Bridging Loans – UK Property Bridging Loans

What Is A Bridging Loan?

Bridging loans, also known as bridge finance or bridging finance, is a short-term financing option that provides immediate funds to individuals or businesses to bridge the gap between the purchase of a new property and the sale of an existing one.

It is a form of temporary finance that helps borrowers meet their immediate financial needs until a long-term financing solution is secured.

Bridging loans offer a short-term financing solution for individuals and businesses seeking immediate funds to bridge the gap between property purchases.

They provide flexibility, speed, and accessibility, but borrowers should carefully consider the costs, risks, and their ability to repay the loan within the agreed time frame.

How Does A UK Bridging Loan Work?

Bridging loans allow clients to borrow money more quickly than standard loans and are paid to you as a lump sum for a property purchase or refinance.

Once your bridging loan has been arranged, your interest charges are usually ‘rolled up’ into the loan, leaving you with no monthly interest payments to make. This is normally referred to as retained bridging loan interest.

At the end of the loan term, the bridging loan is repaid in full, along with any interest and outstanding charges and the legal charge is removed from your property.

Repayment of a property bridging loan is usually funded through the sale of your property or by taking out a remortgage to repay the short-term bridge. Your plan for repaying the loan is known as your exit strategy.

Loan to value (LTV) and equity is crucial to securing this type of finance, with lenders focusing on these two points to assess new loans.

Most lenders are happy to offer a maximum of 70% to 75% of the property value on bridging loans. However, some will extend this to 80% for bridging loans supported by extra assets as security.

How Much Does A Bridging Loan Cost?

The cost of a bridge loan can vary depending on several factors, including the lender, the loan amount, the loan term, and the borrower’s financial circumstances. Bridge loans are short-term financing options typically used to bridge the gap between the purchase of a new property and the sale of an existing property.

Here are some common costs associated with a bridge loan:

1. Interest Rate: A Bridge loan’s interest rates tend to be higher than traditional mortgage rates due to their short-term nature and higher risk for lenders. The interest rates can vary greatly depending on the lender, loan-to-value ratio, and the borrower’s creditworthiness. It’s not uncommon to see bridging loan interest rates in the range of 0.5% to 1.5% per month.
2. Arrangement Fees: Lenders may charge an arrangement fee for setting up the loan bridging. This fee is usually a percentage of the loan amount and can range from 1% to 2% or more.
3. Exit Fees: Some lenders impose exit fees, also known as redemption fees, which are charged when the loan bridging is repaid. The exit fees are typically a percentage of the loan amount or the interest charged during the loan term.
4. Valuation and Legal Fees: Borrowers are usually responsible for covering the costs of property valuation and legal fees associated with bridging loans UK. These fees can vary depending on the property’s value and the complexity of the legal process.

Is Property Investment The Main Reason For A Bridging Loan?

Yes, property investment is one of the main reasons for taking out a bridging loan but it is not always the case.

Loan bridging is required for many different reasons whether you’re financing an investment property, buy-to-let property or your own home.

This is because property bridge loans UK allow you to secure a property quickly and add value through property refurbishment where it is needed.

What Can A UK Bridging Loan Be Used For?

Bridging loans UK can be used for the following reasons:

• To fund a property purchase or refinance quickly.
• Buying property at auction.
• To finance an uninhabitable property.
• To purchase an unmortgageable property.
• Buying a property before selling your existing property.
• To settle a divorce settlement.
• To fund a business venture or tax bill.
• To pay an unexpected probate bill.
• To buy a below-market value property without putting down a deposit.
• To fund a property refurbishment.
• To buy a property or land while undertaking an application for planning permission.
• To repay your existing mortgage while selling your property.

How To Get A Bridge Loan?

A bridging loan is essentially a short-term loan that is often arranged within a short time frame and may be made to an individual or a company and secured against residential or commercial property. The defining characteristic is that it is a loan that bridges the gap to an exit, which is usually a refinance or a sale of the asset. Our expert short-term loan brokers have helped hundreds of customers secure loans for their property, so do give us a call if we can help you.

