MFS Top 5: Exit Strategies

Posted by Market Financial Solutions on 23rd January 2022 -

An exit strategy is the way you intend to repay your loan at the end of your term. In most cases, you’ll need to have an idea of how you intend to repay your bridging finance before you receive the funds. There are several different ways to do this, depending on your situation. Here are our top 5 exit strategies used by borrowers to repay their bridging loans:

1. Traditional long-term finance:

Arranging long-term finance that covers your property for an extended period of time, such as a traditional mortgage, is one of the most popular ways to exit their short-term loan.

Whereas a bridge loan could see funds in your account in as little as 3 days, traditional finance could take months to complete. Property investors often cannot wait this long, particularly if they have complex circumstances and need to move quickly. Therefore, they could use bridging finance to purchase quickly, whilst simultaneously set in motion an application for a long-term financial arrangement.

Renting before arranging a buy-to-let mortgage:

When it comes to buy-to-let properties, property investors can sometimes use a bridging loan to purchase the asset to bolster a buy-to-let mortgage application. These mortgages differ to residential mortgages. Some long-term lenders may require evidence of rental income for the property. Usually over a course of 3 or 6 months. This is to prove that the monthly income generated by the property is high enough to cover the mortgage payments. As a flexible short-term loan, bridging finance offers the borrower the breathing space to purchase the property, receive the required monthly income, and then proceed with their long-term lender.

We recently soft-launched a bespoke Buy-To-Let Mortgage product, designed for landlords looking for a mortgage product with shorter terms. Find out more on our latest product here.

2. Sale of a property:

Whether it’s a residential or commercial property, using the sale of one asset to pay for another is a common exit strategy for a short-term loan. This is a strategy usually favoured by property investors with a larger property portfolio.

Finding a buyer can be the only challenge facing the borrower in these situations. Designed to be flexible, bridging loans can be adapted to suit a range of scenarios and time constraints.

Whether you’re looking to renovate and resell a property or you’re looking to move office before your sale has completed on your current building, lenders will often accept the sale of a property as an exit plan.

Make sure you find a lender with a term length that works for your needs. Interested in our criteria? Then, why not:

• View our rate table
• Download our latest brochure
• Read our application process

3. Refurbishing and reselling your asset for a profit:

Renovating or converting a property holds the potential to increase the asset’s overall value and is a popular use for bridging finance. The increase in value is often enough to cover the purchase and renovation works.

Did you know you can use permitted and light development bridging loans to renovate or convert your assets?

Refurbishing a property can include installing new kitchens, bathrooms, flooring, and general redecorating. Installing an additional bedroom via a loft or garage conversion holds the possibility to increase the value by as much as 20%.

If you’re looking to convert your asset into a buy-to-let property, then arranging a long-term Buy-To-Let Mortgage might be for you.

4. Cash settlements:

Many lenders accept cash settlement. However, this will depend on your lenders criteria so you will need to check this with them. Cash sources may include:

• Investment benefits
• Inheritance once it has passed probate
• Having previously sold a property
• Using your pension to pay the charges in a lump sum

5. Development exit finance

For property developers, a development exit loan is a way to avoid costly development finance loan repayments once your units are complete. These bridging loans are themselves, an exit strategy. Property developers can use the bridging loan funds to repay their development finance loans.

This provides the developers with more time to find buyers, without the need of reducing prices to sell quickly. They can also use the time to get long term finance on the assets dependent on their end goal.

Commonly asked questions:

We’ve answered some of the most asked questions surround exit strategies for bridging finance:

Why are exit strategies important?

It can be costly if you do not effectively plan an exit from a bridging loan. A good lender will make sure that you have planned adequate time into your loan term to mitigate against any unforeseen delays to your exit. Some lenders, like MFS, don’t charge for early repayment or exit fees. Therefore, if you wish to repay the loan early then initially intended, you won’t be penalised. A longer term just gives extra flexibility.

Not having an exit strategy can create additional stress when the term of a loan is nearly up, but it can also make lenders very hesitant to lend to you in the first place. It’s also not just unregulated finance that requires an exit strategy. Using a regulated bridging loan will also require one.

 

What makes up a good exit strategy?

Whilst you don’t need to have specific details for exiting your bridging loan the moment you embark on the bridging loan application, it does help. Understanding how you will repay the loan, even if the path is only semi-clear, is a big tick from the lender’s perspective.

Can you extend a bridging loan?

What happens if your plan to exit your bridging finance, but you have encountered delays? You may be able to extend your bridging loan depending on your lender and your circumstances. However, it would be beneficial to make sure that you allow yourself enough time for your plans when applying for the initial bridging loan.

We do not charge any exit or early redemption fees.

If you’re looking for more information on bridging finance or a bridging loan exit strategy, then contact the MFS team today.