Navigating the Bridge Finance Dilemma

Michelle Cairns (0:12)

Welcome back to another episode of the Property Pickle with John Howard. Hi John, how's it going today?

John Howard (0:19)

Good, thank you. Good thank you. Battling on, battling on.

Michelle Cairns (0:23)

Well, today we're talking about bridges, and this one is the bridge. Yeah. We've all been on the bridge that you know keeps going, right?

John Howard (0:33)

So uh that's why they call the bridge.

Michelle Cairns (0:36)

Yeah, the bridge is bridge too far.

John Howard (0:37)

Yeah.

Michelle Cairns (0:38)

This is the bridge that keeps on stretching.

John Howard (0:40)

So bridge too far. Yeah.

Michelle Cairns (0:42)

What happens when your six-month bridge becomes a nine-month headache? It's our scenario for today's pickle. An investor buys a tired semi-detached on a bridging finance with the uh expecting a quick refurb and a quick refinance.

John Howard (0:58)

The famous quick refurb, we know what that's like, Michelle, don't we?

Michelle Cairns (1:01)

We do, we do. If you find anyone, let us know. The builder is behind schedule, the lender is only going to extend at a higher rate, and the investors now worried that they're not going to hit their original target GDV. So what can let's have a look. What's this scenario about? It's it's all too common, isn't it, that people take out these bridges, they expect it to take three, six, nine months, and sometimes it goes on much further, right? You you people end up at the end of the 18 months, they've run out of time, and they have run out of options, run out of exits.

John Howard (1:43)

So well, I mean, we've all been there, by the way. I mean, at the moment, you know, planning is taking up to a year sometimes by the time you've got organized, done the console all the consultants they want gone for planning. Uh, so even on slightly bigger developments, it's happening everywhere. So, you know, everyone's in the same boat, everyone, and of course, bridges love it. Bridging companies love it. They make oh, it's a big problem. Well, you're gonna go over, they love it for two reasons. One, they don't have to lend that money to anyone else, and the second thing is some of them will take in great advantage of you and absolutely murder you on the rate. So, if you go over what's called the banking mandate, that's normally the time in which you're meant to pay it back in. So the first thing is if you think it's going to take six months to do, borrow the money over a year. I know it's a problem for some people because you know you need to find more cash because they they they take the interest up front. Now, one or two bridges won't take the interest up front, they will let you pay as you go along. Okay, so that's one question you can always ask them. The other way of doing it, I think, is if you do break your make your banking mandate and you can afford to pay the interest on a monthly basis, do so. Do so, because at least then it's not mounting up and up and up and up and up. And and they will have great confidence in you if you can do that. Great confidence. I've got one at the moment, which is exactly what I'm doing, because we haven't finished the development. They've come to me and I've said, okay, I understand where we are, um and I'll I'll pay mum, I'll pay, I'll pay them the

Understanding Bridging Finance and Its Challenges

John Howard (3:21)

money monthly. It's eye watering, and I won't tell you what it is, Michelle, but that's just how it is, you know. And everyone has these pickles, everyone gets into these pickles, and that's what the show's about, isn't it, Michelle? Yeah, we're we're all in the same boat. Might have another naught or two on, like we said before, but in the other show, but we're all in the same boat. So always always assume it's going to take three to six months longer than you think, and even then that may not may not be enough. Now, the other thing is when you're picking a bridger, I always ask, and they don't like it, they get the arse on if I'm allowed to say that. Ask them where they're getting their money from. Because at the end of the day, it's not their money, they're just uh a super broker, if you like. In I call them super brokers, they don't like it when you call them that, by the way. Um, but they're getting their money from somewhere. So I want to know where they're getting their money from because if it's a small fund or they're getting it off um, you know, high net worth individuals, are they high net individuals going to keep keep you know, keep sending it to them? Are they? You really want, I mean, uh uh some of the well, a lot of them use some of the big banks. So realistically, what they do, they borrow the money off the banks at about 7% and they lend it at 12%, and that's the margin. So what's really important to them are fees, because that pays that the fees pay on the whole, the fees pay for the overheads of the officers of the office. So that's why when you go over the banking mandate, they go, Oh, we want an extra 5% fee, or we want 2%, what you know, read the small print if you can within what they're the agreement. Don't be that desperate to sign it that you haven't read it thoroughly. I mean, you need a solicitor these days. It's a personal guarantee. That's you need to use a solicitor to anyway, because they want proof that you've taken advice on it and so on. But I want to know that they're borrowing the money off some of the big banks, because then I know on the whole that um, you know, uh the funds will keep coming. Because I've I've I've known one or two small bank, small bridges to go bust halfway through. So you may not have a problem, but it could be the bank's got the problem and can't can't send you the next, you know, the next tranche of money. Um, so that's uh so I've I've had I've had that's I've known that situation. Uh and also I'm quite wary with these crowd um funding platforms as well, because you know, again, it's not their money. They've got small qual from small, a lot of lot of small investors putting the money in. So and the other thing you can do is always look at the reviews online and see what people are saying about them. That's always a really good one, Michelle. I know you've you do that all the time. I know you're you're you're you're like the data queen, aren't you? You're like, you know, you're due the due diligence queen, whereas I'm not, of course, but you are. So I'm sure all these things you do anyway yourself.

