Fast access to secured finance
Bridging loans are short term mortgages designed to get you from A to B. Whether that be buy a property at auction, break the chain in a house sale or even to renovate a property.
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Bridging loans are short term mortgages designed to get you from A to B. Whether that be buy a property at auction, break the chain in a house sale or even to renovate a property.
If you’re thinking about taking out a bridging loan, it is more often than not an important decision that needs to be sorted quickly. Even though the cost of bridging finance has reduced drastically over the last few years, it is often still a more expensive type of borrowing when compared to other types of finance, and may need to be offered by specialist bridging lenders.
Bridging loans are very flexible financing solutions, but as with many short-term finance options, there are pros and cons. You must understand these so you can decide if bridging finance is the right choice for you.
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A short term bridging loan, or property development finance, typically lasts from one week to three years. They are often used in the UK by people who want to secure a new home before their current property has sold, break property chains, purchase a property at auction or renovate a property before it is put up for sale.
A bridging loan broker at Millennium Mortgages is able to help with regulated and unregulated bridging loans which can be used to:
In order to secure bridging finance, a bridging loan broker will typically ask a few questions to help them get to grips with your needs and financial situation.
For instance, a bridging loan broker will ask for the purpose of the loan so they can determine why you need a bridging loan and how you will use the funds. They’ll also want to know how much you are looking to borrow and for how long.
If the bridging loan is secured against a residential property as collateral, brokers will ask for more details about the value, condition, and location of the property, as well as asking for proof of income and employment.
Finally, a bridging loan broker will want to see that you have an solid exit strategy in place so it’s clear that you have a plan for how the loan will be repaid, whether that be a conventional mortgage or sale of a property for example.
Bridge loans works in a similar way to conventional mortgages where finance is secured on a residential or commercial property, however the difference is that with conventional mortgages, where you’re given a set number of monthly payments over an agreed term over a number of years, bridging finance is only designed to be in place for a short time to overcome short term hurdles.
Ultimately, how much you can borrow will depend on the property you use as security and your plans for repayment. In general, around 70-75% Loan To Value (LTV) is the maximum specialist lenders will offer; however some players may be able to offer a little more. The more complex the loan, or the more risk there is for lenders, the less you will be able to borrow.
Bridging loans often have a service charge which is a percentage of the loan amount, often this is around 2%, along with monthly interest payments similar to that of a conventional mortgage.
There are three ways to pay the loan interest rates:
Instead of making a monthly payment, interest is calculated based on the length of time that you have the loan in place for. The total loan, monthly interest and any charges are then repaid at the end of the term.
Similar to the rolled up method, monthly payments are not required. However, instead of adding interest to the loan, it is deducted from the loan amount at the outset.
You will need to meet the interest cost monthly as you would with a traditional mortgage.
How you pay interest will affect the total cost of your loan, your cash flow and how much you will be able to borrow.
The lender will perform a full assessment of your financial situation so things like payslips, bank statements and self employed tax documentation will be required. The lender will also do their own due diligence on the property that you are would like to secure the bridging finance against to ensure it meets their criteria.
Speed is one of the reasons people choose a bridging loan, with a bridging loan typically being approved within 7 days, however the conveyancing process typically takes 3-6 weeks depending on complexity and requirements of the solicitor.
Although lenders will do a credit search on all applicants and have some credit that must be passed, a perfect credit score is less important than it is with more conventional mortgages.
Explain the differences between bridging and a standard mortgage
Speed
The process of getting a mortgage or other types of lending is often a longer process….
A bridging lender will meet the same regulations (ensuring you meet compliance, AML, credit and onboarding requirements) but despite this, the process moves much faster. As a result, getting a bridging loan is much faster than completing a mortgage, which is essential if you require finance quickly.
Flexibility
Generally, bridging finance lenders are smaller and more flexible than larger lenders that operate in the mainstream lending space.
Large Loans
You can borrow a significant amount using large bridging loans. Most lenders can lend around £2-5 million (LTV of about 70-75% is usual in a straightforward deal, provided your finances are in good order and you have a significant net worth). However, other lenders will offer significantly more – bridging loans of £10 million plus are becoming more common.
Ease
Some borrowers will decide to opt for bridging finance when they want to secure a loan quickly with as little hassle as possible. Bridging finance is often faster and less complicated to arrange than other types of finance, like a mortgage. This is because lenders are principally focused on your exit and the asset. As long as you are creditworthy and can demonstrate you have a good plan of action and plan for paying back the loan, bridging can be a less burdensome type of finance to arrange than alternative financing product. Many borrowers will happily pay a premium to benefit from lending that is more pragmatic and can be closed as quickly as possible.
Bridging Loans Cost
Compared to more conventional loans like a mortgage, bridging loans can be more expensive in comparison. With bridging loan finance, you will be borrowing a significant sum of money over a relatively short period of time and for a very specific reason. Bridging loans are most commonly used when it’s not possible to use other types of finance and therefore there is a premium to pay for this service. When a bridging loan is used, there is usually a little more risk to the lender and there are also many more aspects for them organise in a very short time, such as approving you for the loan and onboarding you. This is why this type of finance tends to be more expensive than other types of loan.
Bridging Loans Fees
Bridging finance also typically comes with more fees than conventional types of loan including legal fees, lender fees, valuations, arrangement fees and other costs.
Bridging Loans Risk
When considering borrowers, lenders will look at your plans for repayment and any revenue (salary or otherwise) you have coming in. This will contribute to how confidently they can lend to you. The more certain you and your lender is about how easily you can repay the loan, the easier it will be to secure finance.
When considering taking out a bridge loan, its so important to get it right, and working with a specialist broker will help ease some of the stress you may be feeing and find you the most competitive interest rates available to you.
Speak with a specialist bridging loan broker from Millennium Mortgages today to get the ball rolling!
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