Why a bridging loan?
Having the ability to purchase a property quickly can have advantages such as negotiating a good price when buying a property and beating competitors to the deal. But many people aren't in a position where they are able to get quick access to their cash, especially if it's tied up in assets such as another property.
A regulated bridging loan can be a good option for clients who have found their dream home and have yet to sell their current property. They can also help clients who are buying at auction, as they will need to put down a deposit straight away.
Unregulated bridging loans can work well for people who are looking to purchase a buy to let, refurbish and sell on or for the purchase of a commercial property.
What is a bridging loan?
A bridging loan – or bridge loan - is a short-term funding option which ‘bridges’ the financial gap during a property transaction. If your client needs to borrow money quickly for an interim period for a property transaction, then a bridging loan might be a suitable option for them.
A bridging loan can either be open or closed depending on your client's situation. A closed loan has a fixed repayment date and is usually for those who have already exchanged contracts. Open loans are more flexible with no set repayment date, but will usually last for no more than 12 months.
Lenders will want to see proof of how you will repay the loan. The most common ways of repaying are by using equity from the sale of the security - such as another property - or by taking out a mortgage as refinance to repay the loan.
A bridging loan should only act as a cash injection for the buyer and should not be a replacement for a long-term solution.
Bridging loans are typically for:
- 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
- Unmortgageable properties- if there is no kitchen or bathroom for example
- Change of use- if changing the purpose of a building
- Buy to Let – purchase to let
Loans can be a 1st, 2nd or 3rd charge on the property.
Who are bridging loans aimed at?
Landlords, developers and investors most commonly use bridging loans as a way of building property portfolios quickly by taking advantage of market conditions. But bridging loans can also help fund commercial and residential purchases.
It’s important to remember that a bridging loan is not an alternative to mainstream lending and should only be recommended when other lending options are not suitable.
How much is a bridging loan?
Additional costs to the loan include a valuation fee and legal fees which are mostly made upfront. The cost of these will vary depending on the lender and the property value or purchase price. On top of this, many lenders will also charge an arrangement fee of between 1-2% of the loan advance.
As bridging finance is more expensive than other mortgage funding options, a clear repayment and exit strategy should be in place before taking out the loan. This will help the client to successfully avoid making high penalty interest rates. It can also help to avoid the potential repossession of their home if the loan is not redeemed within the agreed timescale.
Lenders will also want to see evidence of the property you are buying, how you plan to pay for it and what you are doing to sell your current property.
Our bridging loan criteria
Clever Lending's product range covers a number of key requirements, such as:
- 100% LTV available with additional security
- Market leading rates from 0.45%
- Terms from 1 month to 24 months
- Loans from £25k
- No exit fees
- Staged release on development
- Auction purchases
- 1st, 2nd and 3rd Charge
- Free Legals
Clever Lending will suggest bridging when there is no longer-term solution available and when an exit strategy is sourced, either by you, your client or us.