bridging loans

Loan Applications – The do’s and don’ts

December 13th, 2012

Whether it’s a breakdown in communication, a lack of due diligence or a failure to recognise fraudulent applications, there are numerous reasons why bridging cases can experience difficulties. B&C spoke to Claire Wasbrough, Underwriting and Operations Manager at Masthaven Bridging Finance, to highlight recent problematic cases from which brokers can take note…

I’m often asked to highlight areas in cases where we frequently experience problems and, although each case is different and has its own difficulties, I’ve tried to narrow down a few common problem areas and ways of resolving them. 

Solicitors

One key area which leads to delays is when clients use solicitors who are not familiar with bridging. The legal work for a bridge is very similar to a standard conveyancing transaction; the speed, however, is not. I have lost count of the number of cases where clients’ solicitors have sat on the legal pack and taken several weeks, if not longer, to actually work through the items requested and get their clients into their office to sign paperwork.

Using a solicitor who is familiar with bridging would without a doubt speed things up and eliminate a large number of problems.

Legal factors

I am working on a case at the moment which has been delayed due to a number of legal factors.

The first problem arose due to the fact that the property being offered as security is not registered with Land Registry. Masthaven’s solicitor, in this instance, needs to review all the documents relating to the title of the property and be satisfied that Land Registry will accept the application and not raise any questions. In this particular case, the client’s solicitor is sending the documents over in dribs and drabs which is not helping the situation. My advice for clients in similar situations is either to ensure that their solicitor deals with the registration prior to taking out the loan, or to ensure that their solicitor obtains all of the deeds and associated documents to send over in one pack to the lenders solicitor, enabling them to easily review everything simultaneously.

A second problem in the case has arisen from the fact that the other property being offered as security is on a large title deed, though the client only wants to offer part of the title. In these situations, the lender has to be satisfied that they are getting the area they think they’re getting, so a plan is crucial. The initial plan that was provided in this case was shown to the valuer, who wasn’t happy that it correctly depicted what he had valued. In addition to this, our solicitors had to ensure that the plan being provided would be accepted by Land Registry, so it had to be to the correct scale and so on. In this case, there was a delay while the correct plan was obtained, but had the clients solicitor ensured a correct plan was available initially these delays could easily have been avoided.

ID and proof of address

Moving away from the legal aspects, another area where there are problems is in obtaining correct ID and proof of address. All lenders will need to comply with their own ‘know your customer’ and AML requirements. For the majority of borrowers this won’t present a problem. Some clients who don’t have standard forms of ID, however, may struggle to provide something that is acceptable. There are ways that this can be satisfied if the usual passport and driving license are not available; if you know your client doesn’t have the standard items, check the lender’s specific requirements up front to avoid any delays.

The same goes for proof of address. Masthaven’s standard requirement is for two recent bank statements or utility bills registered to the borrower at their home address. If a borrower has recently moved house, then ensure that they change their address on their accounts as soon as possible so they will have the correct documents to provide. If this is not possible, make the lender aware upfront so that an alternative solution can be found.

I was recently working on a non-regulated case where a borrower was using bridging to complete the purchase of a property, which we had been informed they were going to be letting out and refinancing. During the initial conversation with the client, it transpired that in actual fact the client was planning on moving in to the property, therefore requiring the loan to be regulated. The broker was authorised to give advice so that the loan could proceed, but unnecessary delays were caused because we were not made aware of this upfront.

A number of brokers are under the impression that if a borrower does not live in a property during the course of the loan then the deal is not FSA-regulated. The FSA handbook does state, however, that a mortgage contract is regulated if there is the “intention” to live in the property, which may be during the course of the loan or after redemption. Ensuring that the lender is aware of this upfront will ensure delays do not occur.

In all the above examples, communication between the client, broker and lender is key to ensuring delays are minimised and problems are overcome efficiently.

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Bridging not an alternative to SRB schemes

September 4th, 2012

Mortgage brokers have been warned that bridging finance is not an alternative to sale and rent back (SRB) schemes after the FSA became “…aware of firms that have been marketing/promoting bridging finance as an alternative to SRB”.