How Long Does A Bridging Loan Take To Arrange?

Bridging can be arranged within a matter of hours with funds released within 72 hours although usually this takes a bit longer and can take a couple of weeks. While a bridging transaction may be arranged much quicker than could be achieved through a traditional bank, most bridging companies still apply sensible and relatively conservative lending criteria. Usually, such lenders are smaller nimble operations and specialise in doing all of the usual checks that a bank will do but without the encumbrance of bank bureaucracy.

The term of the loan can be as short as one day usually up to a maximum of 12 months. Loan amounts generally start at around £25,000 with no maximum loan amount.

Who Uses Property Bridge Loans?

Many individuals and businesses including professional landlords, property investors and developers all use short-term loans as part of their overall property funding strategy and can be arranged on a second-charge basis.

Why Use Loan Bridging?

The main reasons that property professionals use bridging are listed below:

•To raise finance quickly
•To refurbish a property
•To finish a development
•To buy at an auction
•To purchase property that would not secure a mortgage in its existing condition with a mainstream lender
•To bridge a shortfall of funding between buying and selling the property when a sale is delayed
•To raise a deposit for purchasing property

Are Bridge Loans Expensive?

Short-term finance is always more expensive than longer-term lending; however, with more and more lenders entering the market it is competitively priced. Bridging loan rates charged will depend very much on the proposition in question; however, current rates range from 0.7-1.5% per month, potentially with even higher rates on more difficult propositions.

However, with many different lenders in the market, there is a wide variety of charging structures so, in addition to the interest rate borrowers may pay a variety of other fees to the lender.

Bridge Loan – Arrangement Fees

A fee is usually charged by the lender for providing the facility and is typically two per cent. In most instances, it can be rolled up into the loan.

Bridge Loan – Exit Fees

This is a fee which may be charged by the lender when the loan is repaid. If charged, it is typically one month’s interest and is charged irrespective of whether the loan has run to its full term or not.

Loan Bridging – Surveyor’s Fees

A fee will usually be payable to the firm hired to survey the property.

Bridging Loan – Legal fees

As with a standard mortgage, short-term financing must be processed with all the usual legal requirements. However, in many cases lenders have in-house lawyers and their costs may be included in the lender’s arrangement fees.

Bridge Loan – Lending Criteria

Bridging financiers will look at the credit profile of the borrower, the strength of the asset, and the exit strategy and require that the borrower has a sufficient upfront cash contribution.

Below are the main criteria points:

• Up to 75% Loan to Value (or 100% with additional property security).
• Property in a poor state of repair considered.
• Rates from 0.50% per month up to 1.2%.
• Loans from £50,000 with no maximum loan size.
• Borrow from 1 month up to 24 months.
• Monthly interest can be rolled into the loan.
• Any exit route considered.
• Adverse credit accepted.
• Previously discharged bankrupts accepted

What Are The Risks Of A Bridging Loan?

It is essential to establish a clear exit strategy to ensure the loan can be repaid (either via sale or remortgage) to avoid paying high penalty interest rates and possibly losing the property to repossession if the loan cannot be repaid. Borrowers should remember, just like a mortgage, the property may be at risk if the loan repayments are not kept up to date. Similar to unregulated bridging loans borrowers should always be checking the lender’s credentials to ensure they are using the best lender for their protection.

Choosing A Bridging Loan Lender

An increasing number of short-term lenders are entering the market, and choosing one can be a minefield, particularly as some types of bridging lending require a regulated lender. For landlords and property investors, however, the type of bridging required is usually of the non-regulated variety so it is not essential to use an FCA-registered bridging lender. Many reputable bridging lenders are members of the Association of Short-Term Lenders. This self-regulating body operates a strict code of conduct to ensure that borrowers are treated fairly.

Bridging lending is such a specialist area, it is always advisable to seek the services of a specialist broker or independent financial adviser. They will take time to understand the property, its location, the borrower’s circumstances and funding requirements and be best placed to match these components with the most suitable lender.

