Bridging loan FAQ's

Bridging finance is a type of short-term loan for individuals, self-employed, Limited companies, SPV’s, LLP’s, offshore, non-UK residents, and complex structures. They are typically taken out for 3-24 months and ‘bridges the gap’ pending full repayment usually through the arrangement of a long-term loan at normal commercial rates, sale of property, sale of investments, inheritance or other source of income

£75k to £25m depending on the value of the property or properties you are securing the loan against. Maximum LTV 80%.

Bridging loans terms are usually between 3-24 months.

A bridging loan typically takes 1-4 weeks from application to drawdown. However, this does depend on a number of factors including:

• The speed and accuracy of information provided
• The viability and exit strategy of the requirement
• Track record, experience and credit worthiness of the borrower
• Income of the borrower
• Complexity of the transaction
• The quality and speed all professional parties including broker, lender, valuer, solicitor and other parties acting for the borrower

• Interest charges starting from 0.44% per month
• Lender arrangement fee starting from typically 2-3%
• Loan drawdown fee of typically £295.00
• Valuation fee in the form of a desktop valuation or full valuation will depend on the size, scope and number of properties being valued
• Legal fees. The borrower is responsible for the lenders and their own legal fees. The solicitor is responsible for all legal matters relating to the property, loan contracts and security.
• Redemption fee is typically £120.00 but may vary with depending on lender
• Exit fee. Most lenders do not charge an exit fee for bridging loans
• Early repayment fee. Applies if you repay the loan before the minimum term – typically 1-3 months.
• Where applicable – default fees and interest rates
• Broker fee. The amount will depend on the loan size and complexity of the deal.

Monthly interest can be serviced in the following ways:

Retained Interest – interest is usually deducted from the gross advance on completion and retained by the lender for the duration of the loan

Rolled up Interest – the interest compounds monthly. It is charged and added to the principal debt each month and interest recalculated.

Serviced interest – borrower pays the interest when due monthly.

Combined – a combination of above

• A clear understanding of the credit risk and exit strategy of the transaction
• The loan to value (LTV) of the security
• Type of charge ie first or second
• The experience and track record of the borrower
• The credit history of the borrower
• Overall net worth and income of the borrower
• The quality of the asset i.e the location and condition of the property. A property in poor condition and/or in a poor location will increase the risk to the lender and may result in a higher interest rate charged.

Yes. Bridging loans are usually secured against the equity in any type of property or land – even those in poor state of repair, non-standard and non-income generating. Some lenders will lend against valuable assets such as luxury cars, jewellery, watches, Art, Gold, antiques etc.

Bridging loans can be secured with first or second charge mortgage over a property.

The exit strategy and security are of key importance to the lender – Bridging finance is short-term funding usually secured against property. Lenders need to understand and be clear when and how the loan will be repaid, and affordability if interest is serviced. The most common ways to repay bridging loans are:

• From the sales of property or properties
• Refinance onto long-term loans/commercial mortgages
• Sale of investments such as shares other assets
• Inheritance.

Yes. We can help finance the repayment of your Bridging loan typically onto a development loan upon planning gain or long term Buy to Let loan. In some instances we can organise both the bridge and refinance at the outset.

A valuation report is needed to value security and determine the amount of equity in the property. Valuations is paid for by the borrower and can be instructed by the lender or broker. Some lenders carry out an automated valuation report, others – a desktop valuation or a full valuation report depending on the loan size and LTV.

A Closed bridging loan will have a clearly defined or agreed term, repayment date, interest costs and with little/no chance of default on or before repayment due date. A typical example of this is following exchange of contracts pending completion or when full finance to repay is in place.

An Open bridging loan is still a short-term loan but without a defined exit date. This is higher risk to the lender and the borrower is likely to pay higher interest and a lengthier application process.

Advantages

• They are short term, flexible and can be arranged quickly – typically weeks compared to a traditional lender with more stringent credit criteria and can take months.
• The release of cash quickly can increase your purchasing power, for example – to secure properties with chains and take advantage of time sensitive opportunities such as auctions and off market property purchases. This can occur when buying at undervalue or repossession
• You can borrow 100% of the purchase costs of the property if it is being sold below open market value (OMV) for example in a repossession or purchase at undervalue. This is provided you provide additional security or if – following a valuation, the OMV meets the lenders LTV criteria
• Bridging loan lenders are flexible with their lending criteria and can base their decision to lend on the strength of security and exit strategy, and – although advantageous – not necessarily the income, credit history or financial standing as interest can be rolled up and loans can be added to the loan
• Quick access to cash to renovate, refurbish, convert or extend a property to increase the value of the property and/or to a standard in which a traditional lender will approve a mortgage application.

Disadvantages

• Due to the short term and higher risk nature of the product, interest rates, fees and charges are typically higher when compared to other forms of long-term finance or high street lenders.
• In the event of default and/or non-repayment, additional charges and compound interest will significantly add to the overall cost of the loan. This can be reduced if the lender discounts the level of default interest.
• Default will have a negative impact on the borrower’s credit record and risk the lender taking possession of the property/asset.

In the first instance, please complete our online enquiry form that asks for the basic information we need to move your enquiry forward. Alternatively, you can telephone us on 020 8988 1102 to discuss your requirements.