UK Property Finance is happy to announce that we have today completed the arrangements to fund a third-charge bridging loan of £200,000 plus interest, etc. on a client’s main residential property. The money was used to urgently purchase the office premises where his business had been trading for many years and was about to be sold to a competitor.

The residential security property in South London was valued at over £3 million and had a high street first charge mortgage of £300,000 with an excellent base rate tracker. The £ 250,000-second charge loan was from an asset finance company and was also on an excellent rate for a second charge in the region of 4% per annum. The client urgently needed £200,000 extra but, for obvious reasons, did not want to repay either his first or second charge with a higher-rate loan.

The client was a UK national but spent the bulk of his time outside the UK as a non-resident, and due to the nature of his business, income proof for traditional finance such as a mortgage or remortgage was not possible. The only finance option remaining that we could arrange was a third (3rd) charge-bridging loan.

Anyone involved in bridging finance knows of the rarity of such a product; however, bridgingloans.co.uk managed to arrange this for the client at an interest rate similar to that obtainable from most second-charge lenders.

Further complexity arose when we discovered that the client could not travel back to the UK to finalise the funding due to a medical condition. Bridgingloans.co.uk managed to locate a solicitor who had offices in both the UK and the client’s current residential location and who had the insurance required to guarantee the relevant money laundering checks, etc. required on the client whilst outside the UK. A Skype conversation also took place to complete the deal and fund the project in just over 5 days from initial contact.

The client is over the moon with how ukpropertyfinance.co.uk managed to resolve his urgent funding needs.

Following the change in regulatory body from the Consumer Credit Act (CCA) to the Financial Conduct Authority (FCA), confusion still surrounds what is and is not an FCA-regulated second charge, second legal mortgage or loan, or bridging loan on a client’s main residence.

Due to the change in requirements, it has also become increasingly difficult to locate a lender who is willing to fund these types of second-charge loans, as many lenders are not able to accept the increased supervision and constraints (such as not being able to charge a valuation fee) and, as such, have decided to completely withdraw from this sector of the market. Potentially, the FCA now regulates all second-charge loans over £25,000 that are secured on an applicant’s own home. All loans of less than £25,000 are automatically regulated.

The few exemptions on loans over £25,000 are as follows:

• If the majority (over 50%) of the loan is to be used for business purposes, The business uses will often need to be fully documented, as it will not be enough for a borrower to say that the loan is for business purposes. Examples of business uses can be related to BTL or investment property purchases, commercial property issues such as investment into the premises or purchasing the freehold, cash flow problems, purchasing stock and machinery, business start-ups, company debts, end-of-year tax payments, etc. (providing this is not a personal debt). Business borrowing is available to individuals, sole traders, or limited company directors.
• If the client is a high-net-worth individual with an annual prove-able income of over £150,000 or assets (not including their own residence) in excess of £500,000, this will also be an exempt second charge loan or bridging loan. If the application is on a joint basis, then both applicants will need to satisfy the assets or income assessment test.

The new rules are viewed by lenders in a manner that means that even a rolled-up bridging loan that requires no monthly payments is no longer acceptable if a client has limited or no proof of income.

The Council of Mortgage Lenders has again released figures showing that annual bridging lending has increased by 25% and now stands at around £2.5bn per year. Bridging loans are becoming widely accepted as a tool for accepting clients’ short-term funding needs. The main advantage of bridging loans is that they can be arranged quickly when the client’s need is particularly urgent.

Bridging finance deals are often arranged at a fast pace, so a client needs to be sure they are getting good advice. It is important that when talking to a lender, an answer can be given right away, which is why speaking to a specialist bridging loan adviser is best. The increase in prevalence of bridging leads has led to a growing number of specialist brokers for this market. Some mortgage brokers will try to service the deal themselves, while others will pass the inquiry onto a specialist.

Established in 1995, the company concentrates on bridging loans or short-term finance but also offers building and contents insurance products in the specialist landlord and commercial business sectors. The Cheval Group includes Cheval Bridging Finance Ltd., Cheval Commercial Finance Ltd., and Cheval Finance Ltd. Their pedigree is very high; all are regulated by the Financial Services Authority (FSA), and they also hold a licence to enter into consumer credit agreements.

Cheval was the first provider of bridging finance to become a member of the Council of Mortgage Lenders (CML) and was a founding member of the Association of short-term lenders.

Cheval has won two awards so far this year, most recently the 2010 Bridging Lender of the Year at the Bridging and Commercial Awards, for the second year running. It was also chosen for Best Service at the Moneyfacts Awards 2010.

Cheval has a reputation for providing fast, flexible, and reliable services. Following the announcement that they had again won the Bridging Lender of the Year Award, brokers came forward to praise and describe their experience using the company. Stories of superfast approvals and speedy release of funds, as well as a flexible approach towards applications that may have been turned down by other lenders, have all emerged.

Broker John Charcoal believe that Cheval offers an ‘easy and approachable nature’ that includes telephone contact with members of staff at all levels who respond to queries efficiently and quickly.

