Double edged sword 

Currently, rates, especially for commercial borrowing, are around the 10% mark.  I spoke to a client only yesterday, who fixed a deal for 10.49% for 5 years.  Some may say this was not a wise move.  Clearly this client is expecting things to worsen, or he may just want the comfort of stability, knowing what he will be paying for the five years; and this is the price he’s prepared to pay for this comfort.  Bridging lenders too have started to edge the prices up, someone we work closely with has moved up from 0.8% pm to 1%; which, relative to what’s going on in the market, isn’t actually that much of a hike.   

There are some seasoned investors who would not touch bridging with a barge pole.  We certainly have a few tales to tell in this regards.  However it is a tool which has its use, but needs to be used very carefully; the end goal must be in sight and executable before one enters into a bridge.   

Recently we used it to complete an auction purchase.  A property failed to sell at auction, and so the price was agreed post auction at about 30% below market value.  Given the small size and the location, this is an exceptional purchase.  We certainly haven’t come across a deal like this for a few years. 

As it was a simple BTL flat, it was anticipated that a conventional BTL mortgage would suffice.  We ran two applications in parallel, one lender took issue to one of the clients having a £2M mortgage in the background, and the other lender took issue to the other client having too many debts in the background.  All this was taking up valuable time.  The 28 days were coming to an end, notice was served, after this point one has ten days to complete or the deposit gets forfeited.  

Luckily we have a relationship with a family office who has private funds to deploy, these were deployed without the need of a valuation, due to the past relationship.  This saved valuable time.  However, we still had the lender’s lawyer who it seemed to us was finicky over every minor point; no doubt our perception was skewed due to the time pressure we had to complete under.   

However, we managed to get the deal funded within the notice period.  We have a third remortgage application running alongside which will be the exit for the bridge.   

The aim is to hold on to the asset for a five year period, as there is more growth to be had in this location.   

The discount can be tapped into by way of a refinance, rates permitting.   

The property is occupied by a tenancy unknown which is the reason for the discount in the auction.  Our local intelligence tells us this is an AST, therefore this can be dealt with in the normal manner, i.e. by serving the relevant notices and evicting the tenants.    Once the property is rented at market level most of the money put into the deal can be extracted by way of refinance.  Allowing the client to be in a position to purchase again and take advantage of declining market conditions.   

Suresh Vagjiani
Suresh Vagjiani
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