Frequently Asked Questions for Bridging Loans
We frequently receive different questions about our bridging loans, development finance, commercial finance and secured loans. Below we have answered a range of commonly asked questions. Should you have a question which has not been answered, please get in touch with us today.
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.
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:
- Refinance the property for a higher amount than the bridging loan
- 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.
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.
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.
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
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.
Most bridging loans are usually up to 12 months in length but can be extended in certain circumstances. Interest payable during the term of the loan is usually rolled up and repaid at the end when the loan is repaid i.e. if you borrow £100,000 and generate £5,000 of interest; £105,000 is repaid to the bridging lender, when you repay the loan.
As industry leading providers of bespoke finance solutions, the team at UK Property Finance can arrange tailor-made short term property lending facilities for all types of property development and refurbishment projects. Whether you are looking at a new build residential or commercial property loan, or taking on a refurbishment project, we will use our expertise to source the most appropriate funder for your short term property needs. If you simply need bridging finance solutions then we can provide that too.
Every property development loan is by definition different and we spend time to understand the key requirements of the deal before identifying the funder which best meets your requirements the cost of the loan is only one factor, we also look at the overall amount of the loan, availability of drawdowns, whether the lender can meet your deadlines etc. We also look at your experience in the market as this will be a large factor in determining which lender we recommend some providers of residential and commercial property loans require experience, some don't but don't worry, we will ensure we choose the right one and will be there with you throughout the process to ensure you get the loan drawdown.
We cover the whole of the market from the High Street banks through to specialist development funders. We have good knowledge of the requirements of each lender so whether you are looking for property refurbishment finance or housing development finance, our short term property finance team will be on hand to ensure that raising finance for property development is handled professionally and promptly so you get the funding you are looking for.