After taking a thematic review of the SRB market, the FSA concluded that the majority of SRB sales were inappropriate or unaffordable, often leading to a detrimental outcome for “vulnerable consumers”.

Consequently, the FSA has temporarily closed the regulated SRB market; however, it has warned that “…some firms are looking at other ways to generate SRB opportunities”.

SRB is usually aimed at those who are in financial difficulty with the regulator’s findings suggesting that vulnerable customers are being encouraged to “…refinance their way out of difficulty” with a bridging facility and as a result, there is a “…very high risk consumers could end up in an even worse financial position”.

B&C heard from Jonathan Newman, Principal Partner at Brightstone Law and Chairman of the Association of Bridging Professionals (AOBP), who “does not believe this practice is widespread”.

He explained: “There were companies operating in this way some years ago. The focus then was to use bridging for credit repair, before taking borrowers into cheaper longer term finance. That was expensive for the borrower and was not always successful.”

The tightening of underwriting practices in the High Street, increased regulation and publicity has, in Jonathan’s opinion, had the welcome effect of putting an end to such practices.

Jonathan added: “The single most important underwriting responsibility of the lender is to identify and verify a viable exit route at the end of term. The exit may ultimately be a sale of the property or its refinance, but there has to be a clear understanding on the borrowers part, that an appreciable benefit is achieved by borrowing short term to bridge until the exit happens, factoring into that understanding, the cost that comes with the bridging facility .”

Jonathan clarifies that bridging finance is not a natural alternative to SRB schemes and should not be promoted as such, although, on occasions, “…it may provide a borrower with much needed additional time to develop a property to maximise its value before sale or provide extended time to market a property to its best potential”.

When asked whether bridging should ever be used as a method to get one’s finances back on track, he added: “Bridging can be expensive on rate and fees and there are few circumstances where a borrower already struggling with finance will improve his position by incurring further cost, but there may be certain scenarios where bridging can resolve a short term problem to a borrowers advantage, so every case needs to be assessed on merits.”

Alan Cleary, Managing Director at Precise Mortgages, similarly suggested that bridging for credit repair is not appropriate. He said: “There is no way that anyone in the bridging market should be offering SRB schemes to customers – it is these firms that are attracting the FSA to the bridging market. Bridging should not be used to for repairing credit; however, I don’t see this issue as one that is widespread.”

The FSA has stated that it will take action against any firms found to be active in this area. It has now published finalised guidance on its review and findings.

 

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Private banks versus bridging lenders

September 4th, 2012

In the growing world of bridging finance, borrowers are faced with a wide array of tailor-made products and services to suit every need; yet some look to private banking services to suit other specialist requirements.

Bridging lenders are a vital financial resource as they offer access to funding at a time where mainstream banks are less willing to lend. Loans and services offered tend to be more flexible, allowing for off-the-wall securities and varying repayment schedules.

Similarly, private banks pride themselves on offering streamlined and tailored services to the individuals they represent. Often they will offer services unique to their clients that cannot be found on the high-street or amongst specialist lenders.

As with the bridging loan industry, private bankers also thrive on forming personal relationships with clients, a factor that, particularly with HNW individuals, can make a crucial difference in securing business.

We spoke to several industry experts to unpick the differences between the two services, find out what bridging lenders are doing to distance themselves from the high-street names and why the bridging industry is now in a position to compete.

Kit Thompson, Director and Head of Bridging and Commercial at packaging firm, Brightstar Financial, told us that specialist lenders have taken advantage of a reduction in what mainstream banks are willing to lend.

He said that it is “the lack of liquidity from main-stream lenders, post credit-crunch, which has paved the way for other more ‘niche’ lenders to flourish. There is no better example of this than the world of bridging finance – a market which some estimate to be worth close to £1 billion.”

Kit observed: “We’ve seen an influx of new lenders and this has meant more competition, leading to the cheapest bridging rates ever, with first charge bridging available from 0.75 per cent per month (just 9 per cent PA).

Yasin Patel, Director at specialist lender Mayfair Bridging, has also seen some evidence of the expansion of the bridging industry, but told us that he did not think that it is due to an influx of new lenders.

