Bridging & Commercial asked a number of lenders and packagers for their views on LTVs and what they offer in the market place today.

Loan-to-value (LTV) rates that lenders offer is one of the key risk factors that lenders assess when qualifying borrowers for a mortgage or loan.

A first charge bridging loan is generally available at a higher LTV than a second charge bridging loan due to the lower level of risk involved, many lenders steer clear of second charge lending altogether.

Why is 70 per cent the norm for a first charge LTV?

Richard Deacon,Sales & Marketing Director at Masthaven Bridging Finance: “70 per cent is the norm for first charge lending as it falls just beneath the norm for the high street lending. Many of our exits are refinance, and we need to be confident that the borrower can obtain enough to get out of the bridge. 70 per cent is a figure that most lenders feel comfortable with as there seems to be a level of comfort at 75 per cent for the high street.”

Yasin Patel, Director at Mayfair Bridging: “70 per cent LTV at the moment is normal as over 90 per cent of the bridging loans are buy-to-let loans and the buy to let mortgages are generally 75 per cent LTV so as a bridging company we have to allow certain margin for costs and interests that the client may need to raise at the time of redemption. As Bridging is only a short term solution the LTVs cannot be higher than the exit/mainstream lenders.”

Richard King, Business Development Executive at Bridgebank Capital: “I would disagree with the phrase that the “norm” is 70 per cent LTV, and would say that this is actually the maximum for a good quality applicant secured against decent security.”

Colin Sanders, Chief Executive Officer of Omni Capital: “We would argue that this is something of a generalisation. Omni Capital, for instance, offers 1st charge bridging loans up to a maximum LTV of 80 per cent. Should an application fit all appropriate criteria, there’s no reason why this LTV shouldn’t be achieved.

“But maximum LTVs are just that, and an examination of all lenders’ loan portfolios would, I’m sure, reveal a median figure lower than 70 per cent.

“Maximum LTVs reflect a particular lender’s appetite for risk. Alongside other elements of their published criteria, they will often be agreed in advance with their funding provider. Given the current uncertain condition of the UK housing market and wider economy, it is entirely understandable why lenders are choosing to take a prudent, conservative approach to LTVs.”

Lucy Barrett, Director at Vantage Finance: “There are few lenders who want to expose themselves to higher LTVs and feel comfortable with the risk position sticking at 70 per cent LTV which is considered to be a market standard.”

Terry Markham, Managing Director of the Funding Operation: “With regard to residential property LTVs of 70 per cent - 75 per cent appear to be the industry norm at the moment. LTVs have begun to rise very slowly as short term lenders have regained some confidence, induced by data demonstrating a slightly improving market. However, it must be remembered that this is generally viewed on a regional basis. For instance you are more likely to achieve a higher loan to value in the South East as opposed to North Wales and this is purely down to the market being driven mainly by buy to let landlords.”

When do you think this will change and why?

Richard Deacon,Sales & Marketing Director at Masthaven Bridging Finance: “It will change when there are more high street lenders willing to go to 80 and 85 per cent as the norm as opposed to the exception. Also I do not think we have reached the bottom of the slump in the housing market yet which will naturally have a knock on effect.”

Yasin Patel, Director at Mayfair Bridging: “This will change once the mainstream lenders increase the buy to let LTVs to 85 per cent which will probably take a few years yet.”

Richard King, Business Development Executive at Bridgebank Capital: “Bridging Loans, by definition are a high risk product, and in the event of default the lender has to have complete equity protection. Given the limited number of long term mortgage products on offer, and the low level of activity in some sections of the property market these LTV parameters are unlikely to change for the foreseeable future.”

Colin Sanders, Chief Executive Officer of Omni Capital: “Realistically, not anytime soon. With the outlook for the UK housing market and wider economy remaining uncertain, lenders will continue to take a prudent, conservative approach to LTVs.

“While this might prove deeply frustrating to some brokers and their clients, it is an approach I fully support. Over the past few years we’ve seen, and felt, the effect and consequences of hubristic lending policies. For those of us who wish bridging to have a long-term, sustainable future less is definitely more. For now, at least…”

Lucy Barrett, Director at Vantage Finance: “I would expect to see a bit more activity at 75 per cent due to competition driving LTVs upward which we have seen a bit of recently, however I doubt this will become the new market norm, and would be surprised to see many going above this level.”

