July 19, 2018
Financing and cash-flow snags can arise in even the most straightforward property transaction. And as a broker, your readiness to help clients fix these issues is all part of the service. Yet clients who use foreign currency assets to fund property transactions can find it especially tough to solve short-term financing issues, and the challenge involves presenting a workable solution that takes their circumstances (and their location) into account.
As a rapid, practical way to get a client’s purchase over the line, bridging finance could be the solution. Here, we’ll discover the reasons why bridging loans deserve a place in the toolkit of all brokers – and especially those seeking to grow their foreign currency earner client base.
It’s that age-old problem faced by clients whose income derives partly from outside the UK: the feeling of being made to jump through extra hoops to secure the finance arrangement you need to get your property transaction moving.
Here are a couple of scenarios to help illustrate the dilemma faced by some clients:
Jane is a consultant in the petrochemical industry. Her income derives partly from a retainer paid in sterling by the UK subsidiary of a global oil company. Another chunk of income is effectively a “performance bonus” paid in UAE dirham by an operator registered in Abu Dhabi. Jane owns a Buy-to-Let property in the UK and has decided she wants to sell it as soon as possible – but needs finance to renovate it first.
By way of further background on this client, she has already faced quite a slog in securing an offer of finance. In part, the problem has been down to her status as a self-employed consultant – and the fact that there has been some marked fluctuation in her level of earnings over the last three years.
Here’s the good news for Jane: she finally has an offer of finance. And here’s the less-good news: the lender will take into account her basic retainer – but they will not take into account that portion of her earnings paid in UAE dirham.
You are told by the lender that they class any lending arrangement based around the UAE earnings as a foreign currency loan; a service that they do not supply. This leaves your client with a financing shortfall. On first glance (taking into account her employment status), there appear to be very limited options for plugging that gap.
Here’s a further scenario:
Peter is currently on secondment in Germany. He has recently inherited a Cornwall property with very strong seasonal rental potential. Ideally, he wants finance to discharge his inheritance tax liabilities and to renovate the property to unlock income potential. Peter has a considerable sum of UK bonds maturing in 6-months’ time, but until then he needs quick access to capital.
You learn that this client is paid partly in Euros and partly in sterling. From your market intel, you know of some traditional lenders who may be able to offer him finance. But for Peter, the clock is ticking. For the project to be viable, he needs the funds in place and work to start quickly. You know from experience that where foreign earnings are involved, the approval process with those traditional lenders can be a long winded one.
The scenarios described above concern potential investors whose circumstances are somewhat more complicated than your run-of-the-mill clients. And for some brokers, the first reaction may be to write them off as more trouble than they’re worth: a clear case of an opportunity missed!
For high earners especially, a “complicated” earnings arrangement often comes with the territory. The number of global multinationals is rising steadily; these companies are encouraging their talent to move around – and the number of employees classed as either expat or corporate transferee workers is expected to top the one million mark by 2021.
More often than not, these clients work in the likes of energy & power and professional services. Mobility tends to accompany a high net worth and an impressive portfolio; i.e. desirable clients by virtually any metric.
The upshot? If you can demonstrate an ability to help foreign currency-pegged investors overcome their “little local difficulties” when it comes to property finance, it could mark the beginning of some long and lucrative new client relationships.
Over recent years, we’ve noticed something interesting happening with bridging finance – and how investors and their brokers are putting it to work.
Put simply: this form of short-term borrowing isn’t just for fixing broken property chains. It can be useful in a range of scenarios where buyers need an injection of capital – and the case of foreign currency buyers is a prime example.
Here’s why it can help:
Let’s say that the proportion of capital to be paid from foreign income is going to be relatively small. Nonetheless, there’s a shortfall present – and it needs to be filled for the purchase to go ahead. So long as the client has a workable exit plan, a bridging loan could be just what’s needed to eliminate that shortfall.
Ultimately, your client will have a longer-term foreign currency loan in place. It’s just that an opportunity has arisen right now – and arranging that loan will take time. While due diligence is part of the process, bridging loan providers are generally a lot quicker in application processing and decision making than traditional mortgage lenders. It can be just what’s needed to prevent your client losing out on a valuable investment opportunity.
So, ultimately, bridging finance is a viable option for a number of scenarios – especially those regarding foreign currency earners. If you want to learn more about this relation, or just bridging finance in general, then speak to Enterprise today. Give us a call on 020 8731 5333 or drop us a line.