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A place in the funds

Overseas property is proving more popular than ever with UK buyers but there can be funding flow problems.

Many advisers have had reservations about recommending their clients to use a bridging facility to fund the purchase of an overseas property. However, bridge finance or short-term funding is probably the most underused form of financing and can provide your clients with fast access to funding with minimal formalities.

Bridge finance is mainly used to assist purchasers to buy a property while their existing one is being sold. It can also come into play in other circumstances, such as property renovation, buying dilapidated properties for renovation and sale or sometimes for a long-term remortgage if the buyer has an impaired credit rating.

The perceived additional cost of using a bridge is often considered out of context. True, bridging can be more expensive than other secured forms of funding such as a mortgage and second charge. This is due to the short-term nature of the arrangement. A bridge can really only be considered as a quick fix and the loan will normally have an average life of between three and six months.

How difficult is it to get a bridging loan? Historically, it has often been a slow process to achieve the funds your client may desperately need. For example, if they are looking to buy overseas, particularly in Spain, banks are often slow in meeting the timescale of builders and developers.

Even in the UK, high-street lenders often take between six to 12 weeks to approve a loan or 16 to 20 if the client is looking to buy in the Caribbean. Faster response times are often needed, which is why seeking out a bridging service makes sense.

If your clients have a short-term financial need, this could be the moment to use the value in their property to free up funds and ensure they do not have to break an important deal. For example, someone who had paid a £30,000 deposit on a home in Spain was finding the sale of their £250,000 property in England slower than anticipated. They quickly needed £110,000 to complete the deal in Spain. Based on the value of their UK property, funds were released within five days, the sale completed and, having sold the home within three months, the bridging facility ended.

Having assessed your client&#39s needs and decided that bridging is for them, what are the steps to take? One strategy that can help prevent problems downstream is to consult a specialist company which has access to lawyers, agents and other advisers working in the key destinations. This can save time and effort and ensure that you are able to offer clients the most appropriate advice throughout the bridging process.

There is another benefit – the prospect of more business. Specialist advice often raises the client&#39s perception of their adviser&#39s level of knowledge on buying abroad, which can lead to follow-on work from overseas mortgage clients.

The client will need to complete an application form, pay an admin fee and supply proof of identity such as passport, driving licence and original utility bills for the property in question.

How much will it cost? Using CBF as an example, the current monthly interest-only rate varies from 0.99 per cent – where CBF has first charge over a property and applicants can supply three proofs of income – to 2.25 per cent where there is a second charge.

We see bridging as a short-term pain for a long-term gain. Bridging finance used correctly can be the most effective solution to many clients&#39 financing needs. However, remember that it must always be seen as part of a plan. Clients must weigh the positives of the bridge against the cost of not doing it.

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