Bridging Loans

A bridging loan is short-term finance. 

The name comes from bridging the gap. Bridging the gap for what you want to buy.

Bridging is short-term finance, which can help you with a solution that you’ve got in front of you that you want to buy. 

Regulated is a property that you live in. So, the house that I’ve got in North Wales, that would be a regulated bridge. So, examples of that could be that you’ve got a chain break scenario. You got stuck in a chain, you’re really put under pressure, and you want to buy that property. You could use a bridge to utilise that and exit on to a long-term lender, maybe even a High Street lender for that.

An unregulated bridge is basically around a property that’s an investment. Investments for buy-to-let landlords, it could be HMO’s, It could be just normal, we call it residential, buy-to-let property. It could be anything, it could be conversions. And that’s where you get into the complexities of bridging then, via what the different lenders do. So, whether it be developments, refurbishment, could it be equity release for a multitude of reasons. That’s the difference between unregulated and regulated.

So sometimes bridging gets labelled as if it only has one use. It’s used for speed a lot of the time but it’s also a problem solver.

Bridging loans can be for any legal purpose. So, I’ve seen people draw money for tax bills, which will then be paid and recouped from future business, or shares being cashed in, or sale of the asset. Lots of different exit routes on that.

I’ve seen it being used for auction purchases. So, when you need those 28 days deadlines to be met then that can be used a lot of the time for that as well. Commercial, commercial refurbishments, second charge bridging as well. It could also be useful with what we refer to as re-bridges.

So, they’ve taken out a bridge, COVID’s a great example of this. They’ve taken out a bridge where they’ve just run out of time because they haven’t been able to do the refurbishment, or they haven’t been able to sell the property in the time given. We take out another bridge, which is a re-bridge, to do that as well. So multifaceted uses for bridging, and we haven’t even touched the surface of what we can do and use it for there.

It depends on the lenders and let’s go back for a bit of history. Bridging sometimes had a bad name out there with customers, because it’s seen as ultra-expensive, rates up in the one-point-something percent per month for just a normal auction by to let property.

Competition in the market, along with the different funders that have come into the market now, as an example some big institutional funders are coming in, you’ve got JPM, who back ourselves, the Morgan Stanley’s of this world, etc. Competition does drive down the prices.

So, bridging can range from, and I’m sure there’s a few below this, but from 0.45 up to the 1%+’s. The 1%+’s tend to be for the development deals or maybe the riskier type of deals.

Our average rate here (at Glenhawk) is around 0.74% for what we do, but we can start rates from 0.65%, and I do still do quotes for those types of deals out there as well.

So, it’s really important when you mention rates to qualify that, for regulated, it would be a rate card, so whatever your loan to value is then it would fit into that rate.

With unregulated, what we do at Glenhawk is price up the deals accordingly right at the start. And that will be based on the commerciality of the deal, the experience, the net wealth position, A&L. So, the more information you give us at the start, and we’d never change your rate during the loan as well, which some lenders may do, we will price it accordingly based on the case. And I quite like that sort of freedom for the customers and the broker themselves as well. (Subject to change of course and as of September 2021)

Okay, so if you’re on regulated, you’re on a rate card and it’s very easy to understand that I guess. In terms of non-regulated, is it a bespoke pricing deal across the industry really?

It is with Glenhawk. No, not across the industry. So, remember, each lender totally different. So, you’ll get some of the bank lenders who are out there, obviously retail funded through their savings, who will potentially have rate cards as well for their unregulated, but they may not do the criteria that other lenders like Glenhawk do as well.

There’s a hundred-odd lenders out there, 166 to be precise on that, but I think it’s growing most days, but it’s not to say that we all do the same thing. Bridging is multifaceted.

The other thing that’s important when you think about rates, that’s not the only thing to consider when we’re talking about sort of percentages, you need to consider what the arrangement fees are, which ours at Glenhawk are 2%, but also exit fees as well are really important.

We don’t charge an exit fee here at Glenhawk. That is one of the old practices that, yes, it’s still around with some lenders in the market, but we don’t charge an exit fee here at Glenhawk. We want it to be transparent and right.

