by: Matthew Dilks, bridging and commercial specialist, Clever Lending
Bridging loans have always proven to be a popular form of short-term financing, helping borrowers meet tight deadlines, buy a property at auction, prevent a purchase from falling through or provide the funds to support renovation and development projects.
In the majority of cases, the length of the term attached to the bridging loan is more than sufficient in helping the client achieve their desired outcome and exit the bridging loan as planned. However, there are times when a project may go wrong, which can leave the borrower unable to repay the loan on the due date.
There are a number of reasons why a borrower may find themselves unable to exit a bridging loan on time, including delays to the building works, difficulties around planning permission or a buyer pulling out of the purchase at the last minute and causing the property chain to break down. In some cases, a borrower’s inability to repay the loan could be due to the fact that the length of the term on the original bridge was simply too short.
While gaining an extension to the existing loan will usually be achievable, provided there is a solid case for being unable to repay the loan on the planned due date, there are times when a bridging lender may decline an application for an extension and leave the client searching for an alternative solution.
It is here that rebridging comes into play, by allowing borrowers to refinance an existing bridging loan by taking out another bridging loan to cover the debt. Although placing rebridging business can be a challenge, it is certainly not impossible provided the client has a legitimate and detailed explanation as to why they failed to service the original loan.
Not all lenders are willing to refinance an existing bridging loan, which is where enlisting the help of a specialist lending broker such as Clever Lending can help. With more than 25 years of experience in the specialist mortgage market, Clever has the expertise and knowledge needed to help those borrowers looking to rebridge achieve their desired outcome.
Good explanation ‘essential’ for rebridging
In every rebridging case, a good explanation as to why the initial loan hasn’t been repaid is essential. This includes detailed solid reasoning as to why the rebridge is needed, how long it is needed for and if any capital raising is required. Not all rebridging lenders will permit capital raising and will only cover the existing loan penny for penny plus fees.
Some may consider capital raising on a rebridge as long as the property has increased in value or it wasn’t a high loan-to-value (LTV) bridge to begin with. They will, however, go into a bit more depth on the exit route, given that it is not the first time a bridging loan has been taken out against the property.
One of the downsides to rebridging is that rates tend to be more expensive and the borrower also incurs additional costs such as lender and valuation fees. However, the upside is that they will most likely secure a 12-month term, giving them enough time to complete their objectives and get out of a sticky predicament.
There will of course be situations where a rebridge is not possible or the best advice for the client, particularly if the borrower is already maxed out on a higher value LTV and is unable to add additional security to the loan. In this situation, selling the property would be the preferred option as rebridging would not be a viable solution.
Given the complexity involved in securing a rebridging loan, seeking advice from an experienced broker well-versed in the nuances of the sector is crucial. Brokers unfamiliar with this area of the mortgage market can refer their clients to a specialist broker like Clever Lending to carry out the work on their behalf and help them secure the most suitable option for their rebridging needs.