In the current property market many opportunities exist to acquire both residential and commercial property at prices well below ‘Open Market’ valuation.These opportunities come about due to a wide variety of reasons including auction purchases, sales to avoid a re-possession and sales of properties already re-possessed and in the hands of a Bank or Mortgage Lender. The issue that Property Investors and Landlords face when looking to raise funding to acquire such properties is that all traditional Mortgage lenders will make an advance against the purchase price and not the actual property value as confirmed by a Professional Chartered Property Valuer. The use of a Short Term Loan,often referred to as ‘Bridging
They key advantage is that most Short Terms lenders will make a loan against the confirmed ‘ Open Market Value ‘ of the property whilst some will lend against the restricted valuation – often referred to as the 90 day value i.e the value the property sale would achieve if sold was required within a 90 day period under normal market conditions. Lending against the confirmed ‘ Open Market Valuation’ a Short Term Loan will normally be made up to a maximum of 75% Loan To Value Ratio ( LTV). Most Short Term Lenders will require the borrower to input a minimum of 10% – 15% of the purchase price in to the transaction but (dependent on the type and location of the property) it is possible to acquire a 100% advance if the property is being acquired well below the confirmed market value. Since the 2008 crisis in the Financial Markets and resulting lack of conventional lending options the use of Short Term Funding has become an increasingly popular method used to acquire properties and it can be used in most scenario’s. Loans can be secured against Residential, Commercial and Mixed Use Properties as well as Land and Development Sites. Many new Short Term Lenders have come in to the market including a number of established Personal Loan lenders who wish to take advantage of the popularity of the product.
As a result the Interest Rates for the Product have fallen due to increased competition and, dependent on the overall LTV, can be as low as 0.75% per calendar month or 9% per annum expressed on an annualised basis. Lender fees to set up the loan are generally circa 2% of the loan amount and the valuation charges will be at the borrowers expense. When using Short Term Funding to acquire a Residential Property with the intention to re-finance on to a conventional Buy To Let type of Mortgage it is important to understand that the vast majority of Buy To Let Mortgage Lenders will require you to have owned the property for a minimum of 6 months before they will allow what is technically a re-mortgage from the Short Term Facility. It is equally important therefore that a borrower calculates the overall cost of the Bridging Loan before they enter in to such arrangements to ensure the deal is still overall viable.
It will generally be possible to place a tenant in a property under a Short Term facility during this interim period and increasingly many Commercial Mortgage lenders will provide a mortgage on residential properties without the 6 month requirement on ownership. Commercial Mortgage rates will be slightly higher than conventional B2L rates but often have lower set up fees and less onerous early redemption penalties. White Rose