News

Ask most investors, brokers or developers what threatens a refinance transaction, and you'll likely hear the same answers.

• Interest rates.
• Valuations.
• Lender appetite.
• Changing market conditions.

While these factors certainly matter, they are not always what causes a refinance transaction to stall.

In our experience, many of the issues that delay or derail refinancing have little to do with the funding itself. Instead, they stem from problems hidden within the property, sometimes for years, only coming to light when a lender's legal team begins its due diligence.

This is particularly relevant in today's market, where lenders are scrutinising assets more carefully and borrowers are increasingly reliant on refinancing as part of their wider investment strategy.

"One of the biggest misconceptions in the property market is that securing funding is the hardest part of a refinance. Many lenders are willing to lend against assets, which are strong on paper and performance. The challenge is that what a borrower sees as a good asset and what a lender regards as acceptable security can be two very different things."

Jamie Humpheson, Partner, Commercial Property, Eaton Smith Solicitors

 

The Valuation Says Yes. The Lender’s Solicitor Says Maybe.

A strong valuation can give borrowers confidence that a refinance will proceed smoothly.

However, lenders are not simply lending against value. They are lending against security.

That distinction matters.

Many assume that a high-value property automatically provides strong lending security. In reality, a £1 million asset can still prove problematic where legal issues such as title defects, leasehold concerns, access disputes or planning irregularities exist. For risk-conscious lenders, these issues can be just as important as the property's market value.

From a lender's perspective, the question is not simply whether the property has value today. It is whether that value can be protected and realised if things go wrong.

This is why transactions can begin positively, only for concerns to emerge later in the process.

The Issues That Borrowers Often Don't Know Exist

One of the more interesting aspects of refinance transactions is that many of the problems uncovered are not new.

In fact, some may have existed since the property was first acquired.

Common examples include:

• Rights of access that were never properly documented
• Historic alterations lacking the necessary consents
• Restrictive covenants affecting future use
• Tenant arrangements that don't reflect the paperwork
• Lease provisions that impact value or marketability
• Title anomalies that were never resolved

The reality is that borrowers can own a property for years without these issues creating any practical difficulties.

The moment a lender begins assessing that property as lending security, however, those same issues can suddenly become highly relevant.

The Growth of Bridging Finance Has Changed the Conversation

The rise of specialist lenders and bridging finance has helped investors move more quickly and capitalise on opportunities that might otherwise be missed.

However, speed at the front end of a transaction can sometimes defer rather than remove risk.

It is not uncommon for borrowers to acquire, refurbish or reposition assets with a future refinance already forming part of the exit strategy.

The assumption is often that if the asset has increased in value, refinancing will be straightforward.

Unfortunately, value alone is rarely enough.

A successful refinance depends on creating an asset that works not only for valuers and future purchasers but also for lenders reviewing the legal and practical risks associated with that property.

The Question Brokers Should Be Asking Earlier

Finance brokers play a critical role in getting transactions over the line.

However, one question is sometimes overlooked in favour of discussions around borrowing levels, valuation and affordability:

Will the property withstand lender scrutiny?

The strongest refinance transactions are often those where potential legal issues are identified long before funding is required.

Where title issues, planning concerns or lease complexities are addressed early, lenders can focus on the commercial merits of the deal rather than unresolved risks.

What We're Seeing in the Current Market

Perhaps the most interesting trend is that borrowers are becoming increasingly sophisticated, while lenders are becoming increasingly selective.

Investors are pursuing more complex opportunities, including:

• Semi-commercial assets
• Mixed-use buildings
• Multi-let investments
• Conversion projects
• Portfolio refinances

At the same time, lenders are carrying out increasingly detailed due diligence, particularly where assets fall outside traditional investment parameters.

The result is that legal preparation is becoming a more important factor in transaction success than many borrowers realise.

A Good Refinance Starts Long Before You Approach a Lender

The most successful refinance transactions rarely happen by accident.

They are typically the result of borrowers, brokers and advisers identifying potential issues early and addressing them before funding becomes time critical.

In many cases, the question should not be whether a lender is prepared to lend.

The more important question is whether the property is genuinely ready to be refinanced.

Because when refinance transactions encounter difficulties, the problem is not always the lender.

More often than people think, the answer can be found within the property itself.