Buy to let and commercial bridging mortgages provide solutions where other lenders are unable to assist. Many of those looking to either invest in property for the first time or who are experienced landlords looking to either grow their portfolio or start redeveloping existing units are hampered by the extremely restricted lending market place. It might be impossible to complete many of these plans without the innovative niche lending offered by bridging finance, and despite this many brokers and advisers are not fully up to speed with these opportunities. Today we’ll take a look at some of the niche lending available from bridging lenders.
Moving On From The Early Days
Most people would understand a bridging loan to simply be a type of loan required by a residential borrower as they look to purchase another home in advance of having sold their old one. Many banks would not allow this situation in the past (and many still don’t given the affordability challenges it presents) so borrowers would buy their new home using a bridging loan instead of a standard mortgage. Once their old home was sold they could repay the bridging loan and take out a normal residential mortgage. A bridging loan is simply a loan taken out for the short term for which you have a repayment plan for the future.
Commercial and professional uses of these loans have developed, making a stark change from the original personal use.
- Business Investment
- Purchases At Auction
- Seizing An Opportunity Where Time Is Critical
- Protecting A Business From Short Term Cash Flow Issues
- Clearing Unexpected Bills
The short-term lending sector has adapted to the restricted marketplace to provide innovative solutions for a diverse range of clients.
Gary Bailey, Director, Blemain Group
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Speed Is Of The Essence
Whether it’s an auction purchase of a buy to let property in need of refurbishment before a mainstream lender will take it on or a second charge semi-commercial bridge to shore up your industrial business cash flow it’s likely speed is one of the main problems you will face. A bridging lender can often advance funds in under 24 hours which could be the difference between success and failure for many of these ventures.
Loans Made Against Value Not Purchase Price
One of the big problems in the regular lending market at present is that loans are generally based by lenders on the most recent purchase price of the unit (if that was within 6 months) not the value. Even Northern Rock (Virgin Money) who do allow a landlord to refinance a property purchased recently at auction will not allow a higher valuation to be used at this stage than the amount paid for the unit unless a substantial amount of work had been done on the property (and was evidenced clearly).
A bridging lender does not consider things in the same way. They look at the auction price as an opportunity for both the landlord and themselves to profit from the large discount an auction purchase normally offers. The actual open market value the property would achieve through a standard, non-distressed sale is considered by the bridging lender. As a consequence this is significantly higher in many cases than standard lenders would allow and in some cases may result in the purchaser being able to extract their entire contribution for another project immediately instead of having to wait the more conventional six months.
Where vendors are offering discounts on a property – as a result of some personal reason or as a result of financial pressure leading to a distressed sale, once again mainstream lenders will not be interested in countenancing a higher valuation being used than the actual transaction value. A bridging lender can take a more common sense view and advance funds based on the actual value in most cases. This allows the transaction to proceed with a much smaller contribution from the buyer and then their cash to be extracted much sooner than would have otherwise been possible.
In these distressed situations, speed can also come to bear once again. If a landlord of a shop is looking to sell it at a huge discount because of some personal financial distress the existing tenant is a great person to consider. They are extremely likely to want to buy and will do so quickly in many cases. Only through bridging can this speed be met and therefore realise the full discount on offer.