What is a Bridging Loan?
Bridging Loans are used for a short term requirement or to release money quickly. Bridging loans are usually repaid within 12 months as the rate of interest is often higher than standard high street rates thus making it too expensive to borrow long term.
Developers & investors have been using bridging loans for many years to take advantage of market conditions or undervalued investment opportunities. Being able to purchase a property quickly offers numerous advantages to the purchaser such as negotiating the best price and beating competitors to the deal.
A very common use of a bridging loan is when investors are looking to purchase at auction. You are normally required to fully fund an auction purchase within 28 days of a successful bid. Failure to pay in the given time frame may mean that you lose all or part of the 10% deposit placed on the property when your bid was accepted. Bridging loans can be pre-approved ensuring that you can bid with confidence and without worry of losing your deposit.
How much can I borrow?
Depending on the security property, we have no minimum or maximum loan size, although less choice is available with the smallest and largest loans. A typical average bridging loan size is in the region of £150,000.
All bridging loans are secured on commercial or residential property and land. Higher loan to values (known as LTV’s – the size of the loan compared with the value of the security) are in the current climate available on residential properties. Commercial property and land are deemed more risky to the lender and as such a small LTV level is available.
Bridging loan example – if you own a residential property with an open market value of £400,000 and you have a £200,000 mortgage or 1st charge secured against it, we can arrange a maximum 1st charge bridging loan of around £300,000 or 75% LTV. This loan will repay your current mortgage and leave approximately £100,000 which can be used as you require.
Higher LTV’s over 100% are available if additional security is used
How quickly before I get a decision?
Subject to the enquiry being within normal working hours, we can give an indicative decision over the phone within minutes. We back this up with an email normally within the hour. If you wish to proceed we complete the required finance pack on your behalf and email/post to you, listing our documentary and other requirements. On receipt of the fully completed returned pack and all outstanding information, we process your case through to completion. In reality, the quickest you would normally receive the money is 5 working days however in more complex cases this will take longer.
Certain websites advertise money within hours. A bridging loan however follows the same processing route as a mortgage so we believe it is highly unlikely that you will have your money in this time scale.
The credit crunch has made all lenders, quite rightly, take a much more cautious approach to lending. The main concern for any bridging or development finance lender is how and when they will get repaid. Any lender will want a high degree of confidence that if they lend money it will be returned as promised by the borrower.
Examples of repayment routes would be:
1) Refinance the property for a higher amount than the bridging loan
2) Sell the property for more than the outstanding bridging loan
If a lender is happy with the exit and security then they should have every reason to lend. Similarly, if they are unhappy with the exit route, they would be highly likely NOT to lend.
We know it is vital that your enquiry is dealt with in a speedy and efficient manner. If your enquiry is urgent and you want to speak to someone out of hours please email us and we will do our utmost to call you immediately.
How much am I able to borrow?
When it comes to bridging loans, the amount you can borrow will typically depend on both the value and the type of property you are using to secure the finance. If you are applying for an FCA regulated bridging loan that you intend to secure against your main place of residence then most lenders will provide bridge finance up to 70% LTV. If you do not live in the property that you are using to secure the loan then funds up to 75% or 80% loan to value are available. These figures are based on the gross loan amount, which includes all the borrowing fees and interest charges. The net loan amount will be around 5% to 10% lower than this sum.
If you are looking for a bridging loan of up to 100% of the property’s open market value then various options exist, although you will need to provide additional security for your application to be successful. For example, if you were looking to raise funds to purchase a property that cost £250,000 and you needed to borrow the full amount then your bridging loan provider might consider advancing the sum as long as you had another property to offer as collateral. This would need to be a residential or commercial building worth an additional £250,000, which you either own outright or have a small mortgage on.
Here are some example figures:
Value of the property you want to buy: £250,000
Required bridging loan amount: £260,000
Value of additional security: £250,000
Outstanding mortgage: £30,000
Total security offered (£250,000 + £250,000): £500,000
Total amount of loans: £290,000
£30,000 (outstanding mortgage) + £260,000 (required loan)
With the above figures in mind, a bridging loan totalling £290,000 is approximately a 58% LTV product, which most lenders would be happy to provide.