Michelle Cairns (6:20)

Well, it's all out there to be found, isn't it?

John Howard (6:22)

So um, yeah, you know, this is a lot of money we're talking about, and uh huge amount, huge amount, and a lot of these bridges are roofless, absolutely

Building Relationships with Bridging Lenders

John Howard (6:32)

roofless. Yeah. Uh and you don't want that. You um I would say the bigger ones are probably depending on what relationship you've got with them, of course, but you need to have a good relationship with them, don't you? And I think that's that's it's all property is all about relationships, isn't it?

Michelle Cairns (6:48)

You know, and when you've got a relationship with a bridging finance, you know what what are the benefits of that? What does that mean in real in real life? Well, the benefits of having a great relationship with the bigger.

John Howard (7:00)

Well, I think if you do have a problem, you know, can you trust them not to shaft you to be quite blunt about it? Are they okay, they make one a little bit more? They of course don't forget the one thing that always it always well doesn't tickle me because it's expensive. We all use we all have to use bridges by one way or the other. And even these banks are very expensive these days, but you know full well it's not their money when you find out who the lawyer is on the on the other side of the transaction. So the lawyer's some fancy London lawyer that charges God knows how much an hour, and you're paying three or four or five thousand pounds on the sign a bit of a couple of bits of paper and check a few things. You know that's not the bridges lawyers. That's the that's that's the lawyers who lend the bridger the money. So they're checking. It's not their money. They're it's so it's the it's the main big dog, as I call them, big dog bank that lend a small dog bridger. It's the big dog's lawyers checking everything's okay. That's what it is. And and you find out it, you know, some fancy, fancy firm in London that you never ever go to yourself because you never afford to, they're the they're the ones on the other side, uh, and your solicitor's battling with them to get the money off them, you know. And um, so that's a telltale sign, really, who you're dealing with. Um but relationships, very important that you can whoever you lend the money off, you know, if it goes wrong, yes, they might want a little bit more, but they'll be sympathetic, they'll try and help you. They might have to lend you a bit more money to get you get you and them out of jail, you know, because it's might have gone wrong. It happens all the time. And by the way, you know, they make out, oh, it's never happened before, oh, you've you've gone over the it happens every day to them and they don't mind. As long as they know they're gonna get their money back eventually, they're gonna make a lot more money than they would have done if you paid it back on time.

Michelle Cairns (8:50)

Right. So keep the communication open is key.

John Howard (8:53)

Absolutely. I I think so, don't you, Michelle?

Michelle Cairns (8:56)

Is there anything else you missed you think on that? Yeah, no, just especially if you want, you know, to do business with them again, you know, if you things don't go wrong and you can communicate with them, then uh chances are they'll work with you and then you can uh you know you can solve that problem and move on to the next one.

