Bridging loans have been conversely vilified and celebrated over the past ten years. Our attitude is that done right, by a responsible lender in a situation appropriate to the client’s need, it’s a very useful product to have in your arsenal as a broker.
A situation that is seen all the time where bridging loans really come into their own is where the borrower needs the money fast. This is often the case in property development – even where the developer is not building from the ground up but is refurbishing an existing property for resale or to let.
We recently completed just such a deal for a developer who found himself in what could have turned into a very expensive predicament.
Having taken out a short-term loan with one lender to develop six properties, the works had taken longer than initially expected and the term of the loan he’d agreed was about to run out – in a fortnight.
Worse, the bridging lender he had originally borrowed from were planning to charge him huge penalty fees that would likely wipe out his profit given that he estimated he needed the loan for another three months minimum.
To extend his existing loan wasn’t an option either – the lender wanted to charge him extension fees on top of the penalty fees. But on terms similar to the original loan, the commercials stacked up, the exit was evidenced and profits would be made.
Lucy Hodge, director at Vantage Finance, said: ‘This is a very typical situation for developers – it’s notoriously tricky to be precise at the outset of a building or refurb project exactly how long it will take. Developments have a habit of throwing curveballs into the mix but that shouldn’t mean the whole thing falls through. We were able to refinance the loan with another lender who could see the value in the deal within the two weeks he needed so he didn’t have to pay any of the additional fees.”
Loan amount: £1,006,520
Rate: 0.95% a month
Overall LTV: 50%