A bridging loan is a short-term mortgage generally used in one of three scenarios: 1. To bridge the gap where the timings of a property sale and related purchase do not align. 2. Where you need to complete very quickly. 3. The property you are buying is not eligible for a traditional mortgage owing to its condition. Our expert bridging loan brokers have helped hundreds of customers get bridging finance for property, so do give us a call if we can help you.
Speed really is the key for bridging lenders, and they are fully geared up to work at lightning pace. We have seen cases go to offer within 48 hours and complete a few days later, although the average turn-around time from application to completion would be 28 days. While a bridging loan can be arranged much quicker than a traditional loan, most bridging finance companies still apply strict lending criteria. Usually, such lenders are smaller, nimbler operations and specialise in doing all the usual checks that a bank will do, but without the encumbrance of bank bureaucracy.
The loan amount will depend on how much equity you have. Usually, the maximum loan, including interest, is limited to 75% LTV. The loan is secured on the property or across multiple properties to raise funding, which is then repaid when the property is sold or by raising finance through a regular ‘term’ mortgage application.
For example:
In the same way as a standard mortgage, you will need to put down a deposit (25% for residential bridging and up to 35% for commercial bridging), and you will pay interest, usually quoted as a monthly rate rather than annual. The lender will charge an arrangement fee (usually 1.50% to 2% of the loan amount), and there may also be early repayment charges. Bridging lenders are more open to properties in a poor state of repair, and they can act incredibly quickly.
The loan terms can be as short as three months or up to a maximum of 18 months. Loan amounts generally start at around £50,000, with some lenders having no maximum.
Many individuals and businesses, including professional landlords and property investors, often need to complete purchases quickly or finance a property that cannot immediately take a term loan.
The main reasons that property professionals use bridging loans are:
•To raise finance quickly
•To buy at auction
•To purchase property that would not secure a mortgage in its existing condition with a mainstream lender
•To bridge a shortfall of funding between buying and selling a property when a sale is delayed
•To raise a deposit for purchasing other property
Short-term finance is always more expensive than longer-term lending; however, it is priced competitively, with more and more lenders entering the market. The interest rate charged will depend very much on the case; however, current rates range from 0.55%-1.25% per month, with potentially even higher rates on more complex cases, such as developments.
There is a growing list of lenders in the market, with a wide range of charging structures, for example, interest serviced monthly or lenders who deduct interest upfront for a period of six to 18 months.
An arrangement fee, typically at 2%, is, in most cases, deducted from the gross loan.
Some lenders may also charge a fee when the loan is repaid. However, most lenders nowadays won’t, so long as the bridging loan is in place for at least three to six months.
A fee will usually be payable to the valuer. Most lenders will request at least two or three valuers quotes. Some lenders may be able to use a recent valuation report (for example, if a professional valuation had been undertaken and a lender declined the application).
As with a standard mortgage, bridging finance must be processed with all the usual legal requirements, and the borrower will be responsible for the lender's legal costs. Indemnity insurance may be used to speed up the completion of the property, and additional fees could be incurred.
Using a broker will save you money in the long run, as they can find you the most suitable bridging loan of all there is available to you. This typically incurs a broker fee, but through the broker’s expertise in sourcing the loan, you will have saved money in the process anyway.
Bridging financiers will look at the credit profile of the borrower, the strength of the asset, the exit strategy and require that the borrower has a sufficient upfront cash contribution.
The main advantage of applying for a bridging loan is accessing the money quickly. You can also apply for large sums of money, and the lending criteria can be flexible.
It is essential to establish a clear exit strategy to ensure the loan can be repaid (either via sale or re-mortgage) to avoid paying high penalty interest rates. Borrowers should remember, if you service the monthly interest from your own resources, just like a mortgage, the property may be at risk of repossession if the payments are not made on time.
There are an increasing number of short-term lenders entering the market and choosing one can be a minefield, particularly as some types of bridging finance require a regulated lender. However, for landlords and property investors, the type of bridging loan required is usually non-regulated, so it is not essential to use an FCA registered lender. Many reputable bridging lenders are members of the Association of Short-Term Lenders. This self-regulating body operates a strict code of conduct to ensure that borrowers are treated fairly.
Bridging finance is such a specialist area and it is always advisable to seek the services of a specialist broker or independent financial adviser. They will take time to understand the property, its location, the borrower’s circumstance, funding requirements and be best placed to match these components with the most suitable lender.
If you would like to apply or discuss your requirements for short-term finance, please submit an enquiry here or call us on 0345 345 6788.
With whole-of-market access, we are experienced in writing large Bridging loans for both residential investment property and commercial investment property. We have written bridging loans on £20 to 30 million properties with loans in excess of £8 million and have access to bridging lenders for sub £100,000 properties. We shop the market for you to secure you the very best deal and we will only use our tried and tested sources for your finance requirements.
NB: ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
