Understanding Bridging Opportunities

Understanding Bridging Opportunities


By John Maclean, Managing Director, Link Lending Limited

Spotting opportunities for a bridging solution becomes easy if you remember the three basic elements that make up the ideal bridging case. These are that the client is asset rich, time poor, and cash poor. There is no better way of understanding the way that bridging finance works than looking at real life examples, and here are a few from our own casebook.

Fast bridging solution using two properties
Mr and Mrs B were purchasing a large family “dream home” for £450,000. They had £50,000 cash and had a mortgage arranged for the £400,000. The couple also owned a second property worth £270,000, with a mortgage of £80,000 outstanding on it. Both were employed with no adverse credit history.

Five days before the purchase was due to complete, the lender withdrew their mortgage product from the market, and the purchasers had to find an alternative source of funds within five working days. We were able to structure a short term loan that met the clients’ needs as follows. A 70% LTV loan on the new property amounted to £315,000, with the balance of the £400,000 being advanced as a second charge loan on the other property.

The loans were completed within five working days enabling the purchase to go ahead and giving the broker some breathing space to arrange a new long-term mortgage for the clients. Our terms do not include early repayment charges, and interest is only charged for the number of days that the loan is actually outstanding, so this means that the borrowers were not faced with any hidden charges once they had a new mortgage arranged and repaid the bridging loan.

Short term funds for private property development
Mr A is a self employed property developer. He had bought an unencumbered development property outright for £105,000 and needed £40,000 to bring it to a high standard of interior decoration and fittings – no structural work was needed. Once the refurbishment was complete, the property sale value would be £200,000. To maximise cash flow, the developer wanted to get in and out of the property as quickly as possible and he had an estimated time frame of six to eight weeks.

We were able to advance the full £40,000 within five days and, because of the low LTV, were able to offer a rate of 1.15% per month. Because we have no early repayment charges, no exit fees and true daily interest (i.e. no “rounding up” to month end), this was the most competitive deal that the broker could find. The client was very happy to receive his cash so quickly, which enabled him to make a prompt start on the refurbishment.

Using land as security for a short term loan.
Mr W had a limited company that owned outright a large £1.7 million site with planning permission for homes to be built on it. He was planning to sell the site in around three months, but he needed to raise £800,000 quickly to repay a private investor in his business. Mr W’s company fulfilled the three classic conditions that indicate a bridging solution: It was asset rich (because it owned development land worth £1.7 million), but cash poor – because the land was still unsold – and time poor, with the pressing need to find the £800,000. Because the exit from the bridging loan - ie, the sale of the land - was clearly demonstrable, this was regarded as falling within criteria for a short term loan. We are able to offer first charge loans secured on land with planning permission, and provided the required funds within five working days from first enquiry.

These examples demonstrate very clearly that, if brokers understand the principles of bridging finance, there will be fewer circumstances in which they need to say to the customer “I’m sorry, there is nothing I can do to help you”.

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