Week 73: Bridging Finance: The Uncut Version
The countdown has begun and we have now entered the last third of the project. Meaning 12 weeks left till the deadline and we are nowhere near completion!!! Tasks or certain jobs in the first part of the renovation took way too long to complete now everything just feels rushed which I hope just does not affect the quality of the end look. This was my biggest nightmare as I knew this would happen and just hate last minute shopping/calling around and getting jobs done in a manic state. But honestly nothing could have prevented this; the outbreak of Covid19 really hampered progress on the project. Prices have inflated in some areas resulting in a strain on cash-flow and delays on merchandise, skip hire etc has only exacerbated the matter. As newbies there wasn’t much choice on the lending platform so we had to go via the bridging route to finance our deal as private investors; well... that’s another topic for another day!
Bridging finance is a specialist company that lends you money on property deals that banks will normally shy away from. This is because most of the houses purchased under a bridge are not mortgageable when initially purchased. This is mainly due to the fact that the house is uninhabitable. A bridge provider is completely aware of this as they understand this market very well whereas high street lenders will deem this as high risk. They have a very stringent application process so be prepared to do some heavy grafting when submitting your application. We were advised to go through a broker who only came back with the one company that was willing to take our case. Needless to say we jumped to the idea. We had to pay a fee of £500 to show our commitment and this got the ball rolling. Their application form wasn't too bad but just very repetitive as we had given all this information to the broker which they had access to so don't understand. We sent in an investment CV to give them a background to us, what our future plans looked like etc. This followed a brief conversation where we spoke to one of the representatives who told us to provide the following.
A fully completed application form together with the CV
Memorandum of sale from the auction house so show that we were indeed the legal owners of that property. Plus other legal papers from our solicitors.
Filed company accounts
Full credit check of all parties involved
Original copies of identification of all parties involved
Bank statements dating back six months of all parties involved
Payslips again six months of all parties involved
The last one really gave us the run around as the second investor was a family member who was self employed just under three years thus needed more proof. Most of our paperwork got approved instantly with one or two discrepancies which had to be ironed out. Our investor on the other hand had to show another set of bank statements as the one sent did not show the wages going into that account as per (Financial Conduct Authority) FCA. We had to pay just under half of the money for the purchase of the property in full, upfront as they were only providing 51% and they paid out development finance in stages. This meant we were already strapped for cash from the very beginning, throw in some unexpected repairs like ‘roof’ then you’ll soon be drowning. We reviewed our situation and had decided that we will definitely require some form of extension.
We filed a request thinking worst case the monthly interest will be doubled from 1.2%-2.4% (how wrong we were). They said solicitors will need to be contacted to draw up a new set of contracts. They will have to recalculate as a new forfeit rate will apply plus we will need to go through all the above steps as it is considered a new loan on top of the current loan. An additional fee for the valuer to come out to see where we’re at with the build and ‘other’ fees payable deemed necessary. Basically you're screwed! So you see my friends please tread safely as bridge lenders are ruthless and this is how they make the bulk of their money. It's not illegal but not regulated either. You are at their mercy. Just think of them as the cat and you the mouse. They will strike, poke and play while you die a slow painful death leading me to the following conclusion and just how their name suggests:
“....The only thing they are good at is bridging the gap between your cheeks….”