Case study: Poor specialist advice costs client thousands

One of our introducers flagged a client to us during the week. He is a commercial broker and was asked to see he if could help a third party client extract himself from an awkward situation. The client in question had a residential mortgage on a low variable rate and over £500,000 of equity in his property. The client was high net worth, had excellent income and a great credit profile.

He needed a large sum of money to pay off a business debt and the end game was to sell the property within 12 months and be completely debt free.

He was advised to take out a bridge, not only to raise the money for the business loan, but to also redeem the first charge. As a result, the client had borrowed £520,000 over 12mths at a eye watering double-digit interest rate.

On top of this were some large associated costs which, if kept for the full 12 months, could put the total cost of borrowing north of £75,000.

This is the whole point of what we do at London Money Loans – educate the broker – because , in our opinion, this scenario was crying out for a second charge mortgage.

As an alternative, we could have secured a rate of 5.55% on the second and left his current low standard variable rate first charge mortgage intact.

So the extra loan for the business over 20 years would have cost £1564pcm, on repayment. There would be a lender fee of £1495 and, to be fair to the broker, we’d keep his fee the same as the bridge. There would have been early repayment charges of 3% in year one and 2% year two and three.

So we’ll give everyone the benefit of the doubt and assume the borrower only took this for six months. Our solution would have seen the client pay back around £22,500 in fees, interest and penalties had he chosen the second charge route.

How does that compare with the bridge? Over £25,000 cheaper for the same six-month period.

I appreciate there are many moving parts to this and clearly we were not privy to the actual conversation so we are not here to preach on what is right or wrong. Our introducer asked if we could help and as the first charge loan had been repaid already there was nothing, regrettably, we could do.