The double edged sword
19th February 2019
Currently, we are arranging bridging funding for several clients.
The aim of a bridge is to take one from one place to another.
You’re not supposed to stay on a bridge, it is not designed for this purpose.
For one reason or another, there are legitimate reasons as to why investors would opt for a bridge. At the moment, lenders are taking notoriously long to approve loans.
In a situation where speed is of the essence, going to a conventional lender is not an option at the best of times, let alone if you’re facing some complications with the property.
Using bridging is like a double-edged sword. We have experience on both sides. On numerous occasions the bridge has served its purpose, and allowed us to buy properties with issues and we have come out successful. On one deal we made 40% per annum for our investors. On another occasion, we purchased at the top end of the market just as it was going down, and our costs went up, resulting in a loss of equity.
London is full of bridgers. There are many investors both private and corporate who wish to get a return on their money without having the headache of actually dealing with any property. The money comes in and out and their aim is to continually keep the funds being reused.
One client needs funds to purchase a development, and exercise an option to purchase a restaurant which he is currently leasing and has an option on.
Another client has had an altercation with the council, over a planning issue, resulting in the press catching hold of the story and spreading it all over the media; with the result no lender will touch him and not many bridgers either. We required someone to look at the case in detail and intuitively.
We used a bridging company when we purchased a number of units in NW London. The deal had numerous issues. Enforcement notices had been put on the title by the council. The flats had been constructed without planning. There were signs of subsidence. The freeholder was absent… and so forth. Not the sort of deal you can even approach a High Street lender with. These issues are good, it means many buyers will be scared off, as not everyone can quantify and assess each risk the building poses. If a lawyer looks at the issues they will typically scare the client into not purchasing the asset. In fact, this was the view point of the lawyer we were using at the time. We pressed on and purchased the deal overriding the lawyer. The bulk of the funds came from a bridge and we used this time to tidy up all the issues until the deal was in good shape to approach a High Street lender, with a more favourable rate.
If wielded correctly, bridging can be used as a powerful tool to execute deals. It allows one to move with speed, and to decrease the amount you have to put in a deal. However, you must be able to see the exit prior to going in.