Understanding different types of bridging borrower

The learning objectives for this article are to:

Introduction – It’s not personal

Short-term finance, or bridging, is often used by property investors as a means of leveraging their existing capital to make the most of new opportunities. Buying a run-down property in need of renovation, for example, or even converting a property to create new value. As an example, this could be converting commercial premises to residential or changing an existing residential building to a different use, such as an HMO.

Property investors have a choice in how they structure their investment – they could do so in their own name, or they may choose to use a limited company to hold the investment – in which case, the limited company is the legal entity that is the borrower.

There are a number of reasons why an investor may choose to use a limited company rather than their own name. It helps to separate the finances of the investment from their own personal finances, and there can also be tax advantages to a limited company investment – although it is always important for your clients to take specialist property tax advice before making a decision.

At the same, time brokers may also encounter clients who want to borrow as a foreign national or expat. So, what are the considerations and opportunities. We look at some examples of how specialist lenders can provide opportunities for different types of bridging borrower to invest in property, by underwriting each case individually on its own merits.

Limited companies

There are two main types of limited company within which an investor may buy a property – a trading company and a Special Purpose Vehicle (SPV).

The most common of these is an SPV – a vehicle that is set-up purely for the purpose of holding investment property. Trading companies will tend to have money going into and out of the business, with a more complex accounts structure and are less common. Consequently, there are fewer lending options for trading company customers. However, as holiday lets may be seen as a trading business, this type of borrower may become more frequent in that particular area.

For SPVs, there are lots of lending options, even when the circumstances of a case can be complex. Here’s an examples of a loan Castle Trust Bank has provided to a limited company SPV.

The client was a newly incorporated UK-based limited company formed of two directors, both with existing UK borrowing experience. The clients planned on purchasing a multi-unit block (MUB) of flats, all held on one freehold, based in the West Midlands.

The MUB contained 14 units, all above 35sqm with a cross collateral charge and had a property value of £1.7m. The clients were looking to raise 75% LTV to purchase the whole block on one loan, however no leaseholds were yet created equating to 14 units’ worth of exposure on the single block.

At Castle Trust Bank, we enabled the client to purchase the whole block with no need to divide out the securities to different lenders, saving the client from additional fees and administration delays. Despite the leaseholds of the units not yet being created, we were comfortable with offering the loan considering we were taking the freehold of the 14 units with a cross collateral charge. Structuring the loan this way allowed us to offer the client the full 75% LTV.

Foreign nationals

As well as dealing with limited companies, you may work with foreign nationals, who want to buy or refinance property in the UK. A foreign national is a citizen of another country, residing in a country without the permanent right to reside. At Castle Trust Bank, we accept foreign nationals where they have proven UK mortgage conduct, even if they are a first-time property investor. Here’s an example of a foreign national client we were able to help invest in property for the first time.

The client was a foreign national who had been living in London for more than five years. They had clean credit and owned their main residence, so had proven UK mortgage conduct. They were looking to purchase a four-bed HMO in an established HMO area, with four occupants already in situ.

Being a foreign national looking to become a first-time landlord, the client was looking to raise 75% LTV to buy his first investment property in the UK and build up letting experience. We were able to offer the first-time landlord a loan that enabled them to build up property investment experience which will provide them with more opportunities for long-term finance in the future.

Expats

An expat is a British citizen who is currently residing in another country and wants to purchase property in the UK. At Castle Trust Bank, we are able to lend to expats, providing they own a property in the UK. Here’s an example of an expat case we have completed.

The clients were an expat couple living in Switzerland. They owned two AST buy-to-let properties in the UK and were looking to make their first UK holiday let investment.

The holiday let property was based in the North of England near the popular holiday location of the Lake District. The yields were promising and so the couple were looking for a lender who could take into account their existing letting experience in the UK so they could purchase the property.

We were able to provide the loan the couple required, which gave them the opportunity to purchase the property in a popular location and make the most of the growing UK holiday market.