Overcoming underwriting hurdles in bridging finance
Scott Marshall, Director at bridging finance lender Roma Finance, discusses how going the extra mile to fully understand each case can lead to lending taking place even when problems arise along the way.
When looking at a new bridging finance case, it’s important to make quick decisions, but it’s vital to make the right quick decisions. What I mean by that is, once the basics of the case are established, for project viability, LTV, credit, transaction structure, then although time is of the essence, there is a need to look at any factors that may cause a problem either now or in the future.
The sort of issues that may cause some sleepless nights include change of use permissions and property classes, HMO licensing, lending across multiple properties and having to take a commercial view when a borrower is facing repossession. Also, when providing a loan which is dependent on another loan or a permission that needs granting, it can be tricky to co-ordinate timings so that things happen in the right sequence.
With the right approach and by digging a little deeper into a case, many obstacles that at first may appear unsurmountable, can be resolved. Meeting the borrower and fully understanding the nuances of each case are very important as these can lead to realising solutions for lending to take place.
There are some examples below that demonstrate a variety of situations that needed further investigation, and of course they all had to happen quickly!
Pay the security property project a visit
When underwriting a case it’s common to work from information provided by the introducer, the borrower and their solicitor. However, there’s no substitute for seeing the property in the flesh and getting an understanding of how, say, a conversion or change of use is going to work.
When a property is going to be split into several units, one key consideration is the right of access to each of the new sections. On one case, it was discovered during the legal process that there was a right of way at the back of a workshop for deliveries. However, because we visited the site and understood the geography of the property and its surroundings, it was clear that in practical terms access to the rear of the property would not be compromised. Based on this we took a common sense approach and released funds, despite the concerns of our solicitor.
Do your research
To get a loan over the finish line, lenders sometimes have to help an introducer or borrower who may not have come across a particular situation before. After all, they look upon specialist lenders as the experts, so for the sake of a little bit of background research why put a good loan at risk?
When we were looking to lend on a £400k BTL property the borrower intended to convert to and HMO, they weren’t aware the HMO regulations were changing and a licence would be required from January 2016. We took it upon ourselves to look into this with the relevant London borough council. Therefore as part of the facility letter, we made it a condition that the borrower had to apply for an HMO licence within three months of the loan completing. The reason for this was simply to help the borrower realise the exit.
Proper planning permission prevents…
Although some planning regulations have been eased in recent years, it’s still vitally important to adhere to what has been agreed. Misunderstanding or missing a clause altogether can put a whole project in jeopardy and prove costly.
For one application we noticed when we were underwriting the case where the borrower hadn’t implemented a previous planning consent correctly. This would have left the borrower with a real problem had it not been highlighted, as it would have left them with an unsaleable and un-mortgageable property after it had been renovated, not to mention the risk of enforcement action being taken by the planners. To clarify the issue we made contact with the local authority and they explained the borrower would need to reapply, but it should be a formality. As a result of this we made it a condition of the loan that they would need to re-submit for the correct planning consent within 20 working days of completion. This allowed us to lend and the project was able to progress.