News & Views

Developer warns of unscrupulous lenders

A residential developer has spoken of the dangers of using unscrupulous lenders after one bridging firm almost lost him a fortune.
Dean Martin, property developer and owner of much-acclaimed Maids of Honour bakery, had put down a sizeable deposit on a house in Kew, South West London and spent a considerable amount of money refurbishing and upgrading it with a view to selling it on.
However, the developer needed a bridging loan to cover him while he sold the property. After being let down at the eleventh hour, as a result of an underhand practice employed by some lenders dubbed 'pretend to lend', Dean turned to Fincorp.
Fincorp was able to advance the £1.2million required in just five days. Without this Dean would have lost, not only the property and his deposit, but the money spent on the refurbishment too.
Now Dean is warning other developers of the problems that can occur when using untrustworthy lenders.
"The buzz phrase in the market at the moment is 'pretend to lend'," says Dean. "Some bridgers are actually making their money on this. They charge an arrangement fee up front so they're promised money regardless. Because it's so difficult to get funding at the moment these unscrupulous lenders are taking advantage of the desperation out there by getting these people to think they're going to lend. They can actually make more money out of pretending to lend."
The lenders in question take the fees then find reason not to follow through with the loan, thus keeping the fees without actually delivering any service.
Dean says this is a practice he has witnessed on several occasions.
"There are quite a few companies out there who are putting themselves forward as being really good bridgers and they're not; this practice needs to be stamped out," he says.
Dean advocates working with a bridging lender that you have built a relationship with. He says his longstanding relationship with Fincorp, as well as the lender's transparent, no upfront fees approach, means Fincorp will now be the lender of choice for him.
"At the end of the day bridging is all built on trust," he says. "And it works both ways. I think Matthew (Anderson, Fincorp director) had an element of trust in me too, which is really nice. Matthew pulled out all the stops for me. We will never go anywhere else."

Release capital from your buy-to-let portfolio

Investing in buy-to-let is an increasingly popular option for many people in the UK, driven in large part by increasingly poor pensions provision but also by the good returns that property still offers longer term. The basics of buy-to-let have clear value for investors, both in terms of the income derived from rents and also the potential for capital uplift in the value of the underlying property. Indeed professionals in both residential buy-to-let and commercial investments are already benefiting from yields anywhere between 5% and 15% depending on their gearing and the complexity of the property set up.
But there are even more reasons to look carefully at buy-to-let, particularly if you already own a portfolio of properties. Legislation dating back more than 130 years allows property owners to claim back capital allowances against various fixtures and fittings in commercial properties and in many cases this can see landlords pay a small fee to claim tens of thousands of pounds back from HMRC.
How it works
As many as nine in 10 properties being used for commercial purposes in the UK are eligible for capital allowance tax relief that has never been used. The allowance is a form of relief available against any capital expenditure made buying, renovating or making adjustments to a commercial property. Additionally, there are some circumstances where the reliefs can be applied to buy-to-let properties as well. To qualify, residential properties should be shared flats or houses with two or more bedrooms, worth £100,000 or more and owned by UK taxpayers (individuals, UK trusts and UK companies) paying income tax at a rate of 40%.
At Fincorp we have a good working relationship with capital allowance specialists, Inventive Tax Strategies, who have been helping landlords reclaim income or corporation taxes previously paid and reduce their future tax liabilities for years. In their opinion it is possible to reach as much as 8% of the property purchase price for residential properties or up to 15-20% on commercial properties.
Beverley Loggia, sales director at Inventive Tax Strategies, says many qualifying UK landlords can claim capital allowances, including those with student lets, professional shares, and more traditional HMO lets.
In some circumstances that can mean there are tens of thousands of pounds worth of rebates available to the property owner, because this tax relief can be backdated to the year the property was purchased. One of the main reasons so many properties haven't taken advantage of the tax relief is because of the complexity of the claim process - your typical accountant won't necessarily know that relief is even available, much less how to go about claiming it.
What do I do?
The process with ITS is genuinely straightforward. They carry out a free initial capital allowances assessment after giving them some basic property and income details, and if this is promising and you wish to proceed, they appoint a surveyor to carry out a specialist plant and machinery survey to provide an unbiased valuation of the qualifying assets within the property.
"In addition, a due diligence process is undertaken to ensure previous owners have not already claimed in order to confirm your entitlement to claim," says Beverley. "We are confident that we can save tax on your property assets, hence our initial no-cost review to ascertain the potential extent of the tax savings available. Once determined we will agree a fee structure that suits you, normally between 3% and 7% of the capital allowances amount identified."
Finally, a claim report for submission to HMRC is compiled and sent to you and your accountant. The report is of a format commonly accepted by HMRC, highlighting the applied legislation, confirmation of ownership, entitlement to claim and the amount.
Case Study
Dr Smith had built up a portfolio of properties purchased throughout the past decade. The buy-to-let properties were let as multiple tenancies to students. Over 10 properties had been purchased. In addition, he claimed on his surgery premises. With help from ITS, Dr Smith was able to present a claim for capital allowances for the 2010/11 tax year of £74,309. As result in December 2011 he received a tax rebate of £30,853. He paid a fee for this service which itself was a professional expense and was tax deductible.

Bridging the death, divorce and tax gaps

In a post RDR world advisers should be thinking more widely about how bridging fits into clients' financial planning
Many brokers are missing a trick by failing to use short-term bridging loans to help clients pay divorce settlements, income tax bills and inheritance tax bills.
Bridging lender Fincorp says brokers should look through their existing client books to identify how they can offer more holistic financial advice and explain where out-of-the-box thinking could mean bridging might solve a client's cash flow headache.
The short-term lender says many clients face large income tax bills twice a year not to mention many needing to pay off inheritance tax and divorce settlements quickly - and bridging could fill the gap.
Fincorp director Nigel Alexander says: "People rarely think bridging is used for anything other than covering the gap between buying one property and selling another but it's much more flexible than that.
"If your client has to pay a large IHT bill and needs the cash up front before their benefactor's property is sold, bridging can be a lifeline - especially in this market. The same is true for clients whose income is lumpy, have assets to secure a loan against but have a cash flow problem short-term."
Fincorp has said it is concerned that brokers are not aware of bridging and the opportunities it offers, but the lender claims post Retail Distribution Review is the perfect time to start.
"Many IFAs are finding their income streams have shifted considerably with commissions on investments and pensions drying up." explains Alexander.
"But there are considerable commissions still available on bridging deals and there are valid reasons why many clients could benefit from making use of a bridging loan where once they might have been forced to sell investments or the like to tide them through."
On average bridging pays brokers 1% commission and is far more lucrative an income stream than residential mortgage finance which tends to pay around 0.3% in proc fees.
Lucy Hodge, director of bridging distributer Vantage Finance, says: "It makes complete sense to have as many strings to your bow as possible when assessing a client's borrowing needs to ensure you are offering best advice and not missing out on potential income. Short-term finance has proven to be far from lending of last resort and in many cases throws a much needed life line to clients."