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Saving a property deal: £200,000 Property Finance with bad credit

Published on 25th November 2019

When large sums are involved, lenders have to be cautious.

However, if your clients are looking at the potential of property, you might also be cautious about providing them with advice about borrowing the finance required.

Unless you have in-depth knowledge of the lending industry it can be extremely difficult to find the lenders who can provide the most competitive rates for specialised funding such as Development Finance. 

At Rangewell we have the necessary knowledge. Our network of UK lenders includes those who can provide Property Finance for borrowers with adverse credit histories,and we work closely with accountants to help them arrange the funding their clients need. 

We recently helped a London-based accountant find a solution for a borrower who was acquiring an investment property - and who needed a £200,000 Development Loan.

The challenge of poor credit

“Our client lived locally and we had helped him with the financial side of his retail business - he ran a number of corner stores. But he was looking for another source of income and believed that a run-down property close to one of his shops had real potential. He believed that, if he could acquire it cheaply enough, there was profit to be made from its redevelopment - whether that was by selling on or letting out.” 

The property was a large house in poor condition - which was unmortgageable, having been squatted and vandalised. Repairs to windows and the roof would be necessary, and there was some damp damage to make good - although the house was structurally sound. 

However, once the remedial work was done, he believed it would easily convert into two flats.

The problem was that he had no background in property and his credit rating was less than perfect. He had seen some problems with his business interests over the last ten years. His accountant warned him that his credit rating was poor, and that lenders might be reluctant to lend.

Hearing that his credit rating was low, the client used his own savings and borrowed from a friend to secure the property as a cash buyer. 

“To be fair, he secured the property at a very good price because he was able to pay cash. But doing so had consequences for his personal finances and for his business. 

I had advised him to be careful and to avoid putting his business at risk - but it looked to me as though he had done just that.”

The client had overextended himself to buy the property, and had no cash left to fund the work. He had also left himself short of cash for the business. He needed to restock, and the wholesalers were not prepared to advance credit.

“He believed that once he had the property in his name it would be possible to use it as security for a loan - which would fund the development work. But his credit history was a problem, as well as his lack of experience.”

The accountant looked around for a solution to the problem.

Are your clients looking for funding but you're unsure what to recommend? Partner with Rangewel and see how you can offer avaluable service to your clients, and an additional revenue stream for your practice

“The property finance sector can seem something of a maze, even to a financial professional like myself. Getting any kind of deal was looking impossible - but even if I did find a lender who was prepared to offer cash support for my client, I had no way of knowing that the deal I helped secure was competitive, or even fair.”

The accountant was also aware that time was becoming critical. If the client could not bring in cash, he might be facing real problems with his business - and a downward financial spiral as a result. 

He turned to Rangewell for help.  

Finding a solution

We looked at the deal that the client was looking for, and saw another problem. He had not arranged planning permission from the local authority and we knew that, without planning permission, the options for funding would be limited. 

There would be little chance of securing Development Funding, which is usually reserved for experienced builders and developers. However, we believed we could find a solution by finding a lender who could offer funding with a Bridging Loan.

With a Bridging Loan the security is provided by the property - not the credit record of the borrower. This meant that, despite his business problems, the accountant's client could use this type of loan for his property development plans.

Bridging Loans can be secured against residential or commercial property. They are versatile, but have a high cost. They are, therefore, intended to be repaid quickly, either by the sale of the property or by another finance product designed for the long-term, such as a mortgage.

They can be used to secure property which is not suitable for a mortgage, or when the borrower does not meet the criteria for lending. 

We approached a specialist bridging company. They looked at the client's property and were happy to advance the funds required. Bridging lenders are able to make rapid decisions and funding was agreed within hours, with the funds released in a matter of days. Costs for the Bridging Loan were high, with rates of 1.0% per month, and there would also be arrangement and exit fees.

However, these fees and the growing interest could be rolled up into the loan, and all settled with a single repayment when the property was sold or refinanced.

The accountant was happy to recommend this solution to his client. 

We also explained to the accountant's client how he could repair his credit rating. He is now in the process of doing so - and has received the planning permission he needs. 

At Rangewell we can help you arrange all types of business funding for your clients. It means that you can provide an even better service to them, and at the same time creating a potential additional income for your practice. Simply contact us for more details.

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