John Howard (9:11)

One people would would say is speak if you've got a if you think you're gonna have a problem and you think you're gonna get over, speak to them early. Speak to them the earlier you speak to them and explain the situation,

Effective Communication and Risk Mitigation

John Howard (9:23)

the better it is. Do not try and bullshit them, don't blag them. And any bad news, keep them up to date on a daily basis if you have to, or a weekly basis, what's going on on the sales, on the bill costs, whatever it might be. The more information they have, the more likely they are to support you and help you. Um, if they think you're taking the you know what out of them, then that's when they will get and can get very aggressive because their agreements are torturous, their legal agreements are torturous. So, again, like we said in the last show, I think about um agreements. If you have to get their agreement out, good luck, because it's all one-sided.

Michelle Cairns (10:04)

Okay. Well, I think the part of the problem is that people, you know, they plan for the perfect refurb, but then they don't actually plan for delays, disappearing trades, the the rain, right, whatever it is. And um, and it's just about planning for the worst case scenario. And then again, it's all about risk mitigation, right?

John Howard (10:24)

I think you're absolutely right, Michelle. And and and we and we've all been in this situation, you know, and anybody out there that that you can come to you, then come to me, you know, both of us, you know, if they've got a problem and we can help them, you know. Uh we've both seen it all basically over the years between us all. So, you know, we're here to if we can help, uh the the then contact us, you know, because it is it is a worry, it is stressful, I know. Very stressful.

Michelle Cairns (10:52)

Yeah, yes. So what what someone can do in this type of pickle, first of all, clear communication, negotiate an extension early, keep that, keep that communication going uh throughout, explore potentially selling part of the deal, you know, getting out of it as well.

John Howard (11:08)

Absolutely. I mean, I mean, if and if the refinance, if if they really punish you on the refinance, if they're really punishing because you're going over, you could always go to another bridger.

Michelle Cairns (11:18)

Or private investor.

John Howard (11:19)

Or private investor, yeah. Yeah, I mean, I mean, yeah, absolutely. And what I would say is these banks and bridges need to lend money. They're not doing you a favour, you're doing them the favour. They've got millions of pounds that they're paying so much for to have on call from these big banks, and they need to invest it. They need to get make it make it work for them. Um, so they're under pressure as much as you are, and they have to report probably every month or every quarter of all their loans, how they're working out, what's happening to them. So if you think they're giving you a hard time, imagine the hard time they're getting off big dog bank who the who've lent them the money, because that's what happens. So that might make you feel a bit better.

Michelle Cairns (12:05)

Well, remember, guys, always have you know a couple of exits before you start. And John, you mentioned before about you know, you use this word about being desperate. Don't be in a desperate position where you just want to get the deal done. Make sure it's the right deal. You've got enough exits, you've got enough space

Preparing for Success in Property Deals

Michelle Cairns (12:21)

in there so that delays are not gonna break the deal, they're not gonna break you. So make sure you factor all of those things in, and then it'll be a solid deal, one that you can go into confidently, you're not gonna lose sleep at night, and if things don't go to plan, which you know they probably won't, in which case you've factored that in, and uh and and you can get get out of it on the other side and have a successful deal. So yeah. Um cool. I think that's probably a good place to wrap that one up. Do you know some key actions people can take is have a look at different bridging options, you know, before you need one, because chances are you're gonna come across a deal and you're gonna want to move quickly on it. That's where you use bridges. Um, so look at different bridging timelines and exit options. John, you mentioned before, is worth paying a bit extra to get the maximum amount of time because it's the time that kills the deal, not uh, you know, not always you know something that goes wrong. Sometimes it's just things that go go on too long.

John Howard (13:21)

Um and what I would say, Michelle, you know, they can contact you, they can contact me through our social medias, all the rest of it. And if we can put them, if we can put them to the right, the right bank or the right uh, you know, introduce them to the right bank, what I'm very happy to do. So as you are, I'm sure, Michelle, you know, because it is horses for courses, you know, some some bridges like some things, other bridges like other things. So, you know, uh, and and if it's a big if it's a bigger deal, then I've certainly got a few banks who are who are quite keen to lend at the moment. So, you know, if we can help, that's well, you know, that's what we're here to do. So yeah.

Michelle Cairns (13:56)

Fantastic. Right, that's it for today's episode. Thanks very much, guys. Do check us out on social media and the key club podcast show notes where you can find links to all of these. We look forward to hearing about your pickles, things that uh you got yourself out of. And it also, if we can help, let us know. Take care and see you next time.

John Howard (14:14)

Bye bye.