Bridging Finance – is this a good deal for me?

by Readers Question

9:29 AM, 29th January 2020
About a month ago

Bridging Finance – is this a good deal for me?

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Bridging Finance – is this a good deal for me?

Hello all, I’m new to this business and working on setting up my first HMO and have another post running elsewhere on the forum about legal aspect and would also appreciate some advice about bridging finance, in short my thirty plus years pristine credit history was shot to pieces when my marriage went into disarray and mortgage payments were missed giving me an Experian score of around 622.

I’m intending now to buy out my soon to be ex – wife’s equity in our property and clear the mortgage so thinking of bridging finance to achieve this and then once I hold the full freehold take a secured interest only loan for 12-18 months after which my credit record should be good enough to move across to mainstream interest only provider. once I have the freehold I will use the house as a small ( 5 bed ) HMO

I’ve been offered bridging at 0.65 % with £4,690 arrangement fee with all monies due paid at the loans end, this will cost me £1,619 monthly and I estimate needing to bridge for 3-4 months, i.e. circa £8-11 K

I will also have associated legal cost and also for survey, but interested to know if the rates quoted are in line with the general market for this form of lending please? The property has a value of £404k. All advice / info would be very welcome, thanks all !

Steve



Comments

Neil Patterson

9:34 AM, 29th January 2020
About a month ago

Hi Steve,

The interest rate sound OK, but you don't mention the exact amount of loan required.

Where I would be careful is that mortgage lenders in particular are fussy about any mortgage arrears in the past even if technically your credit score is now higher. They often have criteria about how many years ago and how many months the arrears were. You will need to check this out first if you are planning on converting to a mortgage after the shorter term loan.

Steve FLS

10:24 AM, 29th January 2020
About a month ago

Reply to the comment left by Neil Patterson at 29/01/2020 - 09:34
Hi Neil, thank you very much and point taken, I will be looking to borrow £240k after the initial bridging on unsecured interest only for up to two years against property valued at £404k, I've asked the broker dealing with the bridging loan for a written offer in principle which will hopefully help when speaking to other providers about the secured loan, I'm also looking to see if there is one provider who could provide both elements of the lending to make the process more straightforward....in meantime spending the day with phone glued to my ear ! Thanks again, Steve

John Stallan

11:10 AM, 29th January 2020
About a month ago

Hello Steve, As Neil has already said, the missed payments on a secured loan (mortgage) will be scrutinised by any lender. Any BTL borrowing with adverse credit history is harder to achieve than residential borrowing.

Financing HMOs as a first time landlord (FTL) will not give you much choice in the market (normally Kent Reliance will consider), but if you can get it tenanted for a couple of months prior to the BTL mortgage, then Foundation might also consider (as they won't see you as a FTL).

Give me a call if I can be of assistance - 07788 219647
John Stallan
H D Consultants

JohnCaversham

11:12 AM, 29th January 2020
About a month ago

0.65% pay rate is very good!-In fact i'd like to know who you are using (if you're allowed to on here!¬) We use bridging from time to time and we're usually at .75-1% . The first one we did was 1.1%!...Your fee's are just less than 2% which is typically 1% in and 1% out which is comparable to other lenders, check there's not an excessive a broker fee hidden in there too, but if i was offered that bridging deal for a small project i'd sign up, you won't do any better...Rgds John Maynard

Joe Robertson

11:46 AM, 29th January 2020
About a month ago

Hi,

A couple of points to consider:
First time LL not likely to be granted a HMO mainstream mortgage (at least at favourable rates) without proven experience of previous standard AST's in place.

HMO licence may not be granted on the same principle?

Will you be living at the property?

Can you afford the bridge if the property was empty for several months whilst you learnt the ropes and complied with HMO licencing and property renovations?

Can you afford the bridge at 50-75% occupancy?

Bridging CAN be good for the skilled and experienced. It can also be very very crippling for the inexperienced/ unfortunate.

Be certain of your escape route.

Steve FLS

20:13 PM, 29th January 2020
About a month ago

Reply to the comment left by John Stallan at 29/01/2020 - 11:10
Thank you very much John I will be giving you a call Thursday, Regards Steve

Steve FLS

20:30 PM, 29th January 2020
About a month ago

Reply to the comment left by Joe Robertson at 29/01/2020 - 11:46
Thanks very much Joe, have had a very useful meeting with the LA HMO officer today and she could not have been more helpful and is making a site visit next week, so far no insurmountable licensing issues, the bridging loan will be on 'rolled up' basis rather than serviced so the plan is to have it just long enough to pay off existing mortgage and estranged wife's equity, I'm intending that the interest only secured loan will then be available once I have the freehold and have spoken to letting agents here in Durham City and so far have no reason to believe finding tenants & full 52 week occupancy will be a problem, though I agree that's always a risk.
I have alternative accommodation via family and will know more about the scope of works needed for conversion to HMO following next weeks site visit by the LA HMO officer, I appreciate your note of caution and considering each issue as it presents,have to say that the support here is proving absolutely invaluable, thanks again Steve

Steve FLS

20:37 PM, 29th January 2020
About a month ago

Reply to the comment left by JohnCaversham at 29/01/2020 - 11:12
Thanks very much John, that's really reassuring. I'm happy to share the brokers details with you but I'll check with him that he's okay with my doing that first - will be very surprised if any issue but I should extend him the courtesy, will be in touch in meantime best regards Steve.


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