Bridging Loans - UK Property Bridging Loans
How To Get A Bridge Loan?
Bridging Loans UK
A bridging loan is essentially a short-term loan that is often arranged within a short time frame and may be made to an individual or a company and secured against residential or commercial property. The defining characteristic is that it is a loan that bridges the gap to an exit, which is usually a refinance or a sale of the asset. Our expert short-term loan brokers have helped hundreds of customers secure loans for their property, so do give us a call if we can help you.
How Long Does A Bridging Loan Take To Arrange?
Bridging can be arranged within a matter of hours with funds released within 72 hours although usually this takes a bit longer and can take a couple of weeks. While a bridging transaction may be arranged much quicker than could be achieved through a traditional bank, most bridging companies still apply sensible and relatively conservative lending criteria. Usually, such lenders are smaller nimble operations and specialise in doing all of the usual checks that a bank will do but without the encumbrance of bank bureaucracy.
The term of the loan can be as short as one day usually up to a maximum of 12 months. Loan amounts generally start at around £25,000 with no maximum loan amount.
Who Uses Property Bridge Loans?
Many individuals and businesses including professional landlords, property investors and developers all use short-term loans as part of their overall property funding strategy and can be arranged on a second-charge basis.
Why Use Loan Bridging?
The main reasons that property professionals use bridging are listed below:
•To raise finance quickly •To refurbish a property •To finish a development •To buy at an auction •To purchase property that would not secure a mortgage in its existing condition with a mainstream lender •To bridge a shortfall of funding between buying and selling the property when a sale is delayed •To raise a deposit for purchasing property
Are Bridge Loans Expensive?
Short-term finance is always more expensive than longer-term lending; however, with more and more lenders entering the market it is competitively priced. Bridging loan rates charged will depend very much on the proposition in question; however, current rates range from 0.7-1.5% per month, potentially with even higher rates on more difficult propositions.
However, with many different lenders in the market, there is a wide variety of charging structures so, in addition to the interest rate borrowers may pay a variety of other fees to the lender.
Bridge Loan – Arrangement Fees
A fee is usually charged by the lender for providing the facility and is typically two per cent. In most instances, it can be rolled up into the loan.
Bridge Loan – Exit Fees
This is a fee which may be charged by the lender when the loan is repaid. If charged, it is typically one month’s interest and is charged irrespective of whether the loan has run to its full term or not.
Loan Bridging – Surveyor’s Fees
A fee will usually be payable to the firm hired to survey the property.
Bridging Loan – Legal fees
As with a standard mortgage, short-term financing must be processed with all the usual legal requirements. However, in many cases lenders have in-house lawyers and their costs may be included in the lender’s arrangement fees.
Bridge Loan – Lending Criteria
Bridging financiers will look at the credit profile of the borrower, the strength of the asset, and the exit strategy and require that the borrower has a sufficient upfront cash contribution.
Below are the main criteria points:
Up to 75% Loan to Value (or 100% with additional property security).
Property in a poor state of repair considered.
Rates from 0.50% per month up to 1.2%.
Loans from £50,000 with no maximum loan size.
Borrow from 1 month up to 24 months.
Monthly interest can be rolled into the loan.
Any exit route considered.
Adverse credit accepted.
Previously discharged bankrupts accepted
What Are The Risks Of A Bridging Loan?
It is essential to establish a clear exit strategy to ensure the loan can be repaid (either via sale or remortgage) to avoid paying high penalty interest rates and possibly losing the property to repossession if the loan cannot be repaid. Borrowers should remember, just like a mortgage, the property may be at risk if the loan repayments are not kept up to date. Similar to unregulated bridging loans borrowers should always be checking the lender’s credentials to ensure they are using the best lender for their protection.
Choosing A Bridging Loan Lender
An increasing number of short-term lenders are entering the market, and choosing one can be a minefield, particularly as some types of bridging lending require a regulated lender. For landlords and property investors, however, the type of bridging required is usually of the non-regulated variety so it is not essential to use an FCA-registered bridging lender. Many reputable bridging lenders are members of the Association of Short-Term Lenders. This self-regulating body operates a strict code of conduct to ensure that borrowers are treated fairly.
Bridging lending is such a specialist area, it is always advisable to seek the services of a specialist broker or independent financial adviser. They will take time to understand the property, its location, the borrower’s circumstances and funding requirements and be best placed to match these components with the most suitable lender.