He said: “We have seen a number of new lenders enter the market recently but this is nothing new. Every year there are always new lenders entering and existing lenders leaving the market.”

He believes that tempting rates alone are not what is attracting borrowers to the bridging market, instead suggesting, “it’s more about understanding the client’s needs and tailoring products to suit.”

Packager Hugh Wade-Jones, Director at Enness Private Clients, outlined the fundamental advantage of using a bridging lender.

He said: “Generally I would only advise a client use a pure bridging lender over a private bank for bridging finance for cases where complete non-status lending was required or lending on a property outside what the private banks deem to be prime residential (generally within M25 and Surrey or in some more strict cases very postcode specific). I had a case declined by a private bank in Covent Garden as it didn’t deem the location ‘prime London’!”

He went on to say that “private banks offer fantastic rates but will only lend on a full status basis to those who fit their wealth management profile, which is not a vast amount.

“Add into that geographic sensitivity and the fact that many will only lend to bridge chain purchases, and not to developers or distressed owners, and it seems that standard bridgers offer a far more holistic lending approach.”

Our experts pointed out that private banks tend to lend differently from bridging lenders.

Hugh told us that Enness use private banks for 80 per cent of its HNW clients’ bridging transactions, adding that “generally private banks’ bridging rates are in the region of 3-4 per cent over the cost of funds, which is dramatically cheaper than a standard bridging lender.”

“If mainstream banks suddenly started relaxing lending policy, and were more willing to offer flexible underwriting leading to more conventional mortgage approvals, then I’m sure many bridging lenders will be hard-hit and some may not survive.”

Kit outlined that because mainstream banks have far more resources available to them they are able to offer a far larger range of products and ultimately are unlikely to lose much business from bridging lenders.

He added: “Whilst it may provide a funding solution in the short-term, there is still the need for longer term finance to be in place and unless the intended exit for the bridge is sale of property, most bridging lenders will not allow a bridging loan to complete without evidence of a suitable exit route being in place.”

Yasin, however, concluded that the niche services that bridging lenders offer are of great importance to many borrowers:

“Most bridging loans are unique, not just for the property type but usually the client is too. We have lent to clients from the UAE who were buying in the UK and would usually not have been touched by a private bank. Part of our funding now comes from the British Virgin Islands so we can be even more flexible in our deals.”

Benefitting a specialist market, it seems that bridging lenders’ real advantage over private banks is the flexibility and tailored experience they can offer many borrowers, thus fulfilling a vital funding need both now and in the foreseeable future.

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Broker guilty in bridging lender’s £1.5m fraud case

February 27th, 2012

Andrew Bloom, Managing Director at Masthaven Bridging Finance, confirmed details of a fraud case which culminated in a broker being found guilty last week in the attempted £1.5 million con of the bridging finance firm.

During the operation, six people were arrested and initially charged. Three pleaded guilty and the remaining accused pleaded not guilty. The latter trio were in the Old Bailey last week where the jury only found mortgage broker, Jonathan Flynn, of Gobridging Ltd, guilty in the fraud case.

The defendants found not guilty last week included Sarah Compton, who works at a firm of solicitors and was accused of stamping the applicant’s fake passport, and a man who was accused and found not guilty of pretending to be one of the fake wealthy sheikhs in a meeting.

The Fake Sheikhs

The case involved a gang of fraudsters who tried to con Masthaven out of £1.5 million using two ‘fake sheikhs’. Masthaven was told that wealthy Arab brothers, Said and Malthoum Mebjar, would back the loans with an exclusive flat in London’s West End.

The ‘sheikhs’ did not exist and the property had been ‘hijacked’ using land registry documents.

But the fraud was spotted by Masthaven’s underwriters when they liaised with utility companies for proof of address in the deal’s documentation and became suspicious of the case. Masthaven subsequently informed the authorities, the City of London Police, who started their investigations.

Andrew Bloom told B&C, “I was delighted that Masthaven’s robust underwriting procedure spotted this attempted fraud. It is a credit to the expertise and training of the underwriting team that these fraudulent applications are detected.”

