Bridging loans are a popular option for those who need cash quickly. Depending on your financial circumstances, you might be able to get a bridging loan from a bank or a specialist lender. Read this guide for everything you need to know about bridging loans and how to get one. We have the knowledge and the experience to guide you on what the market can offer you.
What is a Bridging Loan?
Bridging loans as we know them have changed so much in recent times due to the demand for flexible finance to support home improvements and development finance. Bridging loans in the past where generally used to support clients who were looking to purchase a property and there was a delay in the sale of their existing property. Banks were generally happy to grant a Bridging Loan providing contracts would be exchanged and the date of sale and purchase were agreed with the solicitors and set in stone.
This type of facility relied upon there being more than sufficient equity from the sale of the property to fund the Bridging loan, in addition to other related costs from the sale and purchase of the new property, which would then give the lender the confidence to agree the facility.
What are the benefits of a Bridging Loan?
The loan is granted subject to there being sufficient equity to repay the loan, and the associated costs, at the end of the agreed term. Clients are NOT normally required to service the debt whilst the facility is in place, except in exceptional cases, and the income to support the loan would have to be very strong.
A Bridging loan can be granted on a second charge basis, subject to the acceptance of the lender who has the first charge and would normally only be agreed as a short-term facility.
With the current booming property market what we are seeing are property developers using a Bridging facility to secure properties at auction where the speed of raising funds is critical to secure the transaction.
Some homeowners who want to improve their property have found a Bridging facility very helpful to enable them to fund and carry out home improvements. Once the works have been completed their existing lender would repay the loan using a further advance, supported by the increase in value of the property due to the improvements that have been made.
Property developers have also found that Bridging Finance is an excellent tool to have in their box when they are in competition to purchase a property because one of the main benefits of arranging a Bridging Loan is the speed at which it can be agreed by the lender and if you have a Solicitor who is fully experienced in dealing with a Bridging facility, the speed at which funds can be accessed. This can make a massive difference to any property purchase, particularly where the property is very desirable for whatever reason and has several interested purchasers.
One of the main benefits of a Bridging Loan is that the facility is based mainly on the bricks and mortar value at the time of the valuation as assessed by the lenders Surveyor, the agreed facility, and the time frame to repay the debt. As the debt does not normally need to be serviced during the period of the agreed facility, the exit plan must be agreed up front and the lender has to be completely happy that this is viable.
A Bridging facility can be agreed on residential or commercial property and the accepted level of borrowing may vary between the two types of property, subject to the term of the loan, the agreed exit plan, and the perceived level of risk.
A Bridging loan can be approved on a regulated or an unregulated basis, which may have some impact on the maximum loan to value that can be granted and the term of the facility.
What are the main points that I should be aware of when I am considering using a Bridging Loan?
What any lender for looking for when considering an application for a Bridging facility, if they are happy with the reason and the purpose of the loan, is how will this loan be repaid. Unlike a normal loan or mortgage, you will not be judged on your ability to service the debt, unless the loan was agreed outside normal criteria.
A Bridging loan is a facility secured on bricks and mortar for a period of time, which would not in most circumstances exceed 12 months.
Lenders in the Bridging Loan marketplace are all in favour of low loan to value loans which reduce the risk element of the loan not being repaid. The maximum loan to value would in most circumstance be 75% with in some cases a further allowance of 10% to cover costs.
You should also consider that Bridging Finance comes at a price and an interest rate of around 0.5% per calendar month should be expected.
When a bridging facility is agreed it maybe in your interest to see if there is a facility to draw down funds monthly that would allow you to complete your project in stage payments, thereby saving interest.
Experience in the market that you wish to operate in will be considered by any lender, who would be happy that you have ‘been there before’, which would give underwriters confidence in your ability to achieve your goals.
If you have a BAD CREDIT profile it does not mean that you will be automatically declined, but any terms on offer would of course reflect any additional risk taken by the lender.
WHAT IS MY NEXT STEP?
You contact us, the Bridging experts at A mortgage 4 You, who are waiting to guide you to the right product with the most competitive terms.
Call our mortgage desk on
0800 802 1003
We look forward to receiving your call