21st April 2020
Lenders are coming back on the market again. There are two things they are doing to protect themselves in the current market: one is lowering their loan to value thresholds, and the other is conducting desktop valuations. The latter is only to protect their surveyors from being contaminated.
We have recently obtained terms for a bridge at only 0.74% per month for a deal we have exchanged upon. The surveyors will either visit the property and do a valuation, or simply do a desktop valuation.
Currently, there is an exceptional opportunity with obtaining finances; bridging lenders are in principle happy to lend upon the valuation of the building rather than the actual purchase price. This means any discount can be used as part of the deposit, potentially one can get full funding on deals where the discount is of a sufficient level.
This is the principle of lending which used to exist prior to the credit crunch; where, if structured in the right manner, you would be able to obtain the full value of the property – and much more. This would be subject to the level of discount you could get, but then loan to values were very generous. Mortgage Express were lending 90% loan to value and Northern Rock where lending 89% LTV. I guess this high, and probably reckless, lending is the reason why neither lender exists currently.
Bridging typically loans about 70% of the value of the property. There are hundreds, if not thousands, of lenders in the market ready to pour money into London property. Some who are more of an informal outfit, meaning it’s family money, often they have already made their money, they are at a point in their lives where they do not want/need a headache, and cannot be bothered to get involved directly with property projects. They just want a decent return on their funds.
Because the market has become flooded, the rates have gone down to a very reasonable level given the type of funding they are doing.
In a bygone era, when I first started in the property and property finance industry, there were bridgers who used to lend at 1.5% – 2% per month; and there were takers.
At a rate of 0.74% per month this only comes to just shy of 9% per year.
The idea of a bridge is not to stay on there, it’s a short cut to take you to your destination quicker. If you stay on there you will drown, unfortunately we know this from first hand experience.
You shouldn’t really stay on a bridge for more than 6 months. This is enough time for you to tidy the property and get to where you want to be.
Bridging can be a powerful tool, if used in a cautious and prudent manner. The benefits are the criteria for lending is a lot more relaxed; a main stream lender will want every t crossed and i dotted, and then make up some more enquires, probably under the guise of money laundering. It might just be a poorly paid underwriter being very nosey.
The other benefit is the money is lent on the valuation NOT on the purchase price.
There is still plenty of money in the market, which is looking for a home in London property. I say London, as opposed to the UK, as lenders will be concerned regarding the location, and London has always been viewed as a safe bet.