However, as far as bridging loans are concerned, the interest charges plus any other applicable fees are not actually repayable until the end of the loan term and this effectively means that the total amount of interest owed increases as the loan progresses. By the time the full amount is due, the cost of borrowing plus any accrued interest will typically result in the final amount being 5% to 10% higher than the original net loan worth.
In some cases, it may be more advantageous to use more than two properties as security against the sum borrowed; particularly as lower LTV products are usually much more affordable with far better rates than higher LTV financing options.
When a lender is calculating the maximum LTV available against the security you are offering, they will normally add the arrangement fee and other costs of borrowing to the net loan amount along with the retained interest you are expected to pay should the loan last for the full extent of the initially agreed term.
What happens if I am unable to repay my bridging loan at the end of the term?
Bridge loans are only intended as short-term borrowing products and most bridging lenders will expect the loan to be repaid in full within the agreed timeframe.
One of the first questions your lender will ask is how you intend to settle the debt. This is known as the exit route and if you do not have a feasible exit strategy in place then most lenders will avoid offering bridge finance in the first place. The most common type of exit route usually involves the sale of a property or some type of refinancing option. If you have already exchanged contracts on a property transaction and you are simply waiting to be paid then this is a viable exit strategy that most lenders will find acceptable. If you are trying to secure a long-term financing product in order to pay off your bridge loan then the lender will want to know that your chances of being approved for such finance are reasonable, which means that they will typically perform a credit check in order to ensure they will receive their funds.
Even if you are a responsible borrower with a good credit score, there is still a chance that you may find yourself unable to settle your bridging loan debt at the end of the borrowing term through no fault of your own. In most cases, a lender will contact the borrower around 3 months before the product is due to be repaid in order to determine whether or not you can honour the debt. If it looks like you might not be able to reimburse the lender, they may recommend additional steps that will get you back on track, such as reducing the asking price on a property you are trying to sell on the open market.
Provided you keep in touch with the lender and maintain an open channel of communication, the likelihood of your assets being sold is typically quite low. For this reason, it is always important that you make your bridging finance provider aware of any unexpected financial difficulties as they arise, particularly if you want to retain the assets offered as security.
How long does it take to acquire bridging loan funds?
If you are looking for a quick decision on a bridging loan product and you want to avoid any disruption along the way then it always makes sense to apply for this type of finance at the earliest opportunity – particularly when timing is an important issue.
The general timeframe for most applicants is as follows
Decision to lend – less than 48 hours
Formal loan offer – within 2 weeks
Loan completion – 2 to 4 weeks – depending on your needs and requirements
How long does a bridging loan last?
Most bridging loans are repaid within 6 to 7 months, although the terms themselves can vary from just 24 hours up to a full year. However, bridging finance can be arranged for a period of 18 months or more, depending on your individual borrowing circumstances.
How much are the borrowing rates?
With bridging finance, the cost of borrowing mainly depends on the LTV percentage, the type of security you are able to offer and your credit rating – among other things. As a leading UK bridge loan broker, we can source the most competitive products on your behalf from a diverse cross-section of lenders offering a variety of financing options that change in accordance with your individual borrowing requirements.
What about early repayment charges?
Unlike most mortgages or other secured borrowing products, that vast majority of bridging loans do not have early repayment charges involved. However, if there is a penalty for early repayment, you will be made aware of this upfront whilst applying for a particular product.
Can I get a bridging loan if I have a bad credit rating?
With bridging finance, the lender is primarily concerned with the amount of security you can offer and the feasibility of your exit route. As long as you have sufficient equity or collateral to settle the outstanding loan balance if you default, and your exit strategy is acceptable, you should have little trouble in terms of securing bridging finance even if your credit score is somewhat below par.
Am I allowed to get a 2nd charge loan if my 1st charge lender says no?
In certain instances, bridging lenders can provide second charge borrowing products by securing the interest by means of an equitable charge. Such products offer the second charge lender full security without requiring the permission or authority of a first charge lender.
Do I need a provable source of income when applying for bridge finance?
In most cases, a bridging loan lender will require some diminutive type of proof of income although this is not always necessary. As bridging loans are paid back in full at the end of the loan term, there is typically no need to prove your monthly income to a lender, provided you have a viable exit strategy and your assets sufficiently cover the cost of borrowing.
