Understanding charges Fees in the sector are similar to main- stream mortgages with standard appli- cation, legal and valuation costs. However, there are some differences in the process particularly with legal fees, which can be higher than for nor- mal mortgages. Cohen says most firms allow fees to be added to the total balance of the loan and pay it all at the end. “The most common costs are valua- tion fees, legal fees and completion fees,” he says. “Some firms have application fees as well but they are usually small as they simply provide the upfront cost of processing the loan. “The biggest fee is normally the com- pletion fee in the same way as the main- stream mortgage market. “Less common but still around are telegraphing fees and indemnity fees
Types of bridging loans
Classic bridge The traditional use of bridging is when it acts as a metaphorical bridge between selling one house and buying another. It is relevant when a buyer wants to buy a new home before they have completed the sale on their current property.
Rescue bridge Since the crunch hit, bridging has been used to fund investors with a property portfolio who have had finance suddenly removed by banks. Bridging can quickly step into the breach so investors don’t lose their properties and have time to find alternative finance.
Refurbishment bridge Investors looking to purchase derelict properties will struggle to get mortgages from mainstream lenders. Bridging can be used to buy the property and complete the necessary renovations before moving to a standard mortgage.
Medium bridge Two or three-year loans have become more common in recent years although some people dispute whether these can be classed as bridging. They can be slightly cheaper and offer clients more time to refinance on to mainstream mortgages.
Debt bridge Bridging can be appropriate for individuals who have a huge cost that needs paying immediately such as an unexpected VAT bill. These individuals are asset rich but cash poor, and have viable repayment solutions in the coming months.
The guide to Bridging Finance 2012 7
while some products also include exit fees that charge clients to redeem loans,” he adds. One of the key differences with the mainstream market is the use of sepa- rate representation for solicitors as stan- dard practice. It means borrowers must pay for both
their own and the lender’s solicitor, which can push up legal costs. “In my experience this is often un -
com petitive and far in excess of the bor- rower’s own legal fees,” says Wade- Jones.
“It begs the question, why is the lender doing hundreds of deals a year with a certain solicitor and being char - ged more than an end user gets charged for a one-off transaction?”
Although common practice some lenders have begun to offer joint repre- sentation to cut time and cost.
GUIDE TO BRIDGING FINANCE
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