Well, I wouldn’t proceed with any loan here at Glenhawk without knowing what the exit is. So, when I’m pricing a deal right at the start myself and the Managing Director here Nick Hilton, I would be looking at the exit and working backwards.

If I’ve got terms that are available to an unregulated, which are maximised at 18 months, on regulated 12 months, can we exit in that timeframe because we don’t want any customers being stuck on a bridge. It’s not good for us. It’s not good for them, and it’s not good for the future plans that they have as well.

So, the exits could be refinance. So, refinance to one of the longer-term lenders. 

It could be that you’ve done it due to the planning situation. There’s another reason to buy property. You bought a piece of land, that’s got planning enabled on it. We’re just doing it to secure the land now, the exit could be a development lender. And after that, it could be a sale of the assets. So, the sale of properties and the assets is a massive exit route that’s always put forward to bridging lenders as well.

There are lots of others, cashing in investments and different scenarios as well. You could be selling something else in your portfolio. Lots of different reasons. And that’s why each bridging case is never the same.

In terms of credit profile or looking at the lending picture for that, is that something that is down to the borrower solely, the mortgage broker, and/or the lender?

All involved. Everyone should be involved.

So, if we’re talking about customers coming through a broker and not coming directly to Glenhawk, which they can, but they’re doing that sort of triangulated advice and help in the sense of the lender, the customer, and the broker, all of us should have an eye on that.

It’s not my credit report, it’s the customer’s credit report, so they should always be mindful of what that is and be transparent with the broker about what it would be. Because they could place a case with us that’s got, I don’t know, a bankruptcy that’s only come last week, and that wouldn’t wash with us. They’ve wasted time for the broker and the lender themselves then.

However, we will look at the credit of the customer at the outset. Yes, we do allow some adverse credit in there and we’ve got parameters of what we can get comfortable with. It’s not set in stone in the sense that we can work and have an explanation from the customer. But the brokers should know that as well, because the last thing you want is progression of a case then there is something that we find out later on down the line, maybe after you have paid for a valuation and legal fees as well. So having that understanding of the credit at the start can save you time and money.

We will always ask for the credit report and assets & liabilities, so the A&Ls for that, just to get a picture of the customer and see what their net wealth position is, and I’ll see what their cash position is as well. That can make the difference between us doing a deal and not, really.

So, us knowing about that at the start when we are pricing up the deal. But again, if you’ve got a deal where you’re going to have the retained interest and not service the loan, we won’t kill you with paperwork requests. We won’t need the bank statements that some of the lenders even just want to have a look at, even if they’re not servicing the loan, we want to keep it as minimal as possible. Sometimes photo ID’s, proof of address, etc. Sometimes it’s as minimal as that right at the outset. And then the solicitors will deal with certification of those later down the line.

There’s absolutely a lot of solutions. When you’re going through that, I’ve got about three or four different answers I can go to, but it’s all about communication.

So that’s the communication at the outset. Nobody enters any type of finance, or they shouldn’t do, without their eyes wide open, whether that be the car finance that you’ve taken out, or whether that be the property that you’re going to buy, knowing what your future plans are, or whether that be the bridging finance itself. You should go in there with eyes wide open and get the appropriate advice if you’re not experienced enough to know what bridging does. But then communication.

So, if your exit route is not there, we will be looking at contingent exits for, as all the lenders should be, looking at whatever ways they can get out of the bridge and repay it and redeem it at that time.

But if that happens with another lender, let’s say, and you just haven’t been able to sell the property, maybe it’s nothing to do with the customer’s fault as well. They’ve got down to the wire and the person buying, purchasing their property, has just fallen through. It’s fallen out, the chain’s broken down. We can look to re-bridge those cases. If it’s a viable option for ourselves, we can re-bridge. Now that isn’t that secondary bridge, but that stops maybe the other lenders potential higher interest rates they could charge, or exit fees and default rates, that they could charge at that time. So, re-bridging could be an option.

