Complex Property Purchase in Wales £300k Under Value Secured with 12 Month Bridging Loan

Scenario

This case is an excellent example of a complex property finance solution that utilised a bridging loan to bide time for a business project to get off the ground.

The clients were a married couple who, for several years, had been running their not-for-profit organisation from a large acreage, rural property in Wales containing multiple outbuildings.

They also lived in the property on a rented basis, but the property owner had recently informed them that they were selling.

For the clients, this likely meant both the end of their community outreach services and having to relocate their home to another rented property.

They were determined to find a solution to keep running their organisation and hold onto their living space and were exploring the possibility of buying the property with a mortgage which they’d repay with potential business income from the land and outbuildings.

They’d negotiated a purchase price of £1.2m for the property, a £300k discount from an estimated valuation of £1.5m. They could see the fantastic value and income potential from the connected outhouses and land.

But with no track record of income generation from the property, there was no way they’d be able to get a standard or commercial mortgage for this type of asset or scenario. They needed to move quickly to secure the property at a lower price.

The Solution

In this case, the broker worked closely with the clients to formulate a business plan that would utilise the property’s outbuildings as a series of holiday lets, seeking to capitalise on the booming staycation culture following the pandemic.

Combined with charging a membership fee for their existing community services, this would generate enough income to meet affordability for a long-term mortgage on the property.

However, the clients needed a short-term solution to secure the initial purchase of the property before obtaining the long term mortgage - they would only be able to secure long term finance once they had evidence of their business earnings further down the line.

So, the broker proposed a 12-month bridging loan to secure the purchase at the lower price of £1.2m, to then be refinanced at a later date when their business model was proven and in motion.

If worst came to worst and the holiday let proposition wasn’t successful, the clients had the peace of mind that they could sell the property if needed to avoid defaulting on the loan – and they’d likely still be in healthy profit due to the discount they had negotiated.

However, the vast majority of bridging lenders would reject the proposition for two main reasons:

• The clients had no trading history or evidence of the proposed business model
• The property was large, unique, and therefore illiquid - meaning that if they couldn’t secure a mortgage before the end of their loan, it may be difficult to sell the property quickly enough as an alternative exit strategy.

The broker, however, had a longstanding working relationship with a specialist lender they knew could potentially provide a bespoke bridging loan for this case.

They consolidated their application, talked through the business plan in detail with the lender, and spoke to a second lender to confirm they'd be able to refinance the property for the long term provided that the business goals were met. This reassured the bridging lender about the exit solution to the extent that they were happy to offer a loan.

They managed to secure the following deal:

Before speaking to a broker, the clients felt that they had exhausted their options and were at the point of saying goodbye to their home and business dreams.

We were able to secure:

• A £960k gross bridging loan at 80% loan to value (LTV), which was effectively just 60% of the property’s market value due to the discount
• On a 12-month term
• With the interest and fees deducted from the gross loan from day 1, meaning that the clients didn’t have to withdraw from their cash flow to pay back the monthly interest during the term of the loan (as they would need this to fund their new business)