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  • Mortgages & Finance

    100% bridging ....

    A few days ago, I was called by someone who has lost a lot of money to a deal sourcer.

    None of the deals ever came to fruition ... but I asked how the deals were going to be financed.

    The answer was: We get the properties valued at the gross price and then we bridge the net price.

    This amounts to 100% bridging .... or No Money Down.

    But, and please correct me if I am wrong, but no bridger would knowingly lend 100% of the purchase price.

    My understanding is that they will generally lend up to 70%, meaning the purchaser has to put down a 30% deposit.

    So, is there non-disclosure to bridgers now happening?

    I am also concerned that this is being touted as a financing option to novice investors as there is no guarantee that you will be able to re-finance after six months and exit the bridging.

    This would leave you on a very expensive product most likely with zero cash-flow.

    How do bridgers vet people for bridging purposes?

    Are novice investors qualified for "normal" mainstream BTL lending before being offered a bridge facility?

    Why are deal sourcers allowed to promote bridging to novice investors knowing all the pitfalls?

    I am highlighting this issue as I regard bridging as a very high risk strategy and I am concerned that this is now being used to lure novices into NMD deals that have the potential to ruin them financially.

    Anyone else share these concerns?

    Incidentally, in the case I refer to above, the property value was £35K and the bridging fees were £2K and the deal sourcing fee £6K. Anyone else see the irony in that?

    Worth stressing again, that in property, the one thing that will always tell you the truth, without fail, is the numbers, because numbers cannot lie. (Provided you have the right numbers in the first place = due diligence).





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    Thnak you for raising this subject Vanessa, it does sounds disturbing that novice investors are being offered sophisticated strategies that they may not full understand.

    Clearly no investor, whatever their level of experience, should enter into bridging finance without a clear understanding of how it will be repaid and within what timeframe.

    Any proposition where a sourcer was taking significant up front fees without a clear defined strategy for the long term finance of the property and the understanding that the applicant qualified for that finance would appear to be highly dubious to say the least. As with any proposal where you are being asked to pay significant sums of money up front, you should be very suspicious as to the true nature of the deal being offered and the people offering the deal.

    To answer some of the questions you raised.............

    But, and please correct me if I am wrong, but no bridger would knowingly lend 100% of the purchase price. ....most of the time you would be correct but there are occasions where bridgers would knowingly do just that.

    It would only apply to a small percentage of the bridgers who would consider this type of deal. It would have to be supported by an authentic valuation from the bridgers chosen surveyor that would show the true value of the property to be at least 50% + higher than the purchase price. The bridger may still choose to take an additional charge over a property currently owned by the applicant and the applicant would need to have some substance i.e. not potless.

    My understanding is that they will generally lend up to 70%, meaning the purchaser has to put down a 30% deposit. ....for the vast majority of bridgers on the vast majority of deals, you are correct. The deposit would preferably be cash but could be a charge over a low geared property within the borrowers portfolio.

    So, is there non-disclosure to bridgers now happening? ....I dont believe there is. Bridgers will lend against the true value of the property, which is not necessarily the purchase price in all cases.

    This would leave you on a very expensive product most likely with zero cash-flow. ....it is hard to think of any property where the cash flow would be robust enough to equal the monthly cost of bridging; thus any property stuck on bridging would almost certainly have a negative cash flow.

    How do bridgers vet people for bridging purposes? ....most do a credit check with some requiring the applicant to submit a copy of their credit file; a few dont bother with this. Bankrupts, those in an IVA and with severe adverse will find it difficult to get bridging finance. Those with minor adverse are usually accepted as bridging is primarily asset based lending.

    Often the applicant is required to submit an asset and liability statement and the bridger will check its validity i.e. the applicants name is showing at Land Reg on the properties he/she purports to own.

    Bridgers will often ask the applicants income to be disclosed but more to build a picture of the applicant. Income is not considered that important as the monthly payments are deducted at the start of the loan in almost all cases. Plus the lender will have satisfied themselves that the loan will be repaid within the loan period from either sale or refinance of the property.

    Are novice investors qualified for "normal" mainstream BTL lending before being offered a bridge facility? ....any responsible bridging broker would be clear on what the exit route would be (and often arranges it) before bridging finance is drawn down; this applies equally to novice or experienced investors.

    Incidentally, in the case I refer to above, the property value was £35K ....a property of this low value would be below the majority of bridgers minimum loan value, so financing it with any bridger would be a challenge.

