Bridging finance is a problem solver.
Although in recent years the scope of the sector has widened and become more vanilla, bridging has always had grey areas and it’s here that specialist lenders need to excel.
Let’s look at five very different situations that will ultimately affect a lending decision and what they mean for an application.
We focus on deals that are doable. If they’re not, we tell the client why not within the first five minutes.
Most of the time this comes down to affordability, loan-to-value or troublesome financial backgrounds.
But some very interesting applications cross our path, and here’s where true expertise needs to rise to the top.
To be clear, I am not a lawyer and this does not constitute legal or financial advice, but here are some left-field scenarios with examples of when a lender can and cannot lend.
If a client is undergoing a divorce the underwriter should take care to understand that the divorce is settled, either in or out of court, or that both parties in the marriage have received independent legal advice and consent to the loan. This is regardless of in whose name the property may be.
If one party is trying to pull funds out of the property quickly before a claim is made of an interest in the property, the underwriter must avoid facilitating this or the lender may become exposed.
2. Sale at undervalue
Sales at undervalue are commonly banded about in the market, but there are some that are satisfactory and others that are insupportable.
When a client gets an option to purchase a site and then adds value through works or planning this, in our view, is fine – the real value of the site ought to be higher than the purchase price and this should be accounted for as long as the developer has adequate ‘skin in the game’.
When a family member gifts equity this is also acceptable to us – people have given property away to their children since time immemorial – and clearing the mortgage through a purchase is acceptable. A deed of gift and correct tax treatment is needed but this is, in Aspen’s view, acceptable.
“I bought it at auction”, “I am buying in bulk” and “the client is a good negotiator” are obviously terrible reasons.
The market is not as strong as it was in 2016 in some areas and people think things are worth more than they are – buying in bulk almost invariably leads to selling in bulk in a difficult situation and underwriters should anticipate this.
“The seller is desperate for a quick sale” is an interesting one. The lender must establish that the seller is of sound mind and is not a vulnerable person. They should also look at whether the numbers make sense – does moving country or fear of repossession merit the level of discount?
At Aspen we steer clear of these because nine times out of 10 something awful such as intimidation or fraud is happening in the background.
The worst one is “the receiver is flogging it cheap”. If correct, this is a criminal action and a major breach of the duty of care to the current owner’s equity position. An absolute ‘no’ and probably a note to self to avoid the receiver is needed here.
The second part of Jack Combs’ article will appear on Specialist Lending Solutions shortly.