Currently, we are toying with whether we should go with a bridging lender or a conventional lender for a particular deal. The rates between the two we are looking at are surprisingly close.
Conventional lenders have a habit of asking you for all the details regarding your project, where you got your money to do the project from, your shoe size, and then declining the deal after several months of anticipation.
The market for bridging has grown massively in the UK, which has led to high competition and therefore keener rates.
For the deal we are looking to place we have received an opening offer of 0.65% per month. This translates to 7.8% per annum; which isn’t too bad, considering bridging used to be 1.5-2% per month.
There are less questions, and its faster. The only condition really is you should be able to see the exit for the project and ensure you’re progressing to this point – fast.
The project consists of three phases of planning. In short, some permitted development which involves conversion of the ground floor into commercial, and pushing the building backwards, and upwards. That’s pretty much all you can do with a shop and uppers.
Originally, the idea was to get the easy permission downstairs to do the work, and then apply for the planning for the uppers.
However, if the uppers were to happen, and there’s always an uncertainty when it comes to planning, we would require more concrete bases, columns and steels to hold up the extra weight. The cost in doing this is pretty substantial, upwards of £50K.
It makes more sense to get all the planning in place and hit the project in one clean and holistic manner, rather than in a piecemeal fashion. The build cost should hopefully be cheaper as well, as the contract sum will be higher.
The financing would be on a pure development loan. We would be looking to start the refinance of the project about the same time as when we go for the bridging, so that by the time we complete the works we have a sensible long term mortgage to switch to. Hopefully, by this time the lender would have done all their due diligence.
To ensure further safety, I would prefer to run with two lenders on the refinance, just in case they either do a U turn or they reduce the amount of the loan. It also gives us the option of playing one lender against the other. So, instead of putting you in the position of need, it puts you in the position of strength where you could potentially look to negotiate a better deal than you would have got in the first place.
Commercial lenders tend to have more room to manoeuvre than residential lenders. One reason could be because residential lenders tend to securitise their loans more. What this means is they package the loan books up and sell them on, in pieces.
A bridge is an instrument which can work very well for you, if the plan and exit is well defined, and on time. Or it can end up destroying the project. It needs to be used carefully, with a lot of planning and anticipation of what could go wrong.