Bridging Loan to Secure Property Requiring Planning Permission, Split Titles and Refurbishment Before Refinancing

This case study perfectly demonstrates how bridging finance can secure an investment property quickly, at a reasonable price, and provide you with the time to carry out the initial legwork of a business proposition that can transform the property into a prosperous investment before you later refinance.

The Scenario

The clients approached a broker looking to purchase a farmhouse for £1.3m with plenty of land and various outbuildings.

They had a plan to repurpose the farmhouse and outbuildings into buy to let properties and a development vision to construct a combination of holiday let lodges on the land:

• They wanted to split the property into three separate titles: the farmhouse, the outbuildings, and the land.
• The farmhouse would be refurbished and let out.
• The outbuildings would also be converted into buy to let properties
• And they would look to construct a series of holiday let lodges on the vacant land to be run as a holiday park

However, despite the client being experienced in planning and development, they hadn’t been able to find a lender that was comfortable with their complex business plan from day one, which included planning permission for the lodge constructions.

The property was also in Scotland, which significantly reduces the number of lenders available – it's a different legal system that only a few specialist developments and bridging lenders can operate in.

The Solution

After understanding their plans, experience, and financial position, their broker suggested a short-term bridging loan to finance the initial purchase.

This would secure the asset and give them time to split the titles accordingly, commence their business plans and refurbishments, and obtain planning permission to construct the lodges.

They also advised that the bridging loan would later be refinanced on a title-by-title basis, as follows:

• Once the farmhouse and outbuildings were successfully converted, they could refinance them on separate buy to let mortgages.
• And the broker was confident that a new valuation and refinance of these two titles would raise enough funds to fully repay the bridging loan, despite not including the third title of the land with planning permission.
• With the bridging loan repaid from the two buy to let mortgages, they could raise development finance on the unencumbered land to fund their holiday business construction.

The complexity of this case - with the splitting of titles, planning permission, complicated exit strategy and development plans - made it a real challenge for any broker to source finance.

Most bridging lenders would turn down the proposition at face value due to the nature of the asset, the risks and the administrative burdens involved.

However, the track record of a good broker and their reputation in the industry can assert a level of trust with the bridging lenders they work with. It can enable them to secure finance solutions where others can’t.

The bridging loan secured for this client was at 70% loan to value, on a 12-month term, with interest rolled up to free up the client’s cash flow for the planning, renovation and refurbishment costs.