The next step is to seek in principle approval from a private mortgage lender. This is usually done by way of a telephone call. The private mortgage lender is given the scenario over the telephone, told what the property will likely value at, and then asked whether, if these representations withstand lender due diligence and legal due diligence, they will do the deal.

Depending on the scenario the private mortgage lender may, at this stage, ask a number of questions. If the scenario is simple these may be brief, if the scenario is complex the lender may want to see some supporting documentation. Depending on the security the lender may wish to look at the property using Google Street View, Google Maps and before giving their preliminary approval.

This stage is totally non-committal for both parties. However it is nonetheless vital that it be done with care;

  1. If the broker fails to disclose something the lender deems material then the loan will fail at a later stage and resentment will be felt. What to disclose and what to assume depend upon a good understanding of one another which is why relationships and repeat business are so important.

  2. If the lender commits to a loan and later withdraws because they found a better deal, or did not realise they had insufficient funds, the broker will be liable to lose the deal and out of resentment and caution never use the lender again.

Some brokers prefer to issue a term sheet without first consulting a lender. They do this and commission a valuation, and only once they have an executed term sheet and the valuation in hand do they shop it to investors. This has its advantages, including:

  1. The lender has a clearer idea of what they are agreeing to;

  2. The loan is further progressed and so closer to the deployment of the lender’s capital (so they can start earning interest);

  3. The loan is further progressed and so less speculative for the lender if they are setting aside funds for it;

  4. The lender does not get interested, and set aside money, only to learn the valuation came in too low;

  5. The broker can shop the package to m