A Masthaven introducer recently went to meet clients for a remortgage application, but quickly realised this was not a normal case and instead a cry for help.
His clients had got into serious financial difficulties following the husband’s redundancy and owed almost £300,000, with their mortgage in arrears and their credit cards left unpaid for months.
The broker, Mick Chattey, knew that the answer for his clients was to sell their property and downsize, clear the debts and start again.
However, selling a property in today’s climate can take months and the clients needed the money immediately to stop impending repossession.
While four years ago, the case could have been placed the case with a multitude of sub-prime lenders, now there are very few lenders that will even look at a deal of this nature.
This is when Mick approached Masthaven to see if we deal with adverse credit, as many bridging lenders do not.
We look at the overall picture and try and gauge whether it is a good enough risk to take to lend to these types of client and, in this situation, everything made sense.
There was a genuine need for the bridge, a good clear exit route, in the shape of the sale of the property, and the whole deal was at a safe LTV.
Ultimately, the case turned out to be a very good deal for us, the introducer and gave the client a satisfactory resolution.
The case
The clients owned a property worth £600,000. They had a first charge mortgage of £230,000, with £2,200 arrears, and a second charge of £45,000, with £600 arrears.
Their credit cards were in a state of default and CCJ to the tune of £22,000.
In total, they owed just under £300,000.
We received the paperwork and instructed a valuation, which came in with no adverse comments.
We then lent them the £300,000 and also covered the interest for nine months (at 1.25% per month) and the arrangement fee of 2% (which we split 50/50 with the introducer).
The total amount we lent the clients was £347,000 and then deducted the interest and fees from this amount, which is standard.
This kept the LTV below 60% and a condition of the loan was that everything was paid off and all CCJs and defaults were satisfied, which we did.
The deal completed in 12 working days, which was slightly longer than usual because of the work needed to get settlement figures from all the credit companies the clients owed money too. The broker received our standard arrangement fee of 1%, so in this case £3,470.
With the interest serviced from the loan advance for nine months, the clients had no monthly payment to worry about and all they had to do was actively market their house ready for sale.
After seven months, the clients sold their property for just under the asking price at £590,000 and repaid our loan. We rebated them the two months of unused interest at just under £9,000, so the total cost to them was £38,000.
This may seem high for a loan of £300,000 over seven months, but when the only other option was repossession and/or bankruptcy, it was a price that the clients were willing to pay.
With the property sold, the clients walked away with no debt and just over £250,000 in their pocket to start again.
Folllowing this, they decided to rent for 12 months, so that their credit history would be well and truly in the past when they came to house hunt again.
They planned to then look for a smaller, more manageable property for which they still had a reasonable deposit.
Although the sub-prime mortgage market may be a dim and distant memory, there are still many clients out there who have an adverse credit history and need to raise funds for various different purposes.
Bridging finance may just be an option for them.
