Bridging Loan FAQs
We frequently receive questions regarding bridging loans and have answered a range of the most commonly asked questions below so let us know your query if not listed.
What is bridging finance?
Bridging loans are used for short-term financing or when money in larger sums is needed quickly. Bridging loans are usually repaid within 12 months as the annual rate of interest is typically higher than standard high street bank rates, making bridging finance unsuitable for long-term repayments.
Developers and investors have been using urgent bridging loans for many years, allowing them to take advantage of market conditions or undervalued investment opportunities. Being able to purchase a property quickly offers numerous advantages as it allows the purchaser to negotiate the best price and beat competitors to the deal.
Other instances where fast bridging loans can be of unique value include:
- When buying a house without finalising your own house sale
- While building a home to be sold upon completion
- When looking to cover unexpected business expenses
- While waiting for pension payments in lump sums
- While establishing a new start-up from scratch
- When looking to redevelop or refurbish real estate
Use our exclusive bridge loan calculator to determine the perfect size and type of loan to suit your circumstance. We will guide you through the rest of the application process to help with a stress free application.
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 may take longer.
Certain websites advertise money within hours. A bridging loan 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 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 its more probable the lender will NOT lend the funds.
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 need 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 in place.
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.
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 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 long-term finance 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. The lender will typically perform a credit check to gain confidence in receiving 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 repayment at the end of the borrowing term. In most cases a lender will contact the borrower around 3 months before the payment is due to determine whether or not you can honour the full epayment. When 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 to encourage a quick sale.
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?
The general timeframe for most applicants is fast, usually as follows*:
- Decision to lend – less than 48 hours
- Formal loan offer – approx. within 2 weeks
- Loan completion – approx. 2 to 4 weeks – depending on your needs and requirements
*Estimated times are given as a guide only and will depend on each individuals circumstances.
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. Bridging finance can be arranged for a period of 18 months or more and depends on your individual borrowing circumstance.
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. 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 are suited to your requirements.
What about early repayment charges?
Unlike most mortgages or other secured borrowing products, bridging loans do not typically have early repayment charges. If there is a penalty for early repayment you will be made aware of this upfront whilst applying for the loan.
Can I get a bridging loan if I have a bad credit rating?
The bridging loan 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 and your exit strategy is acceptable, you should have little trouble in terms of securing bridging finance even if your credit score is somewhat poor.
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. Typical uses for a bridge loan include property refurbishment, property 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 eager to invest whenever an applicant is able to provide adequate security and a clear exit strategy. We work with bridging loan lenders directly and ensure your application is processed quickly to cover all urgent needs.
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.
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 possible providing 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 either first or second charge loans. In some cases we offer finance secured on a third charge basis providing there is sufficient equity in the property assets you are using as security.
Will I have to pay anything upfront?
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 pay.
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. Although we do not charge upfront application fees or any other unexpected costs, you might be required to fund a valuation report. Other costs such as legal fees and interest charges will typically be added to the overall loan amount and 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.
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 be kept safe?
Yes. 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 loan.
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 waiting 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. 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 loans. The actual cost of borrowing is also significantly higher whenever open bridging finance is required.
How are bridging loans and development finance different?
Bridging loans and development finance products are quite similar in several respects. Bridging finance is typically only required for 1 day to 12 months whereby 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 obtaining development finance can work out cheaper than a bridging loan although the lender will want to know that you are capable of completing the project if you take advantage of the best interest rates.
What is a bridging loan term?
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.
Use our bridging loans calculator for a quick estimate on the costs for your bridging loan amount and get the support needed for fast bridging finance in the UK.