Westgate Private Finance

New bridging lender Westgate launches 'fix and flip' product

Recently-launched bridging lender Westgate Private Finance is providing ‘fix and flip’ and ‘mini-mezz’ products with loans starting from as low as £50,000 and £5,000 respectively.

The Cardiff-based, principally funded lender was launched in December 2018 by CEO Adam Davies (pictured above) — who has been broking for over 20 years — to provide finance to what he believes to be a niche market in the UK, similar to that in the USA known as ‘fix and flip’.

The UK government’s changes to landlord tax relief has started to make the buying and retaining of property to rent less attractive to some and, as a result, Adam has seen a demand from borrowers seeking funding to buy, fix and flip dilapidated properties and either add them to an existing portfolio or, in most cases, sell on and take the capital gain and then repeat the process.

“With traditional BTL lenders insisting the property being purchased is habitable and rentable in the state it is bought in, or with very minor improvements, we have been seeing more and more investors coming to us with properties which aren’t traditionally fundable,” said Adam.

“This is also the case with some other short-term funding providers turning their noses up at properties which are in a ‘sorry state of repair’ and as such limiting their LTV, basing the lend on the 90- or 180-sale price and, as a consequence, often leaving the borrower either short of funds to complete on the purchase or renovation, or just refusing to lend at all.”

Subject to a maximum LTV of 80% on day one, Westgate will fund up to 100% of the renovation costs of the property in advance stages.  

The lender’s fix and flip product starts at a rate of 1.25% up to 70% LTV, or 3.5% up to 80% LTV.

It claims that interest is charged only on funds out at any one time, with internal refinance offered once the property is near to completion and the LTV is 65%, ensuring the higher rate lending is only borrowed for as short a time as possible.

Westgate’s short-term loans offer terms of three to 12 months, between £50,000 and £250,000.

The mini-mezz product allows a purchaser to conclude their purchase where funds are initially short or where the borrower is short of funds and, therefore, can’t complete the project, but the senior lender is unable to advance further funds.

This product offers loans from as little as £5,000, with interest rates depending on loan size and LTV.

Westgate’s sweet spot includes properties valued around £110,000–£160,000 at point of purchase, but can also look at higher and lower values. 

“We took the approach that we’re lending on the property at its lowest point of valuation,” said Adam.

“We have a closely managed involvement with the project in hand and monitor and flow in additional funding as the renovation progresses via a series of further drawdowns.  

“We dual price our loans so that the top up/renovation aspect of the loan is only charged at the higher rate with the bulk of the loan charged at a lower rate, giving borrowers the benefit of higher LTVs, but cost-effective pricing, too.”

Adam explained that as the renovation progressed, the value of the property would rise and its ‘LTV glide’ would diminish to a level around 55–60% LTV once the project was nearing completion or was complete.  

“At this point, the loan we have provided is either refinanced internally with ourselves taking the whole loan down to the lower rate we charge in the event of exit being by sale, or, if the exit of our short-term funding is via refinance and the [borrower] has to wait until the property has been in their ownership for six months before being able to refinance again, this makes the ‘last leg’ of our loan cheaper for the borrower,” added Adam.

One broker, Chris Ashley, said that Westgate assisted with the finance on a property that wasn’t mortgageable.

For example, the living room was said to be full of empty wine bottles and other debris, the front of the house was covered almost entirely in ivy concealing the windows and overshadowing the front entrance, the plumbing was compromised by vegetation growing through it, and the rest of the house was in generally poor order. 

Chris said: “Westgate [was] quick to act and agreed to lend to fund the purchase and also assist with some of the renovation costs, too.  

“I was more than happy as I had spoken with many other lenders, many of which wouldn’t look at it, or those which would were offering low LTVs which wouldn’t work for my client at all.  

“…Although the rates aren’t ‘cheap’, my client was more than happy with the offer as without such, he couldn’t make the £47,000 profit he stands to make (after costs) once the property is completed.

“It’s just what we need.

“If you can bring back uninhabitable housing stock to use, you’re also doing something to helping close the UK housing shortage.  

“I’d say that’s a socioeconomic benefit as well as helping clients wanting to buy and fix then flip properties to make healthy profits.”

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