Bridging finance costs…
Bridging loans are considered complicated and expensive for those unfamiliar with this type of finance.
Put simply, a bridging loan works in the same way as your traditional mortgage. To secure a loan, the lender will take a first or second charge over a property. But unlike a traditional mortgage, bridging finance is:
– Short-term typically for 3-18 months.
– More flexible – for example, lending to first-time buyers, no/low income and unmortgageable properties.
– Drawdown of a loan from initial application to completion can be achieved in weeks as opposed to months. This is ideal for if you are purchasing with a tight deadline and/or needing emergency funds.
The speed, flexibility and additional risk does come at a higher cost compared to a buy-to-let term loan. Terms would typically look like this:
Property value: £366,000
Loan: £219,600 (gross)
Minimum term: 3 months
Maximum term: 12 months
Interest rate: 0.85% per month (retained) @ £1,866.60 pm (£22,399.20 for the duration of the loan). Interest is charged for the period you use the loan, subject to the minimum term. This means, you will not pay interest if the loan is repaid between months 4-12.
Admin fee: £595
Arrangement fee: 2% – £4,392
Bank legal fees and valuation: £3,300 plus VAT plus your own solicitor’s costs.
Net loan: £188,913.80.
The above terms was required to finance an off-market purchase and conversion of a disused retail shop to residential in Bristol with a 28-day completion deadline. The ROI and speed of completion more than compensated for the slightly higher cost of funding.
The overall costs of your loan will depend on the nature of property, client profile and project and varies from lender to lender. Exit fees and project monitoring fees may apply for larger and more complex property development or refurbishment projects.
Contact Quest Commercial Finance if you have a project requiring funding or want to learn more about how bridging finance can work for you.