Property Finance – Keeping it Simple, Fact or Fiction?

Posted by Alternative Bridging Corporation on 11th February 2022 -

My New Year’s resolution is to keep it simple because simple is good. And what is “it” and will simple happen? Sadly, unlikely because “it” is property finance and like life, “it” just isn’t always simple!

This does not mean how we issue heads of terms and explain our offers need not be simple, they can and must be – that’s being fair to our introducers and their clients. Clear and to the point, must be a priority with everything relevant included and nothing hidden in the small print.

We offer simple loans with quick completions and it is a proven fact that many loans are straightforward and can be processed without delay or complication. For example, why should a regulated first charge loan to Mr and Mrs on their home be anything less?  These regulated loans by definition must be completed in a consistent, defined way. However, delays are created by third parties, solicitors and valuers, especially those unaccustomed to the nuances of bridging finance.

But suppose it is a regulated loan including a facility to fund an extension, refurbishment or even a replacement new house. Then we must satisfy compliance that the loan is sufficient, can be repaid within 12 months and is in the borrower’s best interest. Not all of this is simple, but for those who understand the process, it can be done without pain.

Let us consider those loans which are advertised as quick and simple but should never be considered so, except by those who have never previously experienced them! First, a look at commercial bridging loans, often ignored or lost by introducers because of their assumed complexity. But if addressed properly on day one, lender and broker together can keep the application on track and avoid unnecessary delay.

When reviewing a commercial bridging loan, speed up the process by providing accurate, detailed information. The fundamentals are a proper description of the property, details of the tenants and the exit strategy. Dealing first with the property, Google Maps will generate a clear understanding of its location and probably photographs of the exterior and neighbouring properties, so a Google link will save a lot of words.

Then, the tenants’ details – their full names so that they can be credit checked, the expiry dates of the leases and the dates for any rent reviews or break clauses. If the loan is for an owner-occupier, an explanation of their activity in the premises and a copy of their accounts will help. For both owner-occupier or investment loans, if there is a previous valuation or estate agent’s particulars these will provide valuable additional information and assist the lender to prepare and issue terms more quickly.

Going forward, the valuation will often take longer to complete than that for an owner-occupied house or flat but then, there are more moving parts to review and comparables are less easy to identify and interpret. However, armed with good information as detailed above, the valuer’s task is simplified. Remember also that the valuation fee will be higher than for a private dwelling and also that the lowest fee does not necessarily attract the best valuer or report. A cheap and cheerful valuation will generate more questions than answers and will rarely satisfy the lender.

Finally, the legal process needs a competent firm of solicitors acting for the borrower. The more experienced they are, the more quickly they will provide the information needed by the lender’s solicitor to complete a detailed report on title. The man who did the borrower’s will or his house purchase may not be the right choice for a commercial bridging loan, quality will win through, save time and in the long term be better value.

Many bridging lenders have extended their remit to include residential development finance, some have years of experience and others are new to the game – you can guess which will provide the best service with the minimum fuss and bother! However to do so, they require proper information.

Usually, the borrower will have a copy of the planning permission, site/location plan, and plans of the house types in PDF form on file and can share them with the lender.  An alternative is to provide the name of the local authority and the case number and then all this can be downloaded from their website.

Central to the process is for the lender to accurately assess the experience of the developer. This can best be done by providing details of the principles’ qualifications. Also, examples of recent similar projects with copies of sales brochures or failing that, details of the site name and location and the content of the projects, and when they were undertaken and by whom they were financed. Where there is no meaningful development track record, the quality of the professional team and the borrowers business or professional experience will influence the decision.

Development finance demands far more detail than a bridging loan. This includes consideration of matters such as Rights of Light, Party Wall Agreements, contamination, the conditions contained in the planning permission and on and on. Having gathered together the information pack and passed it to the lender, there is one certain shortcut, a face to face or Zoom meeting with the lender and borrower to explore and clarify the detail you have provided, and this applies as much to bridging loans as development finance.

So, what is the conclusion on “simple”? It must be that it is a misused adjective when applied to property finance, but “simpler” can be achieved by providing accurate, detailed information on day one.

Click here to read the article in the January issue of Bridging Introducer.