A pragmatic approach to a challenging bridging loan

Our borrowers were experienced professional property developers who owned a significant portfolio of residential and commercial property as well as development sites. They required a short term facility for general business cash flow purposes, but essentially it was anticipated that monies were to be used towards two site acquisitions.

The bridging loan was to be repaid from the proceeds of sales of units across various property projects. In such cases it is usual for the lender to take security over the property which is being sold to repay the loan. However, in this particular case, given the significant net worth of the borrowers and the uncertainty as to which assets would be sold, we took a different approach. The loan was secured by way of a second charge over an investment property which was a previous residence of the borrowers. In our experience, it is not uncommon for issues and challenges to arise during the course of underwriting a loan, but in this case, there were two!

Firstly, the security property was on a private estate and accessed via an unadopted road owned by a Residents Association, but over which it had no legal right of way. On the basis of a statutory declaration provided by the borrower confirming unopposed use during their 10 years of ownership and consultation with the valuer, we agreed to proceed on the basis that any risk of the use of the road being objected was considered low.

Secondly, the tenancy at the security property was a standard contractual tenancy rather than an AST. The tenancy was for an agreed 12 month period and contained an option for the tenant to give notice to renew for a further 12 month period at the same level of rent. There was no provision for the landlord to terminate the tenancy or to break the option to renew the tenancy other than for tenant default.
However, based on consultation with the valuer and the fact that the agreed level of rent covered 80% of the interest due on both the first charge and our 2nd charge, we agreed to proceed.

Head of Underwriting Gavin Diamond observed “This was a very nice loan to excellent customers, but it was not without its challenges. However, we pride ourselves on being able to deal with most obstacles that we come across, and in this case it meant taking a rounded view of our customers, the security and the exit and a pragmatic approach to the technical issues.”

LTV: 60%
Loan Amount: £988,700