The Client
We recently were successful in assisting a First time Landlord client in purchasing a standard 3 bed Victorian terrace. Their goal was to turn the property into 6 bed HMO by extending to the rear and converting the loft space.
The client only had enough funds to cover the initial deposit, stamp duty, fees, and the initial tranche for phase one of the works.
The Property
Since the property was to be heavily refurbished and developed, obtaining a traditional mortgage for such a property development is just not possible. Typically, lenders will only lend you the money to buy the property, meaning you wouldn’t be able to carry the conversation. Plus, with such significant works being carried out lenders would have major concerns about their security, probability of the works completing and future value.
Contact us today to discuss Bridging Loans and how we can assist you.
This is where a Bridging Loan works perfectly and really adds value.
Most Bridging Lenders can lend up to 70/75% net of fees to help buy the property, based on its current value, pre conversion. In addition to this, they can also lend a further sum of money to assist the completion of the major building works. Typically, a facility of up to 70% of the Gross Development Value is available. (GDV = value of the property after the works have been complete).
In this clients’ particular scenario the property was purchased for £345,000. After the works were completed, the property was worth £650,000.
Note – 100% LTV for bridging finance is available if you have additional security in the background.
To add even more difficulties to the equation, the client had never completed such a development / refurb project before, nor had any building or landlord experience. Most bridging finance lenders would require you to have some exposure in this type of environment.
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The Resolution
Despite the limitations, we were able to secure the client a competitive deal that enabled to them to complete the transaction and finish off all the works needed.
However, it doesn’t end there… Like any form of finance, bridging loans also need to be paid back, usually within 12 months.
Typically, there are two repayment strategies for bridging finance:
- Sale of the asset, OR
- Refinance the loan onto a traditional term mortgage
In this client’s scenario the exit plan was to refinance as they wanted to benefit from the rental income.
This posed another problem however, as the client was considered a first-time landlord, having never let a property before. On top this the tenancy was for an HMO and the property was to be owned/let via a Limited Company.
The majority of Buy to Let lenders will not lend to applicants looking to arrange a HMO having never had any Landlord experience before, as they consider this type of buy to let very specialist and high risk. However, this wasn’t an issue for us, we were able to source a competitive HMO Mortgage deal for the client enabling them to pay off the bridging loan within the loan term and achieve their HMO landlord dreams.
To know more and speak to one of our Bridging Finance Experts, call us now on 03303 112 646. You can also fill in this short online form to get started. Our team of Bridging Loan Experts will get back to you straight away.