Bridging over troubled waters...
I am a big advocate of bridging finance. It's a nimble tool, whereby you pay a premium in order to access quick financing that doesn't rely on the nitty gritty detail of the deal nearly as much as a traditional mortgage would.
In short... nimble and no nitty gritty...
I've JUST come to the end of a bridging application. I've literally just opened my bank account and confirmed IT HAS HIT. THE MONEY HAS LANDED. Prior to this glorious moment, I've spent countless hours navigating documents galore, express posting them across the country at a moment's notice and in general, I've lost several years of my life due to stress and sheer hair pulling frustration. There have been mistakes from all parties involved (I shall name no names), except by me. I am the first to admit when I make a mistake, but not this time. No. This time I was the Speedy Gonzales of paperwork. I was nimble and fast fingered. My calculations were on point and I delivered everything that was asked for me. And yet, today, SEVEN DAYS after promised completion, which was in turn THIRTY EIGHT days after I started the process, I sit here slightly disillusioned without any satisfying answers. The large glass of wine I will consume tonight in celebration shall hopefully help this, but it was neither nimble and I almost drowned in the nitty gritty.
Prior to my wine, I thought that it might be useful to detail the ups and downs (majority downs, did I mention there were downs?!) of the process. In particular, I wanted to outline all the documents that I've had to collate. At last count there were 64 client documents in my broker's folder. And that doesn't include the most recent flurry of last minute requests. My hope is that in the future, one of you might be staring down the barrel of a bridging application and that you'll be armed with this knowledge. Because bridging is designed for when you're in a bind, and the better prepared you are, the less sticky your (already tense) situation will be.
Let's start with the basics...
1. Personal documents
This sounds like an obvious one, but having access to all your personal documents is the very foundation of an application. What's worth also remembering is that if you are applying with a partner, or if you are applying through a limited company with another director(s), then you will need all of their documents as well. Luckily for me, my husband is my business partner, but this does always means having double sets of everything. To cover your bases, I would recommend:
Two forms of photographic ID (passport and driver's license)
Two forms of proof of address (utility bills are the easiest, council tax bill is standard or a mortgage/bank statement)
Your last three months of bank statements (I like to have a separate proof of address to the bank statements, just so that there can be no quibbles about doubling up on documents)
A recent credit report (from Experian, Noddle etc)
Your last three PAYE slips (or if you are self employed, your last two, but preferably three computation reports) - see my note below on this
Computation Report (SA302s)
Up until recently, any significant lending for self employed folk involved getting an SA302. For those of you who don't know, an SA302 was the HMRC issued document for people who were self employed and didn't have PAYE slips to prove their income. HOWEVER, I have just learnt that SA302s ARE NO MORE! This is breaking news for me, as I feel like I've spent the last half decade wrestling with this document in one way or another. Where a PAYE slip shows your monthly income and a lender will gauge your annual wage based on your most recent three slips, an SA302 filled this gap for the self employed and lenders used to insist on two, if not three full years of earnings to determine self employed income. However, now, a simple computation report from your accountant will (apparently) suffice. MIND. BLOWN. And you're welcome self employed folk.
2. Company documents
If you have a limited company and are applying for bridging through the company, there's additional documentation you should prepare.
Your last two years of company accounts (we only formed in mid 2016, so were only able to submit one lot of accounts)
The last three months of bank statements for the company
You don't need the actual certificates, but you will need your company registration number and date of incorporation for the initial forms
The above personal and company documents should all be regularly updated items in your property toolbox. Make sure you keep them on file and accessible, as I can't tell you the amount of times someone has needed something from the above list urgently. You will need to get them certified, but I talk a bit about certified documents as part of the application below.
3. Assets and Liability Statement
This document outlines, surprisingly, all of your assets and liabilities. It's a fairly straightforward document that will look something like the following:
I have all of my assets, liabilities and property details regularly updated in an excel spreadsheet. It makes it easier when these forms come flying into my inbox. With the above application, I simply attached the bulk of it as a separate PDF, as credit cards/overdrafts etc wouldn't fit in their form (bad debt, bad debt). This might not always work and quite often it feels as if this information is being ported from one part of your hard drive to another.......
FREE RESOURCE BECAUSE I'M AWESOME LIKE THAT:
If you would like to download a free copy of the template I use, please CLICK HERE. All I ask is for your email address. Fair trade, right?!
4. Portfolio Landlord Statement
Hilariously (or not, depending on how far through your application process you are), there is usually another document where you outline all the properties you own. Despite having outlined them all in your assets and liability statement.... because they're assets.... (come on, we've all read Rich Dad). SO. Let's input all that information in again, but let's do it in a slightly different format, so you can't just copy and paste it. No let's do that. Just for fun. This form will look remarkably similar to the above, as you can see from the below.