If it happens at Glenhawk, what’s the option? Again, we don’t just allow you just to come back in 12 months if you’ve got a 12-month term and say, “oh good, so you’ve repaid us.” We will talk to you. We’ve got an excellent service team here headed by Joan Drummond, who will be constantly talking to you during the lifetime of the loan to see how you’re getting on, how you’re getting on with the refurbishment, how you’re getting on with the sales times. And a lot of lenders will then work in the background and say, well, you had the property up for X, maybe we should look to reduce and market that now at Y, to give you the best opportunity to jump off this bridge and reach the goals that you want. Communication throughout.

They’ve all got their own principles of what they do, but in the market, I mentioned I’m not going to tar somebody, but in the market, there are 5% default rates as standard by some lenders out there. We have got a facility letter that will confirm what the details are of what we would charge. And that’s a 1% facility fee that we can charge if you go over the term. However, let’s go back to the communication part.

We are very flexible with people who are talking us through, I had a case only just last week, that has had added an extra one-month term. The reason for that is that on their exit route, which was a refinance, their legals have just been delayed. Maybe that’s to do with stamp duty and them just having too much work on at the moment. But on that case, and it is dependent on the case, we allow the customer to have the extra one month without the 1% charge on that. Now, if there was no communication and they just put their head in the sand and wanted an extra six months, that’s when we could enforce the 1% facility, but that’s what we do. Other lenders have got their ways of doing it, but you should always be, when you go into it, reverse engineering it again. Have a look at the facility agreement that you’re given and make sure those terms are right for you. Eyes wide open.

It’s a great question. Better to have, if able, a bridge for a longer period than a bridge too short. We don’t have early repayment charges here at Glenhawk. And the reason is that our founder, Guy Harrington, is a property developer. Guy set up a bridging company, Glenhawk, because he didn’t like those early repayment charges and the lack of transparency with some of the lenders he was using. That’s not all lenders and they’ll all have different views on that, but we don’t charge early repayment charges to that loan.

So, the longer-term sometimes is taken.

What I would suggest if you’re doing a refurbishment loan is that some people even when they think that they could sell that property, maybe, within a six-month term, is to really be realistic. Make sure that you can have, maybe a 10-month term, 12-month term, whatever it may be, as long as it gives you the net position that you want out of it because if you repay early, then you only get charged interest on the daily amount that you pay up to. Better to have, if able, a bridge for a longer period than a bridge too short.

Other than the facility/administration fee what other fees are involved? I’m assuming surveyor’s fees, solicitor’s fees, anything to do with the title……?

Yes, so there would be all the legal fees and that would depend then on the type of deal itself as well. If it was regulated and you’re just purchasing the property that would probably be much more cost-effective conveyancing than if you were buying, I don’t know, a block of flats with mixed commercial, with all different commercial leases on them, e.g., a lot more work for the solicitors. So, we’d be able to get you the quotes on those at the time.

Obviously, when you’re lending, we’ll add our valuation fee as well, so those come into it. You’ve got the arrangement fee for us at Glenhawk, plus you will have other additional costs like the TT fees, I was just thinking of as well there, and maybe some title insurance fees on there as well. However, they are all detailed, always, on the terms and they are detailed on any facility agreement when it comes to regulated for you to digest. So full transparency on the fees when it comes to it.

Let’s go back a step. So, you know, the customer must have known that they’re going to an auction. It’s not like you fall into an auction and fall with your hand up and then suddenly go, oh my god, I just own a property. So, it’s all the planning and preparation beforehand. So, I always say, make sure of course that you’ve got the deposit. Make sure that you know what your plans are and where your limit would be for what you’re going to put your hand up to in the auction. So don’t get too excited. You’re talking to a man, that gets too excited in auctions by the way, so you know, take my advice, not what I do sometimes!

You’ve made the plans and you know where your cash position is, and you know where your plan is. And you know what your limitations and your team around you is. I don’t know everything about bridging. I’ve got an amazing team that knows lots and we all together go in together. So that’s what your developer, when you’re buying that one at auction, should do as well.

Do you know what type of property you’re going to buy or focus on? Do you know how much work is going to be needed on it?

