Based on a real story but with participants’ names changed to protect the innocent, the purpose of this piece is to show you a case study on how various forms of property financing mould together.
Mr Khan attended an auction in his hometown of Bedford with only a cursory glance at the online brochure of properties up for sale. He entangled himself in the excitement surrounding 76 London Road, a large Edwardian freehold property configured into 8 apartments with a large communal garden.
Mr Khan won the auction, paid a little more than he intended but put down a 10% deposit and Exchanged Contracts.
That night he figured he’d approach his broker for some help to finance the purchase. A couple of weeks went by with little action, so an emergency call was made to his broker. “I need £320,000, and I need it in 14 days as we’re completing then?”
Now Mr Khan has plans for 76 London Road. He wants to maintain it as a rental. The station is nearby, with an easy commute to London and a large hospital is within proximity. He feels he can improve the property somewhat, extract two more apartments from the framework, and easily plan to build a further property on the grounds.
This all costs money, and he doesn’t have any more since his ready cash is going down as a deposit on the house.
Mortgage Broker to the rescue:
Saima first organises a bridging loan to help Mr Khan complete the purchase in 14 days. It’s a short-term bridging, so unregulated and swift to complete. Although there are fees and a relatively high-interest rate, Mr Khan doesn’t need to make any payments until later, when he repays the entire Bridging Loan. The Bridge is secured on London Road as there is equity as the property stands. Few affordability checks are done as monthly payments are not needed. An Automated Valuation Model speeds the application to completion within a couple of days.
Mr Khan then starts some cosmetic improvements and plans for the additional flats and house on the grounds.
Saima then organises a Refurbishment loan to finance 100% of the cost of the building works. This allows Mr Khan to engage his builders to pay them in advance to get the job done quickly.
Several months later, all the works are completed, and the plot is looking gorgeous. There is a new freehold bungalow on the grounds plus two new apartments in the main building, making 10 flats in all. Mr Khan quickly secures tenants for the homes. He is proud as punch in showing a local family around the bungalow, student doctors around the new flats and some city workers the penthouse on the top floor. They really are finished to an excellent standard, and Mr Khan feels honoured that he has provided decent homes to so many people.
Saima remortgages the various properties with Buy to Let loans, which Mr Khan uses to exit the Bridge. This affords the luxury of very low-interest rate lending, which is easily financed through the tenant’s rent.
If you think a broker’s future is arranging vanilla mortgages, think again. Your role is to be involved in complex lending. Commercial, semi-commercial, bridging, seconds, refurbishment finance are growing areas as the UK improves its housing stock. Entrepreneur developers like Mr Khan facilitate the works and provide sound homes for families and people.