The Police

The City of London Police’s investigation started when they took fingerprints of all the staff at Masthaven who had touched the fraudulent documentation. They excluded their prints in their analysis of the papers which led them to their first arrest.

The Chester Chronicle reported in May 2010 that Shane Martin, 50 at the time, had been charged with committing fraud by making false representation to Masthaven. He was accused of conspiring with Ahmed Ali, Shakil Ahmed and Ahmed Onmar and was arrested on the 18th May 2010 at his home by Cheshire Police, who were assisting the City of London Police in their investigations.

On the 20th December 2010, Ahmed Ali, 46 at the time, admitted in court to using a false identity in the group’s bid to secure the £1.5 million loan.

B&C found out that the gang had also tried to defraud another finance company, in their ‘fake sheikhs’ con, out of a figure believed to be in the region of £1.5 to £3 million. But Masthaven’s swift action in stopping the deal from going forward in 2010 and their cooperation with the authorities ensured that both companies were safeguarded and that the police were on the case.

The Property In Question

The initial details in the press about the property which the ‘fake sheikhs’ tried to secure the loan on only revealed that it was a £5 million property in Bayswater, but B&C have now tracked down the house in question and can disclose the actual details for it.

The unencumbered property in Orme Square, Mayfair, W2, was on the market for £6.4 million and was being sold through Harrods Estates at the time.

The sales details highlight that over 5,830 sq ft and five floors the freehold property comprised of nine rooms including four en-suite bedrooms and also a conservatory, a terrace, garden and a separate flat on top of a double garage.

The Valuation and I.D.

Andrew Bloom informed us that one of the fraudsters had arranged a viewing with Harrods Estates on the property and had told them in advance that ‘his surveyor’ was joining him to look around the property. They had arranged with Masthaven for the valuation to take place during this viewing whereby the lender’s instructed surveyor assessed the property and valued it for the application.

Further investigations by the City of London Police working with Masthaven discovered that the passport number used for identity verification was of a deceased nine-year-old boy’s and that his photo had been replaced.

The Sting

The police held a sting operation where a police officer, who was undercover as a PA, accompanied Andrew Bloom to a meeting with the fraudsters at a Marriott Hotel in London.

In early January 2012, B&C learnt that Andrew Bloom gave evidence for three consecutive days in the London courts, where he brought a number of his underwriters to the hearings so that they could see first-hand what was going on in this case. This action will surely boost Masthaven’s underwriters’ due diligence even further when looking through potential applications in the future.

Speaking on how this case has showcased bridging lenders fighting fraud, Andrew Bloom added, “Each successful conviction helps deter others from attempting to commit this crime. Mortgage fraud is not a victimless crime and pushes up the cost of borrowing for everyone.”

Mortgage fraud is still a huge issue and the National Fraud Authority estimate that mortgage fraud costs the industry around £1 billion a year. One of the most common types of fraud that bridging lenders are usually subjected to is when a borrower deliberately misstates their income on an application.

Andrew Bloom concluded by saying, “All brokers must ensure that they never deliberately or inadvertently collude with people who are attempting to commit mortgage fraud. Even, if the broker has done nothing more than turn a blind eye, the courts take a very dim view of professional advisers who act in this way and are increasingly likely to hand out a lengthy custodial sentence.”

It is rumoured that Flynn may receive a jail sentence of three to four years for this type of fraud but we shall await to discover his and the other guilty fraudsters’ fates when they are sentenced in due course.

 

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Masthaven prevents £1.5m fraud

February 2nd, 2012

A £1.5m fraud has been stopped dead in its tracks and the perpetrators are now awaiting sentence after bridging lender Masthaven alerted authorities of a suspicious application.

The suspects, still unidentified, claimed to own a £5m property in Bayswater in London and attempted to secure a £1.5m bridging loan against it.

Masthaven underwriters became suspicious of the application when they liaised with utility companies for proof of address.

The lender then contacted the City of London police and discovered that the passport number used for identification verification was of a deceased nine year-old boy and the photos in the passport were replaced.

The police then held a sting operation with the aid of Masthaven and its managing director Andrew Bloom.

