Bridging Loans Hong Kong – Property Bridging Loans

Bridging Loans Hong Kong – Property Bridging Loans

Bridging Loans Hong Kong

Bridging loans in Hong Kong are typically a short-term financial solution, though they are also utilized in various other sectors for short-term lending with quick decisions. As the name suggests, Hong Kong bridging loans are designed to bridge the gap between a debt coming due and the main line of credit becoming available; a common use is to purchase a property before a mortgage can be secured.

Bridging loans in Hong Kong are usually highly flexible and adaptable, suitable for many different borrowers. However, it’s crucial to understand what is and isn’t appropriate before proceeding with an application. Anyone considering a bridging loan must ensure they fully understand the terms and conditions associated with the loan and should consult their lender or broker before proceeding.

How Do Bridging Loans Work for Hong Kong Residential and Commercial Property?

A bridging loan in Hong Kong combines the purchasing power of a mortgage with the flexibility and speed of a personal loan; borrowers can access large sums of money without waiting for weeks for funds to become available. This flexibility allows bridging loans to secure an asset quickly, which is often a high priority in property development. Many bridging lenders boast lending times of less than a week, with decisions in principle sometimes available on the day of application. Once the asset has been secured, a long-term financial solution (such as a mortgage) can then be arranged, and the bridging loan repaid.

This tool is powerful because it enables buyers to circumvent the tight restrictions and slow pace of mortgage lenders. For instance, a property developer might have the opportunity to purchase a building at a bargain price – it’s currently in need of repairs, but they have the skills and expertise to refurbish it. Unfortunately, they don’t have the cash to purchase the property outright and must borrow to cover the cost. Because the property is unmortgageable (as it’s uninhabitable), the deal could be lost. However, the developer can take out a bridging loan instead. This will cover the cost of purchasing the property and restoring it to a mortgageable condition. Once this is complete, a mortgage will be arranged and the bridging loan repaid. In this way, bridging loans can enable developers to take advantage of opportunities they otherwise wouldn’t be able to, keeping the real estate sector fluid and flexible.

Hong Kong Bridging Loans Main Features:

• Typically have a higher interest rate of 1% per month.
• Arrangement fees from 1.5%.
• Ideally lending to companies Ltd Co’s, SPVs, BVIs but can lend to individuals.
• Lenders may require cross-collateralization and a lower LTV ratio.
• Normally short-term, 3 to 12 months, but can go up to 36 months if needed.
• Non-standard bridging loan cases and vanilla bridging cases.
• Commercial and Residential Bridging from HKD 1 million to HKD 5 billion.

What Do Bridging Lenders Look At When Assessing Applications?

The Security:
The security is the asset or real estate that the bridging loan is secured against, and what would be repossessed if the loan is not paid back as agreed. Technically, any asset can be used as security, and they do consider assets that aren’t real estate. Typically, however, bridging loan transactions use a residential or commercial property as security.

The Borrower:
The person borrowing the money is a key factor in any application. While their income or assets may not be relevant to the application, the “quality” of the borrower in terms of standing, background, or experience goes a long way in determining whether a loan is granted.

The Purpose:
The reason a bridging loan is required is a vital piece of information. Lenders will also look at the circumstances that make bridging finance a necessity, how speculative the transaction is, or how many moving parts there are.

The Bridging Exit:
How the loan will be paid back is one of the most important parts of any bridging loan application. Lenders will closely evaluate the exit strategy, how certain or advanced this exit is, and what can go wrong. These elements are central to the deal.

How Do Lenders Underwrite Bridging Loan Applications in Hong Kong?

First, they want to understand the scenario, the asset, the plan, and the exit. This information must be clear, organized, and transparent. With this information, they will work through the transaction with their credit team and conduct their research and background checks thoroughly and quickly.

If they don’t think they can help, they will clearly tell you and explain why. If they think they can help, they will offer non-binding but credit-backed heads of terms. This will clearly explain the lending rate, loan-to-value ratio, term, fees, and other pertinent information, valid for a short period. If the terms are acceptable, they will instruct and engage lawyers, valuers, and other required parties to start their process.

They will then ask the borrower for supporting documentation and other paperwork vital to the application – this will be the minimum required, and they will not request anything superfluous. Once everything is returned and complete and the file is ready, they will pass it back through credit. If everything stacks up, they will offer the final, binding mortgage offer. If there are problems at this stage, they will work with you to find solutions, which may result in a change in lending terms. If that’s the case, they will clearly explain their reasoning and work to move forward.

Lenders will give borrowers as much confidence in their commitment to funding the plan through feedback, communication, and progress throughout this process.

What Is a Bridging Exit Strategy For Hong Kong Property?

An “exit strategy” is one of the most important parts of any bridging loan application. It refers to how the bridging loan will eventually be repaid. Typical routes of bridging loan repayment are:

• Sale of the property
• Refinancing of the loan
• Sale of another property
• Sale of a business
• Sale of stocks
• Inheritance/divorce or other life events
• Other value extraction

Lenders will look closely at the exit strategy and stress test the plan. They have years of experience and unique insights into the property market, financing, and borrowers, and go beyond normal conventions to assist clients in this area.

All lenders ask is that borrowers are clear and transparent and work with them to develop a viable plan. They are comfortable with speculative, unusual, and complex situations. The more they understand, the better the outcome. Transparency is key to getting the deal completed.

Lending Money is Easy. Getting it Back is Hard.

