My first article talked about the variety of applications for development exit products. I will continue to explore the intricacies of bridging finance, and in this week’s article I will be focusing on how first- and second-charge bridging can be used. Short-term finance, such as bridging, is a very useful tool and can provide solutions to problems that on first glance, cannot be remedied. However, there is a lack of awareness of what bridging products are currently available and we want to provide more insight into this area.
Part 2 – First- and Second-Charge Bridging
Scenario: Adding value through enhanced planning
A lot of the clients that we work with are looking to add value to their development schemes through gaining enhanced planning. However, a good percentage of bridge lenders do not take the increased value into account.
Solution: Through our many years of experience working with developers in such scenarios, we do place an increased value on gaining enhanced planning and understand the ‘doors’ that this can open for the developer. We work with a number of second-charge bridge lenders who are willing to consider the increase in value and then leverage off this. Alternatively, developers can instruct a first-charge bridge lender who will recognize the increased value in the land and leverage up to 90% of the purchase price - subject to this not exceeding 70% of the enhanced value.
Scenario: Market uncertainty?
Due to the current market uncertainty, first-charge bridging lenders are reducing their exposure levels. This is making it difficult for us to find solutions for developers who are looking to amend their current, stretched senior development facilities.
Solution: A second-charge bridging specialist can gear up to 75-80% Loan-to-Value (LTV) to enable the developer to exit the development facility. Typically in this scenario a first charge lender would fail to achieve the above figures in order to remove the development facility.
Coming up: A short guide to purchasing land with bridging solutions.
If you would like to speak to myself or any of the team about a bridging requirement, please contact me by email: tom.berry@arcandco.com or phone: +44 (0) 20 3205 2192