A guide to complex loans
Paresh Raja

A guide to complex loans

Market Financial Solutions has produced a guide for brokers to help them understand complex loans.

What are complex loans?

Complex loans occur when a borrower, who seeks a loan, is not able to get one easily. They differ to normal loans since they are not straightforward tick-box exercises. 

The majority of lenders will not budge on their strict underwriting criteria and consider these applications time consuming or too much hard work.

They prefer the straightforward loans for purchases and refinance with an automated approach, which, in today’s world, is not always practical as each individual has their own unique circumstances and background.

When are complex loans needed?

Complex loans can be required for many different scenarios. 

These include:

  • Lending against an asset purchased under their company incorporated in the British Virgin Islands with a complex company structure, therefore having to deal with trustees, overseas lawyers as well as complicated tax structures.
  • Lending across multiple properties to maximise the loan amount. These properties may be owned fully and some in partnerships with leases and rented out as well as vacant.
  • Splitting the title of the asset on the day of completion.
  • Annul bankruptcies
  • Lending on HMOs
  • Portfolio restructuring
  • Completing a transfer of equity within a short timeframe.

An an example of a complex loan 

We recently completed a multifaceted case for a client looking to raise £825,000 against a semi-commercial asset located in south London with an estimated market value of £1.1m.
The client was looking to raise the funds in his company name and required the loan for investment purposes quickly.

The asset value comprised a retail unit on the ground floor and four flats above. 

The client explained that they had only exchanged on one of the flats and was close to completing the sale, but could not factor this into the total market value resulting in an unrealistic higher total value.

By asking the valuer to disregard the value of this flat from the overall value of the asset, we were quick to re-structure our terms.

The realistic value was assessed and, based on the retail unit and only three flats above, resulted in a shortfall for the client lending at 75% LTV.

The client was already willing to provide a personal guarantee and owned additional investment properties. 

We helped raise the shortfall amount across another investment property and found a quick solution to what may have caused a problem if picked up later, allowing the client to meet the completion deadline.

The borrower received his funds on time and we secured all our lending mitigating any risks.

Will demand for complex loans change in 2017?

Due to the level of uncertainty still surrounding today’s market, we predict the demand for complex loans will increase in 2017. Banks are more cautious about lending, which is translating to borrower’s looking at alternative ways to refinance their existing portfolio and buy property investment deals within the timeframe needed.

Others are trying to put their house in order and foreign investors are looking to optimise on the property market in the UK.

This can be evidenced in the number of cases completed so far by MFS in Q1 and the type of new enquiries we are receiving.  

We have recently seen an increase in non-UK residents looking to purchase investment properties in London and the surrounding counties, along with existing clients looking to restructure their existing property portfolios to release equity for further investment opportunities.

Why should more brokers take on complex deals? 

We strongly believe that more brokers should start taking on complex deals as this is a growing market. There is tremendous opportunity to tap into this sector. Bridging firms should be able to tackle the hurdles seamlessly as each case is looked at individually and not a tick-box exercise.

Many brokers may not be aware that there are lenders such as ourselves that will not only be happy to consider a complex deal, but also provide a solution without the broker necessarily needing to do all the work. 

Specialist bridging firms should have all the resources to do the necessary KYC, AML checks and the expertise to look at each case individually on its own merits and propose a simple solution, which is easy to understand and completely transparent.

Bridging firms have their own panels of lawyers and surveyors, therefore, easy access to professionals to get the process streamlined.

They should also be able to give an answer quickly enough for the broker to be able to get back to the borrower in an efficient manner.

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