What can I use a bridging loan for?
Bridging loans can be used for any purpose the borrower sees fit. However, typical uses include property refurbishment and development, the purchase of a new home whilst waiting for an existing property to sell, the settlement of tax bills and other business-related cash flow problems.
How do you arrange bridging finance so quickly?
As one of the UK’s leading bridging loan providers, we work closely with a diverse cross-section of mainstream lenders and private investors who are always eager to invest whenever an applicant is able to provide adequate security and a clear exit strategy. As we work with lenders directly, we can ensure your application is processed quickly and efficiently for streamlined results.
What asset types can bridging finance be secured against?
Bridging loans are typically secured against property assets such as residential property, commercial real estate and even land or building plots. If a high LTV is required, bridging finance can also be secured against multiple properties / types.
Can I apply for a bridging loan if I have CCJs or arrears?
We are a highly versatile bridging loan provider offering specialised borrowing products that are suitable even for those with CCJs, arrears and defaults. Even if you have been declared bankrupt, your chances of approval are still quite high – provided you have appropriate security in the property assets you are using as collateral.
Can I use a mortgaged property as security for a bridging loan?
Yes. As an FCA authorised and fully regulated bridging finance provider we are able to provide competitive bridge products secured on either a first or second charge basis. In some cases, we can even offer finance secured on a third charge basis, so long as you have sufficient equity in the property assets you are using as security.
Will I have to pay anything upfront?
As a leading bridging finance broker, we do not expect our clients to pay any upfront borrowing costs or arrangement fees. However, if you are unable to provide a suitable valuation report then this is the one cost that you may be required to cover.
What costs are involved when applying for bridging finance?
Once a bridging facility is in place, most providers will charge an arrangement fee, which is only payable once your application is successful. If your application is not successful then you will not be charged an arrangement fee – it is as simple as that. Although we do not charge upfront application fees or any other unexpected costs, you might be required to fund a valuation report. Any other costs such as legal fees and interest charges will typically be added to the overall loan amount if required. These costs are normally repaid at the end of the loan term.
Can I request additional funds once my bridging loan is in place?
Provided you have sufficient equity left over in your property, and you have not defaulted on the initial bridging loan agreement, you will still have the opportunity of arranging additional finance on top of the original credit facility you have arranged.
Can I make capital reductions on my bridging loan?
Yes. This is a perfectly acceptable practice and any finance you repay earlier than anticipated can be used to reduce the monthly interest charge.
Will my details kept safe?
UK Property Finance will never pass your details on to another party or sell them to advertisers or marketing companies.
What is a closed bridging loan?
A closed bridging loan is a short-term borrowing product that has a clear exit strategy in place for the end of the loan term. For example, if you take out a £100,000 bridging loan for a property refurbishment project and you know you will receive the full funds once the project is completed, then you will typically require a closed bridging product.
What is an open bridge loan?
Open bridging finance refers to a short-term borrowing product that is required when a borrower does not have a clear exit route in place. For example, if you need to raise money to acquire a new home yet you are awaiting the outcome of a different property sale in order to settle the bridge loan then you will typically need to apply for an open bridging loan product. As open bridging loans are somewhat more risky from the lender’s perspective, the approval rates for this type of finance are significantly lower than those for closed bridging products. The actual cost of borrowing is also significantly higher whenever open bridge finance is required.
What is mezzanine funding?
Mezzanine finance is a useful type of loan product that bridges the gap between the amount required by a developer to complete a project and the amount they have managed to secure from a principle loan provider. If you are a property developer who has already raised sufficient finance to fund 75% of a project, a mezzanine funder can be used to provide the additional 25% of funds required to get your project completed.
How are bridging loans and development finance different?
Bridging loans and development finance products are quite similar in several respects. However, whereas bridging finance is typically only required for 1 day to 12 months, development finance can be secured for up to 3 years or more. The main difference between bridging loans and development finance is that bridging loan funds are usually sourced, approved and released in full at the start of the loan term, whilst development finance is normally released in increments, as various stages of completion are reached in a development project.
If you are a property developer, development finance can work out cheaper than bridging loan borrowing although the lender will want to know that you are capable of completing the task in hand if you are to take advantage of the most competitive interest rates available.