Our Bridging Loan Services:

• High-Value Bridging Loans
• Non-Standard Bridging Loans
• Complex Bridging Loans
• Offshore Bridging Loans
• Fast Bridging Loans
• International Bridging Loans

Repaying a Bridging Loan in Hong Kong

The flexibility and speed of a Hong Kong bridging loan come at a higher price than a mortgage, with interest typically charged monthly rather than annually. This means a bridging loan can be extremely expensive if not handled properly, as a 1.5% monthly interest fee adds up to 18% over 12 months. Because of this, most bridging loans are kept as short as possible, and borrowers ensure they have a secure exit strategy in place.

A bridging lender in Hong Kong will usually stress-test their borrower’s exit strategies, ensuring that when the time comes, they will be able to repay the loan. In many cases, an exit strategy consists of the sale of the property, but most lenders will work with their clients to establish a viable repayment strategy.

Because bridging loans are secured against the borrower’s assets, the bridging lender can reclaim any lost payments through the sale of the debtor’s security. Depending on the lender, this can be a first or second charge against the property itself, on the borrower’s own house, or on other assets (some commercial lenders will allow businesses to use assets like machinery and vehicles as security).

Types of Bridging Loans Hong Kong:

1st Charge Bridging Loans
Bridging loans are a flexible form of finance that can be put to many uses; this section discusses the application of 1st charge bridging loans and finance.

2nd Charge Bridging Loans
Bridging loans are highly flexible, and the ability to secure a 2nd charge on a single asset can be invaluable for borrowers.

3rd Charge Bridging Loans
Similarly, the ability to secure a 3rd charge on a single asset can be invaluable for borrowers.

Auction Finance Bridging Loan
Bridging loans for auction finance are crucial for purchasing property at auction, enabling developers and landlords to complete purchases quickly.

Bridge to Let Finance
Buy-to-let properties are a great way of securing a productive investment, and landlords can use bridging loans as a fast and flexible way to purchase property.

Buy to Let Finance
Buy-to-let investment is still one of the most popular ways to acquire real estate, and bridging loans are vital for securing rental properties.

Buying Bridge Before Selling
Buying before selling enables homeowners to break free of their property chains and can often be achieved with the help of bridging finance.

Chain Break Bridging Finance
Breaking free of the property chain is crucial for many buyers, and bridging finance is often ideal for jump-starting a property purchase.

Discounted Purchase Bridging Finance
Bridging loans can be used to enable the purchase of property at a discounted price, where speed and flexibility make them an ideal choice for property developers.

Divorce Bridging Finance
Though never pleasant, divorce is sometimes a fact of life. Bridging finance helps divorces resolve quickly and smoothly with minimal disruption.

Fast Property Purchase Bridging Finance
Completing a property purchase quickly can be highly valuable to many buyers, and bridging loans can offer the ideal solution for a quick purchase.

Freehold & Lease Extension Bridging Finance
Purchasing a lease extension or freehold to maintain the property’s value is often the right choice for owners, and bridging loans enable fast leasehold extensions.

High-Value Property Bridging Finance
High-value property is a highly competitive sector of the Hong Kong real estate market and requires specialist bridging lenders to provide bespoke financial solutions.

Inheritance Tax Bridging Finance
The Hong Kong Inheritance Tax is a significant bill for an estate’s executors. Meeting this quickly and easily is a task that bridging finance is ideally suited for.

Non-Status Bridging Loans
Non-status bridging loans enable investors to develop their portfolios without the restrictions of affordability assessments and are a powerful form of lending.

Personal Bridging Loans
Personal bridging loans are one of the most flexible financial products, and bridging lenders are able to meet the varying needs of their clients.

Probate Finance Bridge
Bridging loans are hugely flexible and may be put to various uses; one common use is to help resolve probate issues while waiting for inheritance.

Property Downsizing Bridge
Downsizing can be a smart move for many property owners, and a stable form of finance such as a bridging loan is needed to provide flexibility and security.

Quick Purchase Bridging Finance
Moving quickly can often make or break a deal, and it’s important that professionals can access fast-moving sources of finance.

Regulated Bridging Finance
Regulated bridging loans are loans secured by first charges or second charges against a property currently, or will be, occupied by the property owner.

Unregulated Bridging Loan
Learn the benefits of unregulated bridging loans, how much you could borrow, and how much it could cost.

Bridging Loans Hong Kong FAQ’s

How fast can a bridging loan be arranged?
In our experience, it’s not how quickly a loan can be completed that’s important. Instead, the most crucial factor in a bridging loan is usually how quickly the borrower is confident that the funding will be available. Our lenders are fast. They are fast to underwrite, decide to lend, make offers, and complete transactions if required.

Which types of bridging finance do we offer?
Lenders don’t have a specific type, and they don’t specialize in defined sectors. Our lenders are not mainstream bridging finance lenders, and they are not here for straightforward transactions – there are other fantastic lenders for that. Our lenders offer solutions for complex, high-value, or international bridging finance requirements where the solution needs to be thoughtful, innovative, and bespoke.

What are the important features of a bridging loan?

• Who is the borrower?
• What is security?
• What is the reason for the loan?
• How will the loan be repaid?
• How long will the loan be required?

Are the fees clear and transparent?
Yes. Bridging lenders’ fees are detailed clearly on bridging offer letters and set out in percentage and HKD terms. Additionally, they give you an estimate of professional fees incurred during the process, such as legal or valuation fees. They do not want any surprises through the process.

Will you need legal representation?
Yes, you must select a lawyer to act on your behalf and provide Independent Legal Advice. Lenders write that this is a condition of any loan to ensure your interests are protected.