5. Schedule of Works
Every time I've applied for bridging, this form hasn't come over in the first batch of forms and EVERY time I've applied for bridging, they've eventually asked for it. Usually at the last minute. So just be prepared. I even had to fill in one on delayed completion, after the work had already been completed. Quite why they wanted to know exactly what date the tiling was completed after the fact, I'm still not sure.
The schedule of works outlines what you're going to do to the property, as usually, you're bridging to do work or make it mortgageable/get other lending. Here's the thing... A lot of the time, at this stage, you're not sure about what you're going to do to the property BECAUSE YOU DON'T OWN IT YET. It's a catch 22, but it's unavoidable. You need to come up with a schedule of how you intend to roll out your development/refurb etc. This will become easier after your first refurb. You'll understand the process and the order of things. I was fortunate that I'd already done the refurb before needing to fill this form out on our first flip, so I could literally input the dates everything was completed. As precaution, I have started taking a builder along to viewings where I'm anticipating bridging will be part of my strategy. This means I have a quote outlining everything required (more on quotes in just a moment) and an itemised quote is basically a to do list. It can be tweaked to become your schedule of works fairly easily.
6. Quotes and Estimates
This is another catch 22. For my recent bridging application we had to send full quotes for every penny of spend anticipated on the property. In our case, as we already own the property, it wasn't so difficult, however it becomes a bit more hassle if you're buying a property at auction. Some properties don't even allow viewings, or if they do they're brief. You can't be going back with the gas man to give you a quote on moving the boiler...
As mentioned, I recently started to take a builder along in this situation which helps this requirement. It means I get a full quote as early as possible (great for my own budget), even if it's just to submit for bridging. Again, a bit of prior knowledge is needed here, as quotes from builders don't usually include kitchens, bathrooms, laminates, carpet etc, so you will need to have an idea of what this costs in advance so you can include it as part of your schedule of works (which includes a budget), and in a pinch, as part of your quotes if they insist (ie. screen grab a shopping cart from B&Q if you really need to).
REMEMBER: YOU CAN CHANGE YOUR MIND LATER. Find a different tradesman or use a different kitchen suite. Quotes are just that, quotes... so be nimble in getting the info, but don't freak out (like I have in the past...... do as I say, not as I do).
I came unstuck in this recent application because the lender wanted proof that my tradesmen were part of a competency scheme or body. This was a particular problem because we had a leaking roof when we first took ownership. Water was coming through the ceiling, so we called a local roofer who came out immediately and ended up doing a bit of work to rectify it. He wasn't part of a competent person scheme (water coming in, didn't really care), and because this spend was mentioned in my budget (so I could personally recoup the cost), this got a lot of questioning by the bridger. My validation of his expertise was that: "the roof was leaking, he went up there, then it stopped, so I paid him." This eventually worked, though needed special approval from the underwriters and really was a problem point for a while. WHAT?! OH COME ON.
7. Debt Consolidation Schedule
This was a new one for me. Because we were using some of the money to pay off a tax bill and repay some director's loans, I needed to swear on the blood of my firstborn that we would indeed use that money to pay off the tax bill and the director's loans. Despite the fact that they have first charge on the property and if we don't pay the money back, they get it all. My broker got annoyed at this stage and nearly told them we should be able to spend the money in Vegas, they'd still have the property. We were all very frustrated at this point...
8. General Instruction Letter / Client Care Letter / Terms of Business Letter etc etc etc
Before any of this happens, your solicitor and broker will need signed instruction letters (et al) from when you instruct them. This outlines their fees and provides them with approval to act on your behalf. Standard. But make sure you ask for them as quickly as possible, because they can't open your case without them and this small delay could set you back a week and that is an age when you're bridging.
9. Mortgage Deed
It's bridging, but still a 'mortgage deed' needs to be signed and independently witnessed as per normal. You can have anyone witness it that isn't related to you by blood or marriage (not sure if in-laws count, but just to be safe we've never used them). Originals will need to be sent. This is the first document I've mentioned that needs an original document sent. All the other documents are usually fine to be signed and scanned.
10. Loan Agreement
This document outlines all the terms of the agreement, what you are paying in interest, how long the loan is for, any early repayment fees, redemption charges and any additional conditions. This final part is particularly annoying because this is normally where the last minute conditions that the bridger failed to mention previously, despite having every chance to pop up. This is where the debt consolidation schedule popped up, the competent person scheme condition popped up.... this is the point when you think you're on the home stretch and you realise you aren't. YOU CAN DO IT. Don't give up hope. Just be ready for it.
The loan agreement will come from your broker (usually) after all the initial paperwork has gone through, thus they lull you into a false sense of security. Keep in mind that often this comes into your inbox before the valuation has even happaened (as in our case). This can be a nerve wracking part of the process because a lot rests on the valuation. So it's not a home run yet... you're probably still only in between first and second base...
