Bridging finance rates

[drainbrain]

kitz said:

Drainbrain
I would say £250,000 plus shop .

much much MUCH less (+shop)....... greatly to my surprise tbh.

[So]

DonkeyApple said:

So said:

The upsides are, we'd be smoothing the sale of the property - and we want to get it away. Secondly, we'd be earning 2%/month on money that's doing nothing at the moment. Thirdly, I'd get a warm feeling about having helped an elderly person secure the retirement home of his dreams.

How warm would that feeling be when you forclose on him and watch him go broke under the cost burden of the default?

I'm inclined to agree with you that if he passes the checks then 2%/month is better than a 70 yr old is likely to be able to find and it gets your deal away.

But don't do it for any warm feeling. It's business and you may well end up having to break his balls. It's best to openly recognise that rather grim reality of lending at the outset.

It also might be sensible to uplift the rate each quarter by 1% so as to act as an ever building incentive for him to get his property sold whatever the hit to him. You don't want a 70 yr old owing you for more than is absolutely necessary. Getting your money back out through a probate would be a ball ache (but possibly hugely lucrative if you structure your loan agreement correctly).

Whatever happens, goo luck with your move.

Thank you.

I was not being serious about getting a warm feeling. Sadly there is an icy void where my heart should be.

I suspect the old boy's solicitor would advise him not to enter into a loan agreement that ratcheted up over time.

[seaninog]

If it helps here, I'm a commercial finance broker and can offer a guide as to what I think the market rates would be:

If the chap is buying this property to live in then it's what is know as a "regulated bridge" i.e. it is regulated under mortgage legislation and this means fewer lenders will do it and it may cost a little more.

The first question a commercial lender would ask is "What is the exit?" If it's dependent on another property, they may ask for a charge on that property too/instead and they'd need to be comfortable that the exit is likely. Sale or refinance are the most popular options.

The next thing they will look at is the LTV (value of loan relative to value of property it is being secured against). No one will go above 75% for a bridge so as I don't think you've declared the value of the property, I'm assuming we're below this threshold.

Then we come to rates. This is mainly dependent on the LTV (lower LTV = lower rate), the quality of the asset (residential is better than commercial as it sells more easily in a foreclosure situation) and to a lesser degree the credit score of the borrower. Hard to be exact here without more details but assuming a low LTV then I'm going to say the rate offered by a commercial lender on a regulated bridge would be somewhere between 0.75%-1.1% per month.

And there are fees. Typically you are looking at:
- 2% lender Arrangement fee
- 1% Broker fee (should you decide to use a broker)
- You'd have to pay to have the property/properties valued (estimate £5-600 per property depending on size and location)
- You'd have to pay the lender's legal fees
- Should you wish to retain our own solicitor to advise you, this would also be at your cost

In summary then, if you're getting 2% per month this is an above market return (for you) and I think you should be quite happy. If your borrower were to go the market, depending on the factors above and especially the LTV, he may get a better rate but he'd have to pay more fees.

Hope this helps.

[So]

seaninog said:

If it helps here, I'm a commercial finance broker and can offer a guide as to what I think the market rates would be:

If the chap is buying this property to live in then it's what is know as a "regulated bridge" i.e. it is regulated under mortgage legislation and this means fewer lenders will do it and it may cost a little more.

The first question a commercial lender would ask is "What is the exit?" If it's dependent on another property, they may ask for a charge on that property too/instead and they'd need to be comfortable that the exit is likely. Sale or refinance are the most popular options.

The next thing they will look at is the LTV (value of loan relative to value of property it is being secured against). No one will go above 75% for a bridge so as I don't think you've declared the value of the property, I'm assuming we're below this threshold.

Then we come to rates. This is mainly dependent on the LTV (lower LTV = lower rate), the quality of the asset (residential is better than commercial as it sells more easily in a foreclosure situation) and to a lesser degree the credit score of the borrower. Hard to be exact here without more details but assuming a low LTV then I'm going to say the rate offered by a commercial lender on a regulated bridge would be somewhere between 0.75%-1.1% per month.

And there are fees. Typically you are looking at:
- 2% lender Arrangement fee
- 1% Broker fee (should you decide to use a broker)
- You'd have to pay to have the property/properties valued (estimate £5-600 per property depending on size and location)
- You'd have to pay the lender's legal fees
- Should you wish to retain our own solicitor to advise you, this would also be at your cost

In summary then, if you're getting 2% per month this is an above market return (for you) and I think you should be quite happy. If your borrower were to go the market, depending on the factors above and especially the LTV, he may get a better rate but he'd have to pay more fees.

Hope this helps.

Thank you. You're thinking along the same lines as me. I want to appear friendly and I think a higher rate, lower fees does the trick. LTV would be low - about 40% - so I'd be happy with probably 1% in and out, 2% fees and legals.

[DonkeyApple]

Taking a charge on the property he needs to sell would be sensible. Got to be easier to force that into forclosure than the home he is buying and will be living in?

[So]

DonkeyApple said:

Taking a charge on the property he needs to sell would be sensible. Got to be easier to force that into forclosure than the home he is buying and will be living in?

Yes I agree,, though it will slow the process because the property he is selling is a probate sale and there are probably other parties involved.