CFIp14-15_market.qxd 22/1/09 15:28 Page 26
14 | Bridging loans
Your questions
answered
Bridging finance lender Bridgebank Capital
answers questions concerning bridging and
short-term finance
Q: We have received an enquiry where our Q: We have a client who took out an option these acquisitions. Many of his current invest-
client has the option to purchase an un-mod- to purchase a small residential development ments have low LTV's on their current mort-
ernised, substantial Victorian property at a site 12 months ago subject to him obtaining a gages (many less than 50 per cent). We are
discount to its true market value. My client is planning consent on the site. He has secured also working on remortgaging some of the
an experienced, independent builder and his the planning and is under pressure to com- existing portfolio as many of his discount
intention is too carry out a full refurbishment plete the purchase of the site before the mortgage terms are coming to an end.
on the property and divide it into three sepa- option expires. He has been affected by the A: It would appear that there are two areas
rate flats. The property has full planning per- current credit crunch as his high street bank of activity with this client at present; being the
mission for this development. However my will no longer support the purchase of site release of cash to help fund new purchases and
client is in that classic property developer sit- until he has both detailed planning permis- the re-financing of part of the portfolio to
uation, of being "asset rich but cash poor"; sion and obtained some pre-sales of the units improve mortgage terms. In respect of those
and whilst he owns other investment proper- he intends to development on the site. properties in the portfolio with low LTVs and
ty, some of which is unencumbered or with A: This is another common scenario that we which are identified as being subject to a possi-
relatively low mortgages, he doesn't have any at Bridgebank Capital frequently fund. On the ble remortgage, then a very short term bridging
spare cash resources at present to purchase assumption that the site is worth more than loan could be advanced to release the cash
the Victorian house or carry out the necessary purchase price with the benefit of the planning quickly to fund the deposits required on the
refurbishment works. consent, it is reasonable to expect that a bridg- new purchases.
A: This is a classic bridging finance scenario ing loan together with some finance from the The new remortgages, taken at a higher LTV
where clearly given the availability of funds, applicant himself, would provide all of the would then be used to repay the bridging loans.
your client has the experience and ability to funds for him to complete the purchase within Consequently the use of the bridging loans,
earn a handsome profit from the development his tight deadline. The bridging loan would be whilst providing cash for the new purchases has
project, which can be completed and sold on, taken out for a period to provide the borrower not necessarily disturbed the long term mort-
in a relatively short period of time. This project with sufficient time to get detailed planning gage debt profile on the portfolio, aside from
can be 100 per cent funded through a mix of consent and procure some pre-sales in order releasing some locked in equity to grow his
both bridging loan advanced against current that the bridging lender would be repaid portfolio further. This is probably a cheaper
Open Market Value of property being pur- through conventional high street bank develop- and more efficient way of solving the client's
chased and a release of funds from the equity ment finance. requirements than taking 2nd charge loans on
he has available in the rest of his portfolio. On Q: We act for a relatively experienced BTL properties in the existing portfolio with low
the assumption that purchase, development investor, who has built up a portfolio over the LTVs. However you must do the calculations to
and property sale can be delivered within a rea- last 5 years to an extent that he has in excess accurately assess which of the two possible
sonable time span of say 6 to 9 months, then of £1.5 million of equity in that schedule of routes is in fact in the best interests of your
bridging loan funds are ideal for this transac- properties. client.
tion. Here at Bridgebank Capital we would He has identified some BTL properties that Q: What are the most important aspects of
advance 75 per cent of current Open Market he can acquire cheaply as they are a bridging loan that introducers need to be
Value against the property being acquired and distressed sales as a result of the current mar- aware of to ensure that a deal completes?
likewise would make an advance of a similar ket conditions, provided he completes the A: We concentrate on working very closely
level against other portfolio assets in order to purchases quickly. However he is currently with our introducers to ensure that we work
provide the 100 per cent funding required for 'cashed out' and doesn't have the funds avail- together as a team in order to get a deal com-
the purchase and development. able to pay for the deposits in order to make pleted as required. The following points in our
February 2009 Commercial finance Introducer www.mortgageintroducer.com
Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57