James Anderson, head of new business at mtf, discusses how a bridging loan could help those borrowers who are asset rich but lack liquidity
Since the economic downturn, many property investors and business owners have found themselves ‘asset rich but cash poor, with the bulk of their wealth tied up in assets rather than in cash savings.
Although the UK housing market has enjoyed continued strong performance, mainstream lenders have implemented tougher affordability restrictions, impacting property investors and business owners that have struggled to release equity in their assets, faced with more hoops to jump through in a time-consuming process.
Bridging finance can present a real solution to those who are asset rich but lack liquidity, by providing a quick injection of funding to finance acquisitions and expansions.
One of the main benefits of bridging finance is the speed that borrowers can access funds. Whereas a mainstream bank can take several months to agree a loan in a process that can be stressful as well as time consuming, a bridging finance lender is often able to make lending decisions within hours of initial enquiry and release funds in less than a week, preventing borrowers from missing out on any time-sensitive opportunities that come their way.
What’s more, some bridging finance lenders offer loans on a non-status basis, meaning they do not take the status of a borrower into account. The financing is based on a property the loan is secured against, an ideal solution for those looking to instantly unlock the capital from their assets.
As an example, mtf recently helped clients who held a large portfolio of 15 residential investment properties in the Greater London area. The clients wanted to go to auction to acquire further assets at significant discounts and wished to leverage further equity from their portfolio as a pre-purchase facility.
As time was of the essence, they were immediately introduced to us, as their mortgage lender would not have been able to provide the funds in the required time-frame.
Mtf provided £600,000 secured by way of second charge over eight of the properties in their portfolio, at 65% LTV, based on the open market value of the assets. Mtf was able to release the £600,000 in just two weeks, at a rate of 0.95% per month over a six-month term. There were no exit fees, early repayment charges and no personal guarantees were required.
The bridging loan meant that the clients could go into auction and bid with confidence, being in the position of a cash buyer having already arranged adequate finances to complete the purchase. They will then refinance the property with a buy-to-let mortgage to exit the bridging loan.
Mtf is a non-status lender. We have built our underwriting process around a simple idea; the value of a property and the rationale of a loan are the most relevant criteria when assessing the risk of any bridging finance application.
We will take a view on CCJs, defaults and arrears and we do not require evidence of credit history, trading history, accounts, or proof of income. This allows us to take a practical, common sense approach to lending, to assist those looking to unlock the capital from their assets.