property was now ready have a residential mortgage on what had become one bungalow and a smaller commercial mortgage to top up the balance of funding needed, secured on the commercial aspect.

Clearly, there was a lot to do in this scenario; and this article only touches details of the work needed. The point is that this property was poor security for any lender in the existing state and this had severely restricted the property value. With the improvements in place, none of which were structural other than the purchaser wanting to link the bungalows instead of having two separate titles and keeping them as two properties with a third for the commercial; this was now a viable prospect for lenders and the value considerably enhanced as a result.

Every lending situation will have unique aspects. It is important to use a broker who understands not only lender criteria, but also what you as the applicant want to achieve, what the exit route to the bridging loan is and what needs to be done to achieve what needs to be achieved.

If you are looking for to fund a quirky property, or access secured finance quickly, please contact the team at Harvey Bowes to discuss your requirements.

Call Harvey Bowes on 029 2115 6918

Think carefully before securing other debts against your home. Your home may be
repossessed if you do not keep up repayments on your mortgage

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About harveybowes
Mortgage Broker and founding Director of Harvey Bowes Limited. A mortgage broking practice with bases in Cardiff & Poole, UK. We take a fresh and positive approach to mortgage broking which pays dividends for both our clients and frankly, ourselves. The team at Harvey Bowes are expert advisors in all aspects of mortgages from residential to commercial and buy to let.

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