Pilot Fish

Brokers should take a 'more proactive role' to ensure development finance will sufficiently repay the bridging loan



During an exclusive interview with Development Finance Today, Richard Jones, managing director at Pilot Fish (pictured above), claimed that it may see bridging lenders looking more closely at the exits of their loans and whether they stack up with the development finance available.


“What we found last year [was that] we were getting quite a few people needing to bridge out of bridges because I think the development side of the market has become a bit tougher, with the GDVs being dropped by RICS valuations a lot of the time.

“And I think one of the struggles at the moment is you can get [bridging finance] at much higher LTVs than you can actually get the development finance away to clear it.”

Alice Williams, head of property finance at Pilot Fish, added: “We are currently working with a client whose scheme has suffered from a significant down valuation of the GDV.

“The client initially purchased the land using bridging finance, and the due diligence was done at the time to ensure the net day one of the development finance was able to repay the bridge.”

Alice claimed that as uncertainty in the market had increased over the last six months, the GDV-led valuation required by the development finance provider suggested a lower valuation figure than that expected by the client (and confirmed by the original valuation).

“This has resulted in a reduction in the development finance facility offered by the development finance provider and the net day one is no longer high enough to repay the initial bridge.

“It is expected that, in the short term, this will become a more regular occurrence until market conditions settle.”

She believed that there was going to be a greater level of due diligence required by bridging finance providers with regard to the end GDV of the actual development, as they would be looking to ensure that their facility would be fully repaid by the net day one of the development finance facility.

“It is also possible that bridging finance providers may lower their LTV on projects with an exit of refinancing on to development finance in order to mitigate the risk of not being fully repaid by the net day one of the development facility.”

John Shevlane, director of advisory services at Pilot Fish, claimed that there should be no change to the standard gross bridging facility of 75% LTV.

“However, brokers should be taking a more proactive role to ensure that the development finance will sufficiently repay the bridging loan, taking into consideration [that] the net day one of the development finance needs to repay the gross bridging facility.

“This is something that, in our experience, is regularly missed.”



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