Build a Better Bridge Helping brokers build better b each issue Bridging Introducer answers your questions on how to b by rob jupp,


by lucy Barrett, director,


I have a clIent lookIng to purchase a run-down property But can’t get them a mortgage, could BrIdgIng fInance Be an optIon? LB Yes, this is exactly the type of situation where bridging finance can be used. You should expect to get around 70% loan to value depending on the work which needs to be carried out. Some lenders will allow you to go up to their maximum loan to value whether it be mainly cosmetic work, or a complete internal overhaul including some structural changes, whereas some will reduce the loan to value the more work that is required. You should ensure the client has provided as much information surrounding the condition of the proposed security, to include a schedule of works with breakdown of costs and timescales, this will avoid disappointment at valuation stage.


Most mainstream buy-to-let lenders will require that the property has been owned for a minimum of six months before they will consider a refinance, so if the client intends to retain the property as an investment you will need to consider this when choosing the most appropriate term. there are some exceptions to the six month rule, but most of those exceptions will only use the original purchase price of the property


20 bridging introducer july 2011


managing director, Brightstar Financial


for loan to value calculations disregarding any gain in value as a result of renovation work carried out. if your client wants to recoup some of the costs incurred bringing the property up to standard then you will more than likely need to select a term in excess of six months. if the intention is to sell the property once works are complete then always ensure that you give long enough at the back of the works being completed to achieve that sale to avoid charges being incurred as a result of exceeding the pre-agreed term. RJ in short, yes. bridging finance is ideal for this kind of scenario. Most lenders will not lend money if the property isn’t in a mortgagable position. this generally means that property has to have a bathroom, a kitchen, is water tight and habitable. bridging lenders will not be too concerned with this and will look at the value of a dwelling in its current state. Some will be happy to assist a client in funding the cost of refurbishment. the bridging lender will want to


know that subject to the work being completed a client will be able to achieve an exit from a recognised lender. therefore, it is essential that an intermediary gets the remortgage agreed in principle prior to the submission of the bridging loan. Many clients are able to use bridging to substantially accumulate


capital out of property development. this, if done carefully, justifies the relatively high cost of bridging. that said, inexperienced clients should be fully warned about the risks that property refurbishment using bridging will have. Sadly, i have come across a handful of horror stories over the years where this wasn’t done and clients can be left in a terrible place if it isn’t.


I have recently suBmItted a BrIdgIng loan to a lender and despIte the purchase prIce agreed, and open market value BeIng £500,000 the lender would only lend 70% of the forced sale value, Is thIs normal? LB it’s important to ask the question as to which figure a lender uses when calculating the maximum loan when you are looking for the most suitable lender for your client. Some will use open market value, but others will use either the 180 day sale value, or 90 day sale value (otherwise known as the forced sale value). the 180 day figure is usually considered to be the same as the open market by surveyors due to the fact 180 days is a reasonable period of time to achieve a sale for most properties in most areas, this isn’t always the case but it’s unlikely to be more than 5% below market value. the 90 day, or forced sale value,


is a very difficult one to predict but usually varies between five and 15% below open market value, and is influenced by a number of factors including the location of the property, the property type and the demand.


Lenders won’t always make a point of saying at the outset that


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