Bridging Loans Explained!  

Need a Fee Free Bridging Loan Broker? We can help!

We have relationships with some of the best Specialist Bridging Loan Brokers in the UK.

And the best part about it; if the loan you require is more than £100,000 the service and advice you receive will be absolutely free to you.

Bridging Brokers are able to offer this service free of charge as they receive commission from the Bridging Lenders they recommend to you.

The rates and speed of advance that Lenders offer to you will be completely unaffected by this, meaning you will receive a genuinely cheaper service for the same Advice.

So if you need a non-obligatory Bridging Loan quotation, get in touch and see how we can help you.

What is a Bridging Loan?

A Bridging Loan is a type of short term finance secured against your property, usually for 2-12 months, but in some cases as long as 24 months.

The name Bridging Loan comes from the term “Bridge the gap”. The gap being the money you need to complete a property purchase.

Bridging Loans typically come with higher fees and rates than traditional Mortgages as they are deemed higher risk and should always be viewed as a temporary form of finance.

To repay the “Bridge”, you will usually need to refinance the property onto a traditional Mortgage or sell the property, unless you have other means of course.

What are Bridging Loans used for?

Bridging loans are commonly used in the following scenarios:

1. Property Purchases:

Bridging loans enable buyers to secure a new property quickly while awaiting the sale of their existing property.

2. Property Development:

Property developers often use bridging loans to finance development projects, renovations, or refurbishments.

3. Auctions:

Bridging loans provide investors with the necessary funds to purchase properties at auctions, where speed and flexibility are essential.

4. Chain Breaks:

Bridging loans can be used to break property chains, allowing buyers to proceed with a purchase even if their chain collapses.

5. Buy-to-Let Investments:

Property investors may use bridging loans to acquire buy-to-let properties quickly, leveraging the short-term financing to secure long-term rental income.

Types of Bridging Loans

Bridging loans can be categorized into two main types:

1. Closed Bridging Loans:

  • Fixed Term: Closed bridging loans have a predetermined repayment date, usually when the sale of the existing property is expected to be finalized.

  • Lower Risk: These loans are considered lower risk since there is a specific exit strategy in place, reducing the likelihood of default.

2. Open Bridging Loans:

  • Flexible Term: Open bridging loans do not have a fixed repayment date, providing borrowers with more flexibility in terms of repayment.

  • Higher Risk: Since there is no specific repayment date, open bridging loans are considered higher risk, resulting in higher interest rates.

Typically, closed Bridging Loans will be the most suitable and readily available form of Bridging Finance. Open Bridging Loans are usually less readily available.

Bridging Loans maximum Loan to Value (LTV) ratio

Typically, Lenders will allow loans of up to 75% loan to value. But there are ways that this can be boosted.

If you have another property with suitable equity Bridging Lender can also take a charge against this, boosting your maximum Loan to Value to up to 100% of the security property.

If you are purchasing undervalue, this too can boost borrowing by up to 100% loan to value.

Bridging Loan payment types

Whilst you have your Bridging Loan you will of course incur interest.

There are three ways this can be paid; monthly (serviced), retained or rolled up:

1. Monthly (serviced) Interest Payments

With service interest you will make interest only payments each month, meaning the value of your loan will stay the same until you are ready to repay this.

2. Retained Interest

With retained interest you don’t need to make any monthly payments at all.

However, the interest payments are deducted from the gross loan you receive, effectively meaning you pay the interest upfront. 

If you then repay the Bridging Loan earlier than originally expected or applied for, you will then receive a refund for the interest you’ve effectively overpaid.

For example, if you take out a Bridging Loan for 12 months with retained interest, you will have 12 months worth of interest deducted from the gross loan you receive. If you then repay the Bridge after 8 months, you will then receive a refund for the 4 months worth of interest you’ve paid but not yet incurred.

3. Rolled up Interest

With rolled up interest payments you won’t make any interest payments at all. Instead this will be added or “rolled up” into the loan, meaning you will have a higher loan to repay at the end of the term.

The feasibility of this will depend mostly on the loan to value of the Bridge.

If you are looking to maximise borrowing at 75% loan to value or above, rolled up interest payments are unlikely to be an option.

Key Benefits of Bridging Loans

1. Speed and Accessibility:

Bridging loans offer rapid access to funds, allowing borrowers to obtain financing quickly. Particular useful for purchase made at auction for example.

