What checks do lenders carry out
Every lender conducts certain checks before agreeing a bridging loan or development finance application. Although each lender views applications differently, it’s important to be aware of the more common checks you’re likely to encounter.
Make sure you have your bases covered and your finance application prepared, by considering the following areas that will be looked at by the lender.
Strength of the asset
This will include; type of asset i.e residential, commercial, land; location, quality of the building, it’s commercial success, its future opportunity, is it “liquid” i.e can it be sold easily if there are problems.
Although most applications don’t include affordability checks, information around affordability can be requested should the client wish to service the interest for the loan, rather than having it rolled up.
Is it regulated
Some lenders are unregulated and as such, can’t offer FCA (Financial Conduct Authority) regulated bridging loans. This is an important regulatory point and can’t be overlooked.
An application becomes regulated if it is to a private individual and secured as a first charge against a property that is to be used as their principal place of residence.
Not all lenders are overly concerned by an applicant’s credit history, but many are. Lenders will generally be keen to check credit history before releasing funds. In addition, all lenders will conduct bankruptcy searches to ensure the applicant is not currently bankrupt. Discharged bankrupts and poor credit do not mean you will not get the loan, it just means you need to choose your lender more carefully.
ID checks and "KYC"
As part of the anti-money laundering rules in the UK, all lenders must do their “KYC” checks – this means they must “Know Their Client”.
Customers will need to prove to lenders that they are who they say they are, using formal identification. The lender will usually require the following:
- A certified copy of your driving licence or passport
- 2 certified copies of a recent utility bill or bank statement (within the last 3 months is usually classed as recent)
Legal due diligence
The lender will always look to instruct their own solicitor to conduct independent legal checks. This includes checking the loan documents are all completed correctly, the parties are all aware of exactly what they’re doing and ensuring a charge can be registered successfully against the property.
It’s only once the lender is completely happy with everything that funds can be released and your loan completed.
How are you going to repay the loan? For example, if you have bad credit and are saying you will repay the loan via a BTL refinance; the lender may ask for you to provide a mortgage Agreement In Principle from the mortgage lender, to demonstrate that refinance is in fact an option.
Loan to value (ltv)
Is it a straightforward low leverage loan against a liquid residential asset in a good location, or is it a high leverage loan against a challenging illiquid commercial asset in a secondary location.
This will play a central part of the lenders decision making process, and will effect the interest rate.
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