This made my blood boil. It's the second time the guarantee has caused problems with a bridging application. The reason I was so annoyed recently was because I specifically asked if it was required and it took over a week to confirm it was indeed needed. And that delayed us. EVEN THOUGH I HAD PRE-EMPTED AND ASKED FOR IT.
The guarantee is a document that states that no matter what, the bridging company will come and get their money back. If you die, they'll get it from your partner, if they die they'll take it from your children, if they die, they'll keep coming back until they have drained everything from you and the people you love. Basically.
Fine. It's standard. Here's what gets me. The guarantee needs to be signed by yourselves (and witnessed) and it also needs to be signed by your solicitors who have to state that they have SEEN YOU and given you independent legal advice. I'm not 100% sure if this is required if the bridge is in your own name, but it's certainly the case if you're applying through a limited company. Here's what's SUPER annoying... A lot of time, for speed, the bridger will recommend you use their solicitors as they have an existing relationship and can speed things up. They basically insist if you have a speedy turn around. However, because they are the bridger's solicitor, they aren't independent, so they can't actually complete this form for you. Also, a lot of the time, these solicitors are in a completely different part of the country, so it's useless even if they could.
When you use the bridger's solicitor you will need TWO solicitors to complete the pack.
I don't know whether it's worth insisting you use your own solicitors... I really don't. It's probably not a great thing to 'slow things down' at the beginning of the application process (and I put that in inverted commas because I don't know if it actually WILL slow the process down or will just give the bridgers ammunition to come back at you if things are delayed - "IT WAS YOUR FAULT FOR NOT DOING AS WE SUGGESTED"). Another downside is that my solicitors are based three hours away. They were happy to provide legal counsel over the phone, but because of the one small word 'seen' they couldn't sign the form.
We were lucky and a London based solicitor that we have put several sales through previously, offered to do this for us for free. But not everyone has that at their fingertips, so make sure you have a provision to pay a local solicitor if yours isn't based nearby. Or, perhaps it's easier to budget to take a day trip and go to see your solicitors in person. REMEMBER, if you're not a client with a firm, (I'm pretty sure) they will need to add you as a client to give you legal advice. This means even more money, ID and faffing. There are plenty of solicitors who will witness your signature for a small fee, though giving legal advice is a whole other ball game.
I mentioned above that you will most likely need your ID certified. If your broker has met you in person, they can usually do this for you, though note that the bridger might not always allow broker certified ID. It's often worth just getting your solicitor to do this when they do your guarantee. You can get your ID certified at the Post Office for £10.50 per document. This will say that it's a true copy of the original, but it won't say that the person in the picture matches you.
You want (something along the lines of):
"I confirm that this is a true copy of the original document which I have seen and that the photograph is a true likeness of the individual concerned."
Whereas the Post Office only says:
"This copy is a true likeness of the original."
Minor detail, but you don't want to get it wrong, so check in advance what wording is needed.
You will obviously need to send the original of this as well.
CONSIDER YOURSELVES WARNED ABOUT THE FRUSTRATIONS OF THE GUARANTEE
12. Posted Proof of Address
This was a new one for me. Despite being a rushed application (we literally paid more to rush it through), the bridger insisted on sending us a letter in the post, for us to sign and send back. An email copy wouldn't suffice, it needed to hit my mailbox (not my inbox...). WHICH IS ARCHAIC given that a credit report or electoral registry search gives proof of my address. This, again, took about a week out of the process because THEY DIDN'T EVEN SEND IT FIRST CLASS. Frustration level was at 11/10 when I found out about this....
13. Direct Debit Guarantee
This was a last minute document that I absolutely needed to fill out and return ASAP... that then turned into a document that I didn't actually need to provide. At this point I would have signed anything, including the wall, so I posted it back regardless. Just to cover that base in case anyone changed their mind. Again.
Remember though, you will need to provide your bank details for the money transfer if no other form is provided. Sounds like an obvious one, but I think it's easy to miss if it's not officially required. You'll send this information to your solicitor as they will draw down the money from the lender and then pass it on to you. Minus their fees.
Side note: always remember that your initial illustration doesn't have legal fees in it, so your net loan isn't 100% accurate.
AND THAT'S IT FOR NOW.
There are probably, undoubtedly, a whole host of other documents required, this list is not exhaustive. I would also like to preface that I have no qualifications whatsoever and I am not an accountant, nor a broker, nor a solicitor.... Basically I am a frustrated individual who would like to help our her fellow investors with some personal experiences by way of warning. But they are exactly that - personal experiences, so you must seek lots and lots of other more intelligent people's advice. Seriously.
This is not a case of 'cross that bridge when you come to it.'
So, on that note, I am going to find me a bottle of wine and have a bath. Then tomorrow I'm going to put together another application for bridging... because I've found a flat that I absolutely must have and I'm a sucker for punishment.