Mortgage introducer Q & A’s

1. What is bridging finance?

Bridging finance is simply short term finance. It is usually required until traditional forms of financing are in place or where funds are required quickly to secure a property transaction. It has many other uses like property renovations, chain breaking, auction purchases, below market value purchase, cash-flow assistance, overseas property acquisitions, meeting tax liabilities, business acquisitions etc.

2. Is bridging finance easy to arrange?

Yes. The majority of times you can ring up a short term lender or simply fill out an enquiry form online. As many high street lenders are declining applications or simply taking a lot longer to make a decision, more brokers are turning to bridging finance to secure a property or drawdown on funds quickly.

3. Many bridging lenders have reduced their LTVs. Why is this?

There are two main factors contributing to this, the fall in the capital value of property and the considerable reduction of exit routes for the bridge. The last couple of months we have seen house prices increase which is great news for lenders as it brings confidence in the market, but we are still seeing exit routes becoming harder to come by as traditional lenders become have become picky. Cases where a high street lender has agreed an agreement in principle to lend and then change their mind at the very last minute is all too common.

We have found that commercial mortgages are still very difficult to arrange thus I think the LTVs for commercial bridging finance will still be low until the market improves. Again the HMO market is difficult as many of the high street lenders have either reduced their LTVs considerably or pulled out of this sector completely. Bridging lenders usually have their LTVs lower than the traditional lenders.

4. What’s your view on Link lending going into administration?

It is very sad to see a major bridging lender like Link Lending going into administration. We are here to help brokers with any bridging enquiries they may have.

5. How do you view a below market value purchase?

There are many instances where investors are picking up property as substantial discounts to their true value from distressed sellers. During the glory days when some mortgage lenders allowed same day remortgages, lending 100% of the purchase price was very common. We now want to see some level of commitment from the client. It is very common for borrower to just walk away from a property if it goes sour especially if they haven’t really put any of their own money in. Therefore we ask for a 15% cash contribution towards the purchase price.

But brokers should be wary of very deep discounts as there could be some element of fraud taking place. A common sense approach needs to be taken. You need to ask why the vendor is selling at such a deep discount. Will the vendor not get more if just he sticks into an auction? These questions need to be raised with the client.

6. Many bridging lenders are a target for mortgage fraud. Is this true?

Yes most certainly. Brokers need to be aware of the current scams and frauds being pulled off by organised criminals. Again a common sense approach needs to be taken as many criminals now change the land registry details by identity fraud. They then ultimately try to obtain a mortgage on the property without the real owner knowing what’s happening. This usually occurs in very low LTV deals where the prospective borrower has only owned the property for a couple of months. For example if the prospective borrower currently lives in a terraced house but owns an unencumbered Mayfair property which was bought only a few months back then alarm bells should be ringing. Criminals target bridging finance lenders due to their speed.

7. What’s the usual term for a bridge?

In the past our average terms for a bridge were three or four months. As many of the traditional mortgage lenders require the borrower to have owned the property for at least six months, our average term for a bridge has increased to seven months.

8. What do you think about the future of the bridging sector?

The bridging finance sector will continue to grow as brokers gain more knowledge and learn how easy it is to arrange a bridging loan. Currently there has been exponential level of enquiries as traditional forms of finance have diminished.

Commercial finance is still very limited. Avaerage LTVs are now 50% on investment property with owner occupied being slightly more. Avdertised LTVs are no way near to what is being actually offered. This has made is harder to obtain exit routes for commercial bridges which in turn has kept our LTV at the same post Lehman level. There have been some positive signs in the auctions in particular the Allsop auction where prime lots have achieved sub 4% levels, but the majority of secondary and tertiary positions are still struggling.

Director of Mayfair Bridging Shoaib Bux comments on the recent FSA’s mortgage market review. Bux said, ’’I really do not feel that buy to let needs to be regulated. These types of mortgages are based on an investment transaction. Borrowers take out these mortgages for either capital gain or yield. I agree that more needs to be done to protect the tenants when buy to let properties have been repossessed, but even then this already exists if consent to let the property has been taken from the lender’’.

‘’Already guidelines are in place for repossessing properties. The FSA should turn their attention to the copious amounts of unsecured debt borrowers can take out in a matter of minutes online. Nothing prevents a borrower from taking out another five credit cards. From my experience the main reason why properties are repossessed is that there is just too much unsecured debt in the background. Borrowers cannot keep up with the repayments and therefore start missing payments. Lenders should not be blamed for this.’’

‘’Buy to let mortgages are purely a commercial decision. Many of our borrowers buy these properties to refurbish and then ultimately sell on for a profit. This profit is calculated into their business model. They know what price they should pay for the property, what would be the cost of refurbishment and the time taken to market it for a sale. Therefore to say these mortgages fall into the same realm as an owner occupied mortgage would be incorrect.’’

‘’Mayfair Bridging is not against regulation but the FSA need to think more deeply about putting buy to let mortgages in to the same boat as owner occupied mortgages. The reasons for why a borrower takes out a mortgage to buy a house to live in are completely different to that of a property trader. There is a clear distinction.’’

‘’ I fear that the market may get over-regulated which would make very difficult to get any sort of finance. Self certification mortgages need to be reviewed but a blanket ban will hamper the self employed from getting a loan.’’

Please note that we are happy to help any brokers that have submitted cases to Link lending. Please speak to new business today.

RICS surveyors have reported lower enquiries and some estate agents have suggested a ‘flattening’ of new prospects. Although house prices have risen many economists have reported that this is due to the sheer lack of stock as opposed to any pent up demand.