Laura Carr, head of underwriting at Hope Capital, says the business is dealing with an increased number of brokers with clients who already have an exit strategy in place before applying for a bridging loan.
Ordinarily clients get a bridging loan in place to make the property purchase, use the short-term loan period to refurbish the property or change its use, says Carr.
Then, she adds, they either sell it, or set up the long-term finance once the property has value enough for a high street lender to refinance it.
But Hope Capital has seen a number of trusted brokers coming to them recently where the exit strategy is already placed with a long-term lender before the bridging loan has even been agreed. Carr explains:
"One of the more common reasons why this is happening is when the broker’s client is buying an off-plan property to tenant. Many brokers that work with us have a database of clients – often overseas buyers – looking to purchase off-plan flats and apartments in concierge service type developments.
“They tend to be in good, central locations, in city centres which makes them highly sought after and therefore quick to rent out."
What tends to happen next, she says in a blog on the company's website, is that the client is served notice to complete on the purchase, and though the long-term lender may be prepared to lend, "they cannot turn it around in the time scale needed for the client to secure the property – usually 10 days. The client has paid the deposit, so cannot afford to lose the property, but if the lender can’t deliver in time, they need a solution".
This is where a short-term specialist lender such as Hope Capital can step in. They are able to offer a three or four month bridging loan, which can enable the client to secure the property. Their broker can then go ahead and finalise the long-term refinance for when the bridging loan comes to an end. She adds:
"We are also seeing situations where borrowers have perhaps assumed they will be able to put finance in place – perhaps for an off-plan purchase, or for buying at an auction – and then realise that with a long-term finance, the criteria are different.
"Lenders need bank statements, employment history etc. and all of a sudden, although the lender is prepared to lend, they can’t get it through in time.
"This is often the situation at auction. The borrower knows they can get the finance in place with a traditional lender, and potentially have an agreement in principle, but until they have won the auction, nothing can be done. But then when that hammer goes down, the borrower is legally bound to buy the property. They have to pay the deposit there and then and need to be able to provide the remaining funds within less than a month or they will lose their deposit."
In these cases, bridging finance is the perfect solution, says Carr, adding:
"The broker can come to us and agree heads of terms. Because of the timescales involved, we will accept short form valuation, and then if they get the place, they can call us and get the ball rolling.
"We are really starting to build a reputation with these types of cases as brokers know that we can turn things around, whether it is foreign buyers purchasing a property off plan or helping a landlord secure a buy to let purchase at auction."