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.

How quickly will 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 will complete the required finance package on your behalf and email or post it 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, it 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 frame.

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, it’s more probable that the lender will not lend the funds.

How much money can I borrow?

When it comes to bridging loans, the amount you may borrow is usually determined by the value and kind of property used to secure the funding. If you apply for an FCA-regulated bridging loan to secure it against your primary home, most lenders will grant bridge loans of up to 70% LTV. If you do not reside on the property used to finance the loan, funds of up to 75% or 80% loan-to-value are available.

These statistics are based on the total amount of the loan, including the borrowing costs 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 in place.

Here are some example figures:

  • The value of the property you want to buy is £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, as well as any other relevant fees, are not repayable until the conclusion of the loan period, which effectively implies that the total amount of interest owing grows as the loan proceeds. The cost of borrowing plus any accumulated interest will often result in the final sum being 5% to 10% greater than the original net loan worth by the time the complete amount is due.

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 calculates the maximum LTV possible against the security you’re supplying, they normally include the arrangement fee and other borrowing fees, as well as the retained interest you’re anticipated to pay if the loan is for the whole period.

What happens if I am unable to repay my bridging loan at the end of the term?

Bridge loans are designed for short-term borrowing, and most bridge lenders prefer that the loan be returned in full within the agreed-upon timeframe. How you intend to repay the loan is one of the first questions your lender will ask. This is known as the exit strategy, and most lenders will refuse to grant a bridge loan if you do not have a viable exit strategy in place. The most typical departure strategy includes the sale of a home or some form of refinancing.

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 respectable borrower with a high credit score, you may have problems repaying your bridging loan at the end of the borrowing period. Borrowers are frequently contacted three months before the payment is due to assess their ability to repay the total amount. If you are unable to repay the lender, they may suggest ways to help you get back on track, such as decreasing the asking price of a property you are trying to sell in order to stimulate a quick sale.

The odds of your possessions being sold are typically reduced if you maintain frequent contact with the lender and keep them aware of any unforeseen financial issues that may develop. Therefore, it is crucial to promptly notify your bridging finance provider of any unforeseen financial difficulties, especially if you wish to retain the assets used as collateral.

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 individual’s 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 to a full year. Bridging finance can be arranged for a period of 18 months or more, depending on your individual borrowing circumstances.

How high 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 secure borrowing products, bridging loans do not typically have early repayment charges. If there is a penalty for early repayment, you will be informed of it when you apply 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. If you have sufficient equity or collateral to settle your outstanding loan balance and your exit strategy is acceptable, you should have little trouble securing bridging finance, even if your credit score is somewhat poor.

Am I allowed to get a second charge loan if my first 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 the 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 while 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 to 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, 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 either first- or second-charge loans. In some cases, we offer financing secured on a third-party basis, provided there is sufficient equity in the property assets you are using for security.

Is there anything I have to pay up front?

We do not anticipate our clients paying any upfront borrowing expenses or arrangement fees; however, if you are unable to present a proper valuation report, you may be compelled to pay this one cost.

What costs are involved when applying for bridging finance?

Most providers will charge an arrangement fee after a bridging facility is in place, which is only due if your application is approved. If your application is denied, 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 to arrange additional financing 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 financing 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. This type of bridging loan is usually used for property refurbishment projects.

What is an open bridge loan?

Open-bridging financing is a short-term loan instrument that is necessary when a borrower lacks a clear exit strategy. For example, if you need money to buy a new house but are awaiting the outcome of another property sale to pay off the bridge loan, you will normally need to apply for an open bridging loan. Because open bridging loans are considered more risky by lenders, approval rates for this form of financing are much 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, whereas 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, whereas development finance is normally released in increments as various stages of completion are reached in a development project.

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 loan calculator for a quick estimate of the costs of your bridging loan amount and get the support needed for fast bridging finance in the UK.

What is alternative to bridging?

A second-charge mortgage is a good substitute for bridge loans. With this kind of financing, you can take out a second mortgage on your house using the equity as security. You can obtain a second-charge mortgage in addition to your current mortgage.

Does a bridging finance loan affect credit score?

Your credit score may be impacted if you have trouble repaying your bridging finance loan, which may make it more difficult for you to get a mortgage in the future. This is why, if you’re thinking about this kind of short-term financing, it’s crucial to receive counsel on bridging loans.

Does a bridging loan affect your mortgage?

Whether or not bridging loans have been fully repaid at the time of application may have an impact on mortgage applications. Mortgage applications may become more difficult as a result of outstanding bridge loans because of things like debt-to-income ratio, credit history, and borrowing capacity.

Do you need a good credit rating for a bridging loan?

Should your credit score be poor, the lender may view you as a higher-risk borrower and be less inclined to approve your loan application or provide you with less advantageous conditions. Some lenders will find this kind of information sufficient to reject the bridging, while others are pleased to supply the funding in any case.

Do I need a salary for a bridging loan?

Because bridging loans often include no monthly interest payments, proof of income is not required.

Can I get 100% bridging finance?

Using another property to offer additional security or making an undervalued purchase are the two main strategies to obtain a 100% bridging loan. It is best to offer additional security to the lender in order to obtain a 100% bridging loan. By reducing the risk for lenders, you can use the equity you have in other assets to protect a loan.

How is a bridging finance loan paid back?

Since there is no set due date for this, you can pay back a bridging finance loan whenever you have the money. Lenders, however, typically anticipate that you will pay off the debt in a year. Longer repayment terms aren’t something that many give, though. A closed bridging loan has a predetermined date of payback.

For more information on any of the above or to discuss the benefits of bridging finance in more detail, contact a member of the team at UK Property Finance today.

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