2. Flexible Criteria:

Lenders typically have flexible criteria and lend to a wide range of borrowers including those with Adverse credit for example.

3. Flexible Payments:

Borrowers can chose whether to pay interest on a monthly basis or incorporate this within the loan.

4. Multiple use cases

Bridging loans can provide vital finance on a wide variety of projects in a number of different scenarios. For example Auction purchases and properties in need of complete refurbishment, where they may be ineligible for a traditional Mortgage.

Downside to Bridging Loans

1. Higher Interest Rates and fees:

Bridging loans often come with higher interest rates and fees compared to traditional mortgages, increasing the cost of borrowing.

2. Short-Term Nature:

The short-term nature of bridging loans means that borrowers must have a clear exit strategy in place to repay the loan, such as selling the property or securing long-term financing.

3. Property Valuation:

If after completing work on the property the new valuation comes back lower than expected, this could affect refinance options and result in you needing to sell.

4. Risk of Default:

Failure to repay a bridging loan on time can result in the Lender seeking repossession of the property.

5. Less Appealing to Lower Deposit Borrowers:

If you have a low deposit and have to borrow up to the maximum loan to value, in most cases 75%, Lenders will usually deduct fees from the loan you need. This then eats into your refurb budget or may make the purchase unaffordable entirely. 

Bridging Loans for First Time Buyers

We are often asked by First Time Buyers looking to buy at Auction whether it is possible to obtain a Bridging Loan, and the answer is yes.

Most Bridging Lenders will consider First Time Buyers, and they will just want to ensure they are aware of their contractual obligations.

If the property requires a lot of work as well, the Lender will want to understand the buyers plan in terms of how they will fund/complete the renovation and what there exit plan is for repaying the Bridge.

If the buyer has relevant trade/construction experience, this will likely help support the application too.

Bridging Loans with Bad Credit

It is absolutely possible to obtain a Bridging Loan with Bad Credit.

Typically Bridging Lenders won’t focus as much on Credit Scores as traditional Mortgage Lenders will but rather your overall Credit profile.

This is beneficial to applicants as it means you have a person making the decision as oppose to a computer. 

To assist your Specialist Bridging Broker and to avoid any delays in the process, it is recommendable to obtain a copy of your Credit Report as soon as possible. 

This way your Bridging Broker will be able to match your credit profiles to Lenders which will accept your credit criteria and can potentially avoid Lenders which credit score for example.

We recommend obtaining your Credit Report with Check My File, as they are the only Credit Reporters in the UK who display data with all 3 Credit Bureaus.

You can obtain your Check My File Credit Report here: https://www.ukmortgageadvisors.co.uk/checkmyfiles-uk-guide/

Bridging Loan Application Process

The process of applying for a bridging loan typically involves the following steps:

1. Initial Inquiry:

Borrowers submit an initial enquiry to a Specialist Bridging Advisor such as ourselves, providing details about their financing needs and the property you wish to finance.

2. Indicative Terms:

The Advisor will provide you with indicative terms/Illustration confirming the terms, rate and fees payable with the cheapest Lender available to you.

3. Valuation and Assessment

The lender assesses the borrower’s financial situation, creditworthiness, and the value of the property to confirm loan amounts and terms available.

4. Loan Offer:

If the application is approved, the Lender provides the borrower with a formal Bridging Loan offer outlining the terms and conditions of the loan.

5. Legal Documentation:

Both parties review and sign legal documentation, including the loan agreement, security documents, and any other relevant contracts.

6. Completion:

Once the legal side is complete, the Lender will release the funds to enable completion to take place.

Other FAQ’s

Can I get a Bridging Loan in Scotland?

Yes, we can put you in touch with a Specialist Mortgage Advisor that can help you.

How long does the process take?

Indicative quotes on how much your Bridging Loan will cost can be provided to you within 1 working day of your enquiry.

Do I need to book an appointment or attend a meeting?

No, we appreciate that Bridging Loans are usually required urgently, and we don’t require you to wait for an appointment. We can help straight away.

What documentation do I need to provide?

Typical documents will include:
Proof of income, such as payslips or tax returns (if Self Employed).
Up to 3 Months Bank Statements

Mortgage Advisor in suit

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They can answer any other questions you have, provide you with a free non-obligatory quote and/or talk you through the process in greater detail.

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