When we enquire why they need to complete so quickly, often the answer is the same; the broker has attempted to obtain a buy-to-let mortgage on a property that requires refurbishment before it can be let out.
When we ask why a mortgage was recommended as suitable finance for a property that is not suitable for letting day 1, they usually say because bridging was ‘too expensive’ compared to mortgage funding.
Not as expensive as wasting money on valuation fee and legals, plus sometimes exchanging contracts with 10% deposits being paid, only to find out that the surveyor has recommended a full retention until works have been completed.
Typically, these essential works are kitchen and bathroom, heating and general repairs and maintenance. All considered ‘light refurb’ works, most of which could be completed within a couple of weeks, but unless the property is habitable day one, then a retention is very likely. Especially on BTL when a full retention is applied, even if the cost of works is only minimal.
There are a whole host of bridging lenders offering light refurbishment deals and even better, bridge to let products that enable the clients to borrow towards purchase, refurbish the property and then convert to a BTL term loan (Shawbrook Bank, Precise, Aldermore, Dragonfly to name a few).
In addition to the above, we also see brokers attempting to obtain conventional mortgage funding for properties being purchased at auction with a 28 day completion deadline. Whilst it is not impossible to obtain a mortgage offer in this time-scale, it is very unlikely and the legal process can often take this long on its own. With bridging everything is geared-up to get funds out quickly. Survey and legals are instructed day one as soon as fees are paid. Surveyors are on tight SLAs with the funders to get reports back within 24 – 48 hours with most lenders. The lawyers are used to getting deals paid out quickly.
I think the most common misconception in the market place is that bridging finance is so expensive. Yes, it is more expensive than term mortgage lending, but bridging rates are at an all-time low. Some funders are offering rates from as low as 0.54% per month and many lenders are offering rates sub 9% pa now. The legacy of rates at 1.5% - 2% per month is long-gone for many lenders (although some do still exist).
Ask a client who is about to lose their dream home as their buyer pulled-out last minute, if the bridging loan they took to keep the chain together and enabled them to move in after all was worth-while or not and see what they say. Compare this to the client whose broker didn’t consider bridging finance, who lost their buyer and dream home, just a week before they were due to move house, with everything boxed-up and ready to move. I am not saying bridging has all the answers, but it does work for the right circumstances and in those circumstances, to sell anything other than a bridge to your clients (buying properties in need of refurbishment or with a tight completion deadline), would be to do them a massive disservice and really isn’t the best advice.
Attributed to Kit Thompson
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