    I often set up deals where bridging is used to purchase a property (for a variety of reasons) but an exit route will have been lined up first.

    These deals tend not to be with 'vanilla' BTL lenders operating a 6 month rule but with commercial lenders that will take out the bridging in less than 6 months as the aim is always to repay the bridging in the shortest possible time, keeping the costs down.

    These commercial lenders only deal with experieinced landlords so there is no chance of novice investors sleep walking their way into this type of deal

    Kevin Wright
    07889 526979
    kevinwright@thinkpositive.co.uk
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    Kevin Wright
    07889 526979
    kevinwright@thinkpositively.co.uk
    Thanks very much for that detailed response Kevin.

    It seems to me that novice investors are being told that they can bridge deals as an incentive to get them to pay intro fees for deals, but that those deals are not coming to fruition for the reasons you mention.
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    In the opening post we talk about 100% finance. Considering Bridging finance is Temporary they are going to want an exit, what mortgage company thereafter is going to offer 100% mortgage? none. So it may be stop gap but the Purchaser will still need a Deposit in the end.

    It is often a condition to Bridging Finance that a valid Exit on Application.

    Its nice to have it at a temporary measure but we don't commonly look at Bridging Finance as an option.
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    When I set up bridge and refinance deals, it usually involves some refurb work, which will increase the value when it comes to refinance.

    Of the commercial lenders, Aldermore Commerical for instance will refinance to take out bridging based on 90% of purchase price and 90% of refurb spend, so Adam is correct, you will need to put some money down at some point.
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    Kevin Wright
    07889 526979
    kevinwright@thinkpositively.co.uk
    Bridging lenders typically 65% of OMV can get up to 75% for London in certain deals.

    We have lenders that lend against OMV as opposed to 180 day or 90 day restricted value - although again also depends on hwo the valuer sees the transaction. In addition the OMV does like to see 10-15% so will consider 85-90% of purchase price.

    Exit routes needs to verified.

    We have private bridging lenders and also commercial banks that we can use to provide the exit. I would steer clear of anyone seeking 100% funding. BTL lenders not only look at the proeprty and the rental income and its capability to be self financing but they are more vigorous in their underwriting of the actual applicant. Any further questions please contact me
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    James A Jenkins
    Commercial Finance & Infrastructure Consultant
    Property Finance GB/Opulento Limited/JRC
    9 Bradenham Place
    Penarth
    Cardiff
    mob: +447812408992 / tel: +442920701666
    skype: finance4u /web: https://www.jamesajenkins.com
    e-mail: james@jamesajenkins.com
    http://www.tiutaplc.com/tiutaplc_productspublic.php

    Good Evening Vanessa

    I wonder whether that is one of the cases that we were linked to, It doesn t sound like it is as we did not supply properties at 6k sourcing fees for the lower purchase stock but only £1700.00 per unit. However the 100% of the purchase price was launched by TIUTA as per the link above, as long as it did not exceed 70% of the true valuation which was carried out by the panel surveyors chosen by the bridging company. Fees were charged by the lender in addition to this such as Legal fees, admin fees and up to six months up front interest payment. The bridging companies had to be given sufficient evidence that their were sufficient lenders available at 75% to allow for any further decline in house values over a six month period. Therefore properties released at a genuine 30% BMV could have up to 100% of the purchase price lent day one. As the properties were all low purchase prices and high yields then the interest payments were serviced from the rental income. This of course does not suit all properties depending on purchase prices and the preferred route would be a straightforward deposit and mortgage but as you know with ownership from day one issues this was not always possible and therefore was an option that many considered as viable. I m sure this is a thread that bridging compnaies should respond to but I felt it was nessecary to evidence these products are available.
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    Lisa All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client. www.keys-mortgages.com

    Thank you Lisa although this is not surprising as their constant moving of the goalposts on financing products in the last few months has clearly evidenced they were in trouble with their funding. This is why we had to revert back to traditional mortgage products or cash purchasers. The other bridging facilities such as bridgebank or chevals will no doubt capitalise now where TIUTA have failed to deliver.
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    I have spent time as a principal lender and I can't see any reputable lender doing 100% of purchase price without additional security. Lots of lenders do look at the open market value but then bring in a 70%-90% of cost limit. So a borrower has some of their own money locked in.

    I use to call this hurt money. If the lender loses so can the client. No money in often increases the chances of them walking away.
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    Regards Simon Searchlight Finance

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