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Masthaven’s exclusive new product: Renovation & Refurbishment Bridge

January 26th, 2012

Masthaven Bridging Finance, the FSA regulated award winning lender has today launched a new product that is seemingly exclusive to the bridging finance industry.

The renovation and refurbishment bridging loan is aimed at the client who is unable to obtain high street funding due to the current state of the property they are looking to secure funds against, or the high street banks are simply unwilling to lend against specific development projects.

This may be that the property has no kitchen or bathroom, or it may be a new build property that needs finishing off. Other uses of the loan can include putting an extension on a property or converting an existing house into flats.

The product headlines are up to 65% of current Open Market Value with a loan size up to £2,000,000. There is never any exit fee on Masthaven products and the interest is calculated daily. A multiple  drawdown facility is also available for those projects that require it.

Richard Deacon, Sales & Marketing Director of Masthaven said “We have been working on this product for some time and we are very happy with it. We get calls every day from clients who are unable to obtain funding for their projects from standard providers as the high street banks do not want to lend on these types of projects. With our new funding lines and flexible approach to lending we see this as a big growth area for the industry.”

Check out our bridging finance rates

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Bridging lender target of solicitor & developer fraud

January 25th, 2012

A property developer and a legal executive who mis-used bridging finance have been jailed after both admitting eight charges of fraud.

Developer Franco Campagna, 34, began taking out short-term bridging loans on buy-to-let properties he was selling on to his clients after he ran into financial difficulties when the property market collapsed. Campagna purchased properties supposedly on behalf of his clients using funds from Lancashire Mortgage Corporation (LMC). LMC have since been left with a repossession property portfolio which is in the process of being sold off.

His clients then received funding from Birmingham Midshires Mortgages which was designed to pay off this short-term finance. Instead of this, however, Campagna persuaded his friend, conveyancer David Kitching, to use the funds to discharge other loans on properties he had bought.

Kitching, who worked for legal firm Grahame Stowe Bateson, convinced Birmingham Midshires to release the funds by producing false certificates of title for the mortgage company.

The fraud came to light after the company wrote to Kitching’s employers, prompting them to begin an investigation.

According to prosecutor Jonathan Sharpe, the misapplied funds totalled £537,655, the Yorkshire Evening Post reports.

Campagna and Kitching were first introduced in 1998. They worked closely together, with the conveyancer handling between 250 and 300 of the developer’s transactions.

Campagna also introduced some of his buy-to-let clients to the legal executive, who began doing their conveyancing too. However, the developer soon began to instruct Kitching on behalf of these clients when they were buying from him, instead of allowing them to be separately represented.

The misapplied funds have not been found, leaving Kitching’s company facing civil claims of more than £700,000. Graham Stowe, a solicitor in the firm, told the Yorkshire Evening Post: “The firm and his work colleagues are stunned by his conduct, disloyalty and betrayal.”

Campagna, of Armroyd Lane, Elsecar, Barnsley, admitted eight charges of fraud and was jailed for two years and four months. Kitching, of Queens Close, Leeds, also admitted the charges and was jailed for 12 months.

 

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Masthaven increases maximum loan size to £5,000,000

August 31st, 2011

Masthaven Bridging Finance, the FSA regulated award winning bridging lender, has increased their maximum bridging loan size to £5,000,000.

The large short term loans are for residential purchases and remortgages and are available throughout England and Wales. The maximum LTV on these larger loans is 65% with the rate and fees amongst the most competitive within the industry.

With no upfront administration fees payable, combined with daily interest and no exit fees, this product is sure to be very popular amongst introducers looking for that larger short term funding requirement.

With funding available and their continued success in the short term lending arena, Masthaven have added yet another string to their bow.

Richard Deacon, Sales and Marketing Director commented “Masthaven is going from strength to strength. This latest addition to our offering just proves that we are growing in all the right areas. The investment from The William Pears Group has really boosted our appetite to lend, and the fact that we can now lend up to £5,000,000 on residential property at up to 65% is a huge plus for myself and the rest of the sales team”

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Bridging market size debate fuelled by latest report

August 31st, 2011

London based real estate bridging financier Montello has published a report into the current health of the bridging market.

They have named it the ‘Montello Report on the UK Bridging Finance Market 2011’.