What Are The Advantages Of Bridging Loans?

Here are some of the advantages associated with bridging loans UK:

1. Flexibility: Best bridging loans are often more flexible as they are not subject to the same stringent regulations and requirements. This flexibility allows borrowers to negotiate terms and conditions that are tailored to their specific needs.
2. Quick access to funds: Bridging loans can be processed and approved relatively quickly, providing borrowers with swift access to funds. This can be particularly useful in time-sensitive situations where traditional lending processes may be too lengthy.
3. Wider range of property types: Best bridging loans are not limited to specific property types. They can be used for various purposes, including residential, commercial, and mixed-use properties, as well as land acquisition and development projects. This versatility makes them suitable for a broader range of borrowers and investment opportunities.
4. Less paperwork and documentation: Compared to regulated loans, unregulated bridging loans often require less paperwork and documentation. The streamlined application process can save time and effort for both borrowers and lenders.
5. No income verification: Bridging loans may not require extensive income verification, making them more accessible to borrowers who may have irregular income streams or limited financial documentation.
6. Potential for higher loan amounts: Bridging loans may offer higher loan amounts compared to regulated loans, as they are not subject to the same loan-to-value (LTV) restrictions. This can be beneficial for borrowers who require substantial financing for their projects.
7. No monthly payments – Where your bridge loan UK interest repayments are rolled up or deducted, there are no monthly payments to make. This can be a major help to cash flow during a property refurbishment or marketing period.

Additionally, bridging loans may lack certain consumer protections provided by regulatory frameworks, so it’s essential to fully understand the terms and conditions before proceeding. Consulting with a financial advisor or specialist lender is advisable to assess the suitability of an unregulated bridging loan for individual circumstances.

What Properties Can Be Used As Security?

The specific properties that can be used as security for bridging loans may vary depending on the lender’s policies and requirements. However, here are some common types of properties that can be considered as security:

1. Residential properties: This includes houses, apartments, flats, or any other type of residential property. Lenders may consider both owner-occupied and non-owner-occupied properties.
2. Commercial properties: These are properties used for commercial purposes such as office buildings, retail spaces, warehouses, or industrial properties.
3. Land or plots: Vacant land or plots that can be developed or used for construction may also be considered as security for bridging loans.
4. Mixed-use properties: Properties that have both residential and commercial components, such as a building with apartments and ground-floor retail spaces, can also be considered.
5. Semi-commercial properties: Shops and mixed use properties can be also be considered for unregulated bridging as long as the commercial side is 60% of the property area.
6. Investment properties: Properties that are specifically purchased for rental income or investment purposes, such as buy-to-let properties, may be eligible for bridging loan security.
7. Development projects: If you’re involved in a property development project, the lender may consider the development site or the properties being developed as security.
8. Uninhabitable property: If you are refurbishing or converting an uninhabitable property to a live-able property then lenders may consider unregulated bridging financing.

What Is The Process To Apply For A Non UK Bridge Loan?

The application process for a UK bridge loan can vary depending on the lender, but here is a general outline of the steps involved:

1. Initial inquiry: Get in contact with us regarding the property or project requiring bridging financing. Provide basic details such as your name and contact information. During this stage, you will be asked to provide additional details about the property, a brief overview of the property such as address and current value and the purpose of the loan plus planned works to the property.
2. Broker Consultation: We will then reach out to our bridging lender panel and discuss your required financing with the lender.
3. Lender terms: If the lender determines that your project is feasible they will release to us all the terms of lending such as upfront fees and interest rates.
4. Application submission: If the lender determines that your application is feasible, you will be required to complete a formal application form. This form will ask for detailed information about your property, project finances, business details, and any supporting documentation they may require. The documentation will include property valuation reports, legal documents, identification proof, and bank statements.
5. Property valuation: The lender will request a professional valuation of the property offered as security to determine its current market value. This valuation helps the lender assess the loan amount they