Then the question was around, so you’ve entered the bridge, you bought that within the 28 days, well we wouldn’t let you draw down on the bridge straight away, because we would know, and so should you, when the valuer goes out as well, what the expected rental would be after you’ve put in what’s called a schedule of works. So that schedule of works will detail what you’re going to do to the property. So not just what the property is worth now, the valuer will go out, they’ll say what it’s worth when you’ve done the work that you’re going to do with it. They will give you an expected rental amount of that then.

Then what you can do then is work out, or with a broker, on the intermediary websites that are for the term lenders out there, and the buy-to-let lenders have calculators that can work out if you can exit off that loan, and it will give you the amount.

I keep on repeating it, but I really want to stress the importance of reverse engineering it. Plan backward because your auction purchases can be really a good experience if it’s done properly.

I think there are a few routes that you can go with this. Now we know that property prices have been going up and we’ve seen the boom. Fortunately, I’m in the right industry for that. There are other industries that have really suffered. So, I’m glad I’m in financial services and property in that sense. But I think people if they’re refinancing a property or even if they’ve got a piece of land, need to have a good view about what they think their property is worth, not just actually what they want it to be worth.

That’s when down valuations really come to fruition. If I was going to really sort of “lender” about this, there’s no such thing as a down valuation, it’s just the correct valuation attributed by the professional. But I’m sure I’ll get shot for saying that!

It’s knowing what the property is worth and having a look at comparables in the area yourselves before you value up that property. Valuations being down valued, let’s keep on using that word, is a thing in the market, but I don’t see a lot of it, I must admit.

We (at Glenhawk) lend off the OMV, so the open market value of the property.

However, other lenders will work off their 90 days or 180-day value. So, on a 90-day value, that could be a 20% decrease. And what that means for you is that you won’t be able to pull out as much in terms of a net position as you may want to. So, the net loan will not be as much, you’d have to put in more deposit and maybe you don’t have that, and you may lose that property. So, choosing the right lender, which could be us, that lends off the OMV.

Even if it’s commercial, which we lend on, in some funky commercial sort of refurbishment deals, commercial to residential deals, we allow you to do that under permitted developments or planning as well, you know, which is two things that if a broker, or customer, or developers reads this, they really need to understand and get a grasp on PD and planning. So, we’ll allow you to do that.

Re-bridges, which I’ve mentioned before, is something that we’re very good at, and we can help both on regulated and unregulated.

When we talked about regulated there, one of the things that’s really good is that people want to develop their properties more, maybe not even want to buy another one. Maybe they’ve got an extra child on the way. Maybe, they just want more space.

You can do the development of a property, whether that be structural refurbishment under a regulated, or that could be under planning or PD again, or internal refurbishment. That is what our regulated product does, which is pretty much different from a lot of the other lenders out there as well.

So, some really good scope and some of the really heavier deals, you know, we can look now at some airspace builds, so building into the airspace. We can have a look at cases with 100% of the costs. So, if your work’s right up to 100% of the cost and lend on that as well. So, some really good areas.

As I said earlier, no bridge is the same. Explore what you don’t think is possible sometimes because the property that may be in ruin and disrepair, could be our dream security.

Well, the number one would be, this is where the salesman comes out, but talk to us, talk to Glenhawk because other than just funding bridging, we help with the education. So, I love that culture of education of helping you do your first bridging case. Then helping you with your next five as well. As you see, it’s a really viable solution. Too many times that somebody hasn’t used bridging and they’ve tried to shoehorn it into a different type of funding mechanism. That’s when you can talk to me and my team about that. So that would be my top tip. 

The next tip would be, make sure you’ve got all the facts. So, present us all with the facts right at the start, because you do not want to find out about something at legals that could kill the deal later on down the line. So as much transparency with us at the start will allow us to be as transparent with you on our terms as well.

The third one would be, do not be scared by bridging.

Whatever you’ve heard in the past about bridging, this is short-term finance and a very viable solution. There are no problems with bridging, just solutions, and that’s what we’re here for. It’s here and playing its part as well in buy to let residential and the second charge market. 

Click on the below links for useful posts for property developers:

What are the new rules for permitted development?

Property Developer & “BRRR” Special

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