Montello has also claimed that it is the first comprehensive report on the UK bridging finance industry since Datamonitor published their report on the market back in 2006.

The report looks at the size of the market, the regulation on it, various funding sources, and analyses recent trends in UK bridging finance.

The report estimates that the current ‘loan book’ for the UK bridging finance industry is between £415m and £755m. It notes that on this basis, the bridging finance industry represents less than 1 percent of the UK mortgage market.

The lower end of the estimation in the report goes against the recent prediction by West One Loans that the bridging market is set to hit £1bn in two years. This prediction cannot be correct if the lower end of figures given in Montello’s report are correct.

Christian Faes, director of Montello, said: “There is a lot of debate about the size and composition of the UK bridging finance market. It is a very opaque market, as there is no single industry group that represents the whole of the short term lending industry, and there is no regulatory organisation that collects data. Hopefully this report goes some way to explaining the market.”

Ian Thomas, director of Montello, also commented: “In the report we have also looked at the different ways in which bridging finance companies are funding their loan books, the trend towards becoming FSA regulated and some of the other trends such as some lenders moving beyond purely a short term lending product range.”

“In reality the bridging finance market has contracted in much the same way as the mainstream mortgage market. However this leaves substantial room for growth in the market moving forward.”

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Are bridges about to get longer?

July 1st, 2011

Having conquered the short term lending market, the entrepreneurial minds behind some of the UK’s leading bridging finance providers are eyeing up the opportunities presented in the less saturated medium term loans market.

“In terms of 2-year to 5-year products, I think there is a niche for it. I think it’s a specialist sector and for those lenders with access to funds, I think there’s an opportunity there,” said Bridgebank’s Managing Director, Laurence Goodman.

Christian Faes of Montello added: “Montello currently does not lend for longer than 12 months. It is a market that we are looking into quite closely.”

Intermediaries within the market appear to be welcoming the possible increase in medium term products, which they see being utilised not only as an additional offering for borrowers, but also as an adjunct to bridging.

“It’s an excellent way of fulling the requirements for those who it just wouldn’t be feasible to consider a short term loan, and would hopefully provide a transition into traditional bank lending a few years down the line when constraints we are currently experiencing become less prevalent in the mainstream arena,” said Lucy Barrett, Director of Vantage Finance.

Dragonfly Property Finance have already added a medium term product to their portfolio. Jonathan Samuels, CEO, explained that the product’s launch, approximately one year ago, was driven by a growing demand from borrowers looking for buy to let finance but struggling with the high street lenders.

“Whilst high street mortgages are for the long term, in reality borrowers tend to view mortgage deals with a 2-5 year time horizon hence the popularity of the 2-5 year fixed deals. Our medium term product is fixed for three years so even if the base rate moves up the borrower knows where they stand,” he said.

Yet whilst several lenders have expressed their interest in the medium term market, and a few have already launched theirs, for the majority of companies a transition would not be simple.

This is in part due to the nature of the typical funding lines which support most lenders. The monies tend to be provided at a comparatively high interest rate to the bridger and therefore profitability is dependent on high returns from the borrower - something which is much easier to demand in a short term product than in a longer one.

“Ultimately a lender will need to source or provide a different funding structure to enter a product of this nature,” said Gareth Lewis, Head of Business Development at Tiuta.

“Demand is one thing however being able to meet demand with a product that suits the potential borrower and delivers for the lender is another.”

Christian Faes added: “In the current market it seems that the decision for a short term lender to evolve into a medium term lender all depends on what their cost of funds are and how much capital they have access to.

“If you are a lender with relatively expensive capital and a smaller loan book, then you are likely to want to stay a short term lender. If you have access to relatively cheap capital and a lot of it, then a medium term offering could make sense.”

Having spoken to most of the leading names in the bridging finance sector, it seems that the only thing stopping these lenders launching a medium term product is their current funding structures. Furthermore, even those whose current funding lines would not support the products could not rule out the possibility that they may extend the length of their bridges in the near future.

Tiuta, Montello, Bridgebank, Omni and Precise are all thought to be pondering the proposition with ‘due diligence’.

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