Interest rates from Cheval compare very well with those of other short-term loan providers, remaining competitive in a growing market. A spokesperson from Lifetime Mortgages and Finance said the group offers “good levels of flexibility in their lending approach and competitive interest rates. “They stand at the forefront of their profession.”

The group has worked hard to build good relationships with brokers and takes time to explain the products that it provides. This summer, they have been holding roadshows across the country to explain the best practices and appropriate use of both residential and commercial bridging loans. These kinds of products are complicated and have huge implications for anyone who is considering an application.

The roadshows have been very well received, and most brokers have admitted that prior to attending the presentations, they had very limited knowledge of the circumstances under which bridging loans should be used or when other products should be recommended.

The biggest client groups for bridging finance products are investors and residential buyers who are buying at auctions. In these situations, the buyer needs to complete the deal within a very short period of time, and it is often impossible to arrange a mortgage from a traditional lender quickly. The need for surveys and valuations delays the mortgage application process and could be the difference between losing or closing the deal.

Home buyers who are selling their existing home and need to complete a purchase on a new property before their own sale has gone through may also take advantage of a bridging loan to ensure that they do not lose their ideal new home. It is always recommended that customers take independent advice before taking out these high-cost products, and a well-informed mortgage broker will be able to explain the full implications as well as recommend an appropriate loan.

New products that have been launched take into account the period often now required by traditional lenders that the owner should have been in possession of the property for a minimum period of six months. Bridging loan customers can now arrange a loan that is geared toward a six-month plus agreement period with slightly lower interest rates than would traditionally have been charged by bridging finance companies. Cheval has a number of products suitable for a variety of clients and circumstances; ask your broker to find the right deal for you.

Recent events, including the general election, a new coalition government, and an emergency budget, have all made the majority of mortgage and finance providers slightly nervous. Both residential and commercial buyers have found themselves in a position where they are unable to find a mortgage loan quickly and take advantage of a good deal. Bridging loans have traditionally been able to assist buyers who find they need to finance quickly, and the market for these products has grown, particularly for buyers at auction.

There have been a number of new products launched in the last few months, including some that offer a dual application for both the bridging loan and a longer-term mortgage. It is possible for landlords to arrange bridging finance that will cover up to 85% of the purchase price of a property, giving them time to refurbish or renovate the property as well as find a tenant. This type of borrowing eliminates the risk taken by many landlords who are buying at auction and using this form of short-term finance. Most would normally have to undertake the building and decorative work before being able to secure a traditional mortgage.

As both products will be underwritten by the same lender, the changeover and timeframe can be approved in advance, and borrowers have the security of knowing they will not be paying higher interest rates over the long term.
Rates currently available include a two-year fixed mortgage at 6.99% or a variable rate of 6%. Some products have no early repayment charges, and interest may be charged on a daily basis. It would seem that these products offer security combined with good value when compared with the regular buy-to-let mortgage market.

Some providers have reduced their interest rates and increased their loan-to-value lending criteria; other providers will probably follow suit shortly. A good broker will have all the relevant information.

Using a bridging loan to buy at an auction

The most common reason for using a bridging loan is when people are buying property at auction, although there are other equally valid reasons, for example, needing to secure a new property before the sale of an existing property has been completed.

It is a sad fact that over the last 18 months, the number of repossessions coming onto the market has increased. Many of these properties are put up for auction by the mortgage lender, and investors who have cash available for fees and deposits have taken advantage of these reduced-priced properties.

Financing a purchase from an auction can be difficult, as mainstream or traditional lenders do not have the flexibility to agree to an application and release the necessary funds without undertaking surveys and approving renovation plans. The time this takes will undoubtedly be longer than the terms agreed in the auction sale contract. When buying at auction, the contracts will be exchanged on the day, and completion will take between 14 and 28 days.

Raising the cash to purchase a property in need of some work can be frustrating and time-consuming. A bridging loan gives buyers the breathing space they need to undertake the necessary renovations and apply for a longer-term mortgage loan. This type of loan also means that potential bidders can attend the auction with the knowledge that funds will be available to complete the transaction.

Mathon Finance has gone into administration.

PFK Accountants have been appointed as the administrators of Mathon Finance and will be dealing with all creditors of the Glasgow-based bridging loan provider. Mathon Finance concentrated on commercial property and has been hit by the fall in value of business premises during the last two years.

The remaining assets have been sold to Juniper Property Finance Company, and it is hoped that jobs will be secured for employees.

The news means that potential customers who were dealing with the company will be glad to hear that other providers of bridging loans have said they will be pleased to work with new customers, and although the economic climate has been difficult, they believe that the market for bridging loans continues to be healthy.

£1.5 million in fraud prevented

Three men who approached Masthaven Bridging Finance for a £1.5 million bridging loan on a £5 million London property have been arrested after the company became suspicious of their identity. Passports and utility bills were provided by the men but proved to be counterfeits, and the police were called.

Summary

It would seem that bridging loan companies are weathering the economic storm by finding new products to offer and considering reducing their interest rates, loan-to-value criteria, and the possibility of a growing auction market. The financial situation across the UK is changing rapidly, and anyone interested in a bridging loan must do their research.