Bridging loans – The Facts

May 2020

Bridging finance loans are short term finance to ‘bridge’ the gap until the main finance is available, such as a term mortgage or the property is sold, following say a renovation.

Bridging loans normally run from a minimum 1 month to a maximum of 24 months and borrowing limits ranging from £50,000 up to many millions.  There are also specialist buy to let bridge products.

Why a bridging loan?    

A bridging loan is multipurpose and has a variety of uses, with lending based on the property, borrowers experience and plan for the property, it means lenders don’t tend to look at a customer’s income and credit profile.  Although it’s important to note, if a new term mortgage is required on exit, that is likely subject to full lender credit checks.

Most popular uses of a bridging loan

  • Securing a property before completing the sale of your existing property
  • Broken sale chains – bridging the gap between purchases
  • Auction purchases – quick completion timescales
  • Renovation – a traditional mortgage may not be available until the works are complete.
  • Below market value – enabling you to possibly take advantage of the open market value of the property
  • Un-mortgageable properties, for example if there’s no kitchen or bathroom
  • Refurbishment projects to sell or let
  • Change of use – if changing the purpose of a building

Will I qualify for a bridging loan?

The loan amount is based on the loan to value ratio (LTV) from properties current or estimated future value, if renovating.  Most bridge lenders will lend up to 75% of the value, but there are some that will stretch this to 85%. (pre COVID-19)

Bridging loans can be regulated or unregulated depending on the use of the property, unregulated bridging means it’s not governed by the Financial Conduct Authority (FCA).  It’s always important that you are made aware of the full terms, all fees, charges and conditions of the loan, whether its regulated or not.

Key factors considered by lenders are the:

  • Subject property
  • Loan-to-value
  • Project plans
  • Exit plan (how to repay the loan, such as term mortgage or sale)

What are the charges on a bridging loan?

The usual fees are a valuation fee, legal fees and the lender may charge an application or arrangement fee to cover the costs of setting up the loan.  There can also be fees if you need to extend the term of the bridge.  Its therefore very important that you fully plan your project to avoid unnecessary fees.  A specialist packager like Clever Lending, will also charge a fee and can help you to ensure you have the correct finance in place.

What interest is payable?

Bridging loan interest rates are set by considering the property value, size of loan, loan to value (LTV), use of property, condition and location and are usually chargeable on a month basis, instead of the traditional mortgage annual rate.

Due to the slight increase in risk with bridging and the short-term nature, lenders charge slightly higher rates compared to a traditional mortgage.

How can I repay a bridging loan?

With bridging loans, interest and payments can be retained, rolled up or serviced, the difference being retained and rolled up, means you make no payments each month and instead they are added to the balance.

With serviced, you make the interest payments each month and therefore the remaining balance on exit is the original amount borrowed.

The beauty of a bridge is you can have no monthly payments, using those funds as cash flow during the project and reap the benefits with a quicker sale or say, rental income.

Can people with bad credit and take out a bridging loan?

We help people do just that. One customer was able to:

  • Secure a bridging loan of almost £600,000 over a 12-month term to improve his financial situation
  • Receive the required funding on the same day
  • Sell his property to buy a smaller home and pay back his arrears to the original lender

Customer story

This customer’s remortgage case was passed to us after his existing lender refused to grant him a second charge. This was due to existing adverse in the form of missed mortgage payments. He was also struggling for a regular remortgage due to the loan amount, his age and existing issues within his business.

We took over this case and worked closely with the customer to match him to another lender which was happy to provide the required funding.

This meant the customer could gain control of his financial situation, using the bridging loan to clear his existing arrears with the original lender. The customer was then able to sell his property and downsize, making his finances more manageable going forward.

Criteria

Clever Lending’s product range covers several key requirements, such as:

  • 100% LTV available with additional security
  • Market-leading rates
  • Terms from 1 month to 24 months (longer on buy-to-let)
  • No exit fee options
  • Staged released payments
  • Auction purchases
  • Second and third charge
  • Monthly payment or rolled up interest

Great reasons to work with Clever Lending:

  • Personal service from a passionate team
  • Ability to find solutions – outside the box thinking
  • Positive outcomes
  • Multiple lending options
  • Extensive lender panel
  • Market-leading rates

Additional benefits:

  • 24-hour turnaround on DIPs (lenders systems allowing)
  • Competitive commission rates
  • Ability to deal with your client or package only

Our online broker portal Clever+ allows you to:

  • Submit an enquiry at any time from any device
  • Track all cases 24/7 in real-time
  • Upload documents with drag and drop faciality in a secure environment, which can be accessed quickly and easily

Register with Clever Lending and access Clever+ here

Contact us here or call  0800 316 2224