There’s been a lot of press about the tax changes coming in to force next year. These will make investors look closely at which properties to purchase, so location is going to be a crucial factor going forward. To maximise planning gains, investors will also have to consider buying property at a lower cost to renovate or buy a retail unit for example to change its use to residential flats.

Experienced bridging lenders will look at a borrower’s business plan for the property and spend time to assess the viability of each case. Often they will meet the client to fully understand the project. If significant building work is required another tranche of funds can be assigned which is drawn down at key stages of the works. A loan can also be structured to fit the needs of the renovation such as interest roll-up and releasing funds in stages against works done.

However, at the end of the agreed term, the balance of the outstanding loan plus accrued interest needs to be repaid. This is called the exit, so it’s important that the lender (and the borrower) know how the lump sum is expected to be paid off. Planning for this is called the exit strategy, and the loan might be paid off by selling the property after refurbishment or selling another property or business.

It’s been an interesting time to be part of the bridging finance sector as the last twelve months have seen the market adapt to the changing needs of the borrower as new planning and tax rules have been introduced. Bridging finance has adapted and continued to deliver what is needed for borrowers, whatever type of asset class they are buying.

Auction Finance Case Study:

This particular borrower was an experienced builder in Chester.  He and his business partner bought a vacant derelict semi-commercial end of terraced property at auction for £50,000 comprising a ground floor shop with vacant space above.

While another lender procrastinated, we visited the property and met the borrowers to discuss their plans. Although not in a good state of repair, the locality provided good housing and shopping amenities. It seemed obvious that, having been derelict and empty for 25 years, the local authority would grant consent for a change of use – indeed the borrowers already had an application in for the renovation to reinstate the shop with two flats above or four flats within the building.

As the project was discussed it became apparent the borrowers were experienced property professionals, pointing out two other properties they had fully refurbished on the same road, demonstrating they were extremely familiar with the local housing and rental market.

We provided a facility of £50,000 in advance of planning being granted.  The borrowers took an initial drawdown to start the works and following their successful planning application for 4 flats, they drew down the remaining funds in stages as the work progressed.  Once the work had been completed the value of the flats had risen to £250,000 and the borrowers were able to re-mortgage with a BTL lender on a longer-term basis.