business in. The mainstream mortgage market is still struggling and is unlikely to come back anytime soon. Right now, you’d probably get better odds on The Beatles reforming than mainstream mortgages bouncing back. But in this brave new world, the demand for short- term finance is strong. Second, the business bridging brings in is more lucrative. With proc fees often five times higher than those on main-
stream mortgages, the revenue can be significant. Third, bridging brings credibility.
Showing your clients that you can think outside the box and offer alternative finance solutions to their needs is a big tick in the box. And, finally it enables your customers to monetise a market that is battered and bloody but, as we have seen, full of opportunity.
How medium-term loans can save the day
Medium-term loans, which run for between one and three years, tend to be used when prospective buy-to-let investors are having problems getting their buy-to-let applications through mainstream lenders – for example, due to issues around loan size, exposure limits and credit scores. But they can be used in no end of situations. For example, they really come into their
own when investors are using a special purpose vehicle for an acquisition. In the current climate, high street lenders are ultra-wary of anything slightly
unconventional so are giving a wide berth to limited companies. Another example of an unusual borrowing situation that a medium-term loan
resolved was when we lent over £1m to a first-time buyer who was purchasing a buy-to-let in a sought-after area of London. He’d been rejected by a handful of high street lenders as they like you to have owned a residential property for a period of time before they will touch you for investment purposes. Also, most banks will not lend over £1m for buy-to-let purposes. We investigated the applicant’s circumstances and despite the fact that the situation
was clearly off the wall, we were comfortable with the transaction. The borrower will now use us for the next three years by which point he will have a solid payment history in place and should have no difficulties securing finance with a high street lender. Medium-term loans also come to the rescue where there may be insufficient rental
income but a large amount of equity. Specialist lenders can offer borrowers the option to defer interest until the end of the term, making the buy-to-let loan more affordable while a rent review is undertaken. There’s a tendency to think medium-term loans are the exclusive preserve of the
property professional. But this isn’t the case at all. For example, we lent to a small business owner who was repeatedly rejected by the high street lenders because she couldn’t show them three years of accounts. The loan, in this case of three years, will give her the time she needs to meet the minimum requirements of the high street, at which point she will refinance to a mainstream buy-to-let product. Another area where medium-term loans can save the day is when a high street lender
decides to call in its debt on a property or portfolio of properties at short notice, putting the landlord in an impossible position. In cases like this, the medium-term loan can be used to pay off the high street bank
and provide enough time for an alternative lender to be found. In summary, like short-term bridges, medium-term loans can be used for a variety of reasons and can be adapted to the requirements of borrowers.
The guide to Bridging Finance 2012 35
GUIDE TO BRIDGING FINANCE
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