Terry Markham, Managing Director of the Funding Operation: “I do not see this changing significantly in the near future as LTVs at these levels allow lenders to cater for drop in house prices, the addition of fees and interest for those borrowers in default and also to sell property in receivership at auction.”

Do you do 2nd charge lending, if not, why not? If yes, at what LTV?

Richard Deacon,Sales & Marketing Director at Masthaven Bridging Finance: “Yes, Masthaven typically lend to 60 per cent of OMV on second charge lending, but will on occasions go higher.”

Alan Margolis, Head of Bridging at United Trust Bank: “Yes, we do 2nd charge lending up to 65 per cent LTV. Our rates are from 1.2 per cent - 1.4 per cent depending on LTV.”

Colin Sanders, Chief Executive Officer of Omni Capital: “Omni Capital offers 2nd charge bridging loans up to a maximum LTV of 75 per cent. I’m pleased to add that our products are proving popular with brokers and introducers.”

Richard King, Business Development Executive at Bridgebank Capital: “In isolation or as a standalone we don’t currently offer the facility of second charge lending. In a cross-collateralised situation however, we will consider a blend with a combined LTV of 65 per cent.”

Lucy Barrett, Director at Vantage Finance: “We can arrange second charge bridging typically at around 65% LTV, although for the right deal there is scope to negotiate higher with certain lenders.”

Terry Markham, Managing Director of the Funding Operation: “Second charge lending is becoming more prominent within short term lending. This is mainly driven by the traditional second charge lenders capping maximum loan amounts and this has been recognised by the more savvy lenders who see an opportunity to increase their lending book, however, they temper this by reducing LTVs to protect themselves in the event of default. Therefore, you will generally find the maximum LTVs for second charge loans in the region of 60 - 65 per cent.”

Broker Tips

Richard Deacon,Sales & Marketing Director at Masthaven Bridging Finance: “Don’t be afraid to ask a lender if they will “take a view” on a deal. Typically if the property and the client are prime, the lender would possibly look to go to a slightly higher LTV as they may deem it a worthwhile loan.”

Alan Margolis, Head of Bridging at United Trust Bank: “If the key element for a borrower is a maximum LTV, as opposed to cost, then clearly the focus will be on those lenders who lend above 60 per cent LTV.

“2nd charge loans, which are CC regulated, can present some challenges if the loan is required very quickly as there is a mandatory 7 day "cooling off" period.”

Yasin Patel, Director at Mayfair Bridging: “Most bridging lenders will be around the same LTVs however if you want to maximise the LTV the client receives you should opt to go with a lender that will allow you to service the interest on a monthly basis rather than having the interest retained for 6-9 months. We give our customers the option most service the loan on a monthly basis and do it successfully; I understand that if the loan was for £3m then it would be difficult for anyone to service the monthly amounts.”

Richard King, Business Development Executive at Bridgebank Capital: “Brokers need to be aware that some bridging lenders base their LTV on purchase price, whereas at Bridgebank Capital we base our LTV on the open market value of the property. This is particularly pertinent when considering below value transactions, of which there are plenty in the current climate.”

Colin Sanders, Chief Executive Officer of Omni Capital: “My key tip to brokers is to know and understand your preferred lender’s criteria – don’t be seduced purely by headline announcements.

“By getting to know the detail and nuances of a lender’s offering, brokers will not waste their time pursuing cases that have little chance of completing. It also puts them in a far better position to anticipate the lender’s requirements.

“I would add that lenders are more inclined to be flexible when working with a partner who exhibits knowledge and shares their values and objectives.”

Lucy Barrett, Director at Vantage Finance: “To use advertised LTVs as a guide only, because bridging tends to be bespoke and a deal may have merits which allow for a higher LTV, or vice versa, and to make sure they are not quick to assume that their deal will qualify for the maximum LTV advertised by a lender or master broker.”

Terry Markham, Managing Director of the Funding Operation: “My one piece of advice to brokers who are looking for high LTVs is to ensure the lender is lending on the open market value of the property and not the 90 day forced sale valuation as 60 per cent of open market value could actually be better than 65 per cent of the 90 day value.”

We hope that the information the industry experts have highlighted what some lenders and packagers offer, where they see LTVs going and also their top tips for you the broker on 1st and 2nd charge LTVs.