About Bridging Loans

A bridging loan may be a viable choice for property investors and landlords to support your expansion with short-term financing. Many landlords rely on rental income to cover investments. By offering a fast way to expand, bridging loans avoid the lengthy processing time and drawn-out nature of applying for long-term finance while losing potential rental income.

Whether a part of a longer property chain has broken or a buyer has dropped out of a purchase a bridging loan can enable you to move houses with additional financial security. This provides you with a longer window to find a new buyer for your property, while still allowing you to move on to your new home.

If your property requires refurbishment before a sale, a bridging loan is one option available to you. This short-term loan can allow you to make necessary renovations, with the cost of the loan covered following the sale of the property.

If you uncover the ideal property and do not want to risk missing out, choosing a bridging loan can be an option to access funds for that purchase while applying to a lender for a long-term solution.

If you need to complete a property transaction by a deadline, a bridging loan can be a viable way to access necessary funds when other lenders or banks are delayed. With payment typically being approved within days, you can meet tight deadlines and pay back your bridging loan upon receipt of your long-term loan or mortgage offer.

Your exit strategy is an integral part of your application for a bridging loan. Your lender needs to know that you can repay your loan in full within the approved window of time. The exit strategy you provide determines where the money is coming from, whether you choose to move to a long-term finance option or you plan to sell your property to release funds.

Bridging lenders will ask for security against the money you borrow. Any assets you own may be used as security, including property. If you have security, it is more likely that your bridging loan will be approved.

While bridging loans do not typically have a set upper limit on the amount you can borrow, you will still need to prove that the amount of loan you would like to borrow is feasible. In most cases, bridging loans will be limited by an LTV – loan-to-value. The LTV is typically no more than 75% of the value of the property. A lender will also consider how long you would like the loan repayment window to be. Anything between 24 hours and 24 months is typical. You should remember, if you agree upon a specified amount of time to repay the loan, this cannot be changed at a later date.

Bridging loans can be used for a range of purposes, as we have detailed above. Your lender will need information about how you would like to use the bridging loan. If your purpose is legal and your circumstances meet their criteria for lending, you should be eligible to borrow the amount you need.

If your current property has a mortgage, the lender will assess the equity in the property once the remaining mortgage balance has been deducted. This is known as a second or third charge bridging loan, as a first charge – the mortgage – already exists and is secured on the property. The higher the amount left on the mortgage, the less security you can provide to lenders. This issue may be reflected in higher interest rates or less freedom in the amount you can borrow.

The requirements of a specific lender may vary slightly, in general, most will offer bridging loan services to individuals, partnerships, and limited companies as standard. This applies to both residential and commercial property. When you apply for bridging finance as a business, you will still need to provide a form of security and exit strategy as part of your application.

Bridging financing is typically secured against a property you own or a property you are going to purchase. They may also be secured against other valuable assets, though property is the preferred  option for many lenders. The bridging loan is secured by taking a charge over the property or multiple properties, which is then registered with the Land Registry.

Whether or not you will be approved for a bridging loan with poor credit depends solely on your exit strategy. The lender will want to know as part of the application that you will be able to pay them back with no risk. If you provide security for your bridging loan, there is less of a risk to the lender overall, much like any other loan requiring collateral.

If your exit is selling your property to pay back your loan, this is a reliable source of income, which may improve your chances even if you have poor credit. But if you are relying on a remortgage for finance, you may find that lenders cannot provide you with the loan you need due to a poor credit rating. A poor credit rating may not be a problem for bridging loans specifically, but if your exit is affected by your financial history, this may prove an issue during your application.

It is almost certain that repayment charges will apply when you take out a bridging loan, but this depends on the exact terms of your financial agreement. A closed bridging loan is more conventional and generally sets out a fixed repayment date for your loan. However, even closed loans are flexible by design. This practice means you are less likely to be charged exit fees than you would be for a traditional mortgage or other types of long-term loans.

Open bridging loans are not focused on a specific date but on an event that produces income. If, for example, you take an open bridging loan dependent on the sale of your property, you will pay back that loan when the money for the sale comes through. By their nature, open bridging loans do not have an early or late payment, as you pay when the money becomes available.

Bridging loans do not require a long turn-around time and approvals process. Bridging loans are generally far quicker than long-term finance options. If there are no delays, you may be able to access the funds from your bridging loan a few days following application. Instructing experienced bridging loan solicitors can help make the process as quick and efficient as possible.