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100% bridging loans

bridging finance Sep 09, 2019

THE QUESTION

I need to find a bridger where I can borrow 100% purchase price. The property is being sold  20% BMV.

THE ANSWER

No commercially minded bridger will lend 100% of all costs.  Why would they take all the risk and rely on the borrower to get it right?  Legitimately they may ask, what is the borrower’s incentive to get it right when they won’t suffer financially if they get it wrong?

As has been said to me in the past - if we are going to fund it 100%, we might as well do the deal ourselves and keep all the profit and just pay a decent finder’s fee.  You may get 100% borrowing privately.  You may also borrow the deposit privately and bridge the rest.

You can also borrow 100% of the purchase price by offering up an additional property that you already own with sufficient useable equity in it, but based on the assumption that you have no such property this is what is possible.

If the property is genuinely 20% BMV, with the right bridger that can reduce, but not eliminate, the deposit needed.  This is because some bridgers will lend on value, not purchase price.  This is different to mortgage lenders, who always lend on the lower of those two values.

However, clarity on what is exactly BMV is needed here. I believe a more accurate term to be BTCV - Below True Current Value.

If the property’s true current value is £100k and you can buy it for £80k then it is a genuine £20% BMV, but there can be more to it than that.

One big differentiator is, is it on or off market?

ON - no bridgers valuer is going to value above the most recent asking price that is/was on Rightmove.  So, using the above example, if you believe the true current value to be £100k, but the sellers have reduced the asking price to £85k, then no bridger’s valuer is going to value it above £85k and may still value it below that if they don’t think it is worth £85k.

OFF - if it has not been marketed (i.e. direct to vendor) then the bridger’s valuer cannot use the asking price as a default value and will need to do proper price comparisons.  So if they value it at £100k then borrowing will be based on that.

How would buying truly BMV with the right bridger affect the deposit you need to put down?

  • Borrow 75% of £80k purchase price and your deposit it £20k
  • Borrow 75% of £100k value = £75k. If you are buying at £80k your deposit has shrunk from £20k to £5k

So could you actually buy below true current value and not need to put down a deposit?  Yes, in theory, if you were buying at say 30% below the true current value (as defined above) and used the right bridger, you could effectively borrow 100% of the purchase price.  You would need to have the ability to service the interest on a monthly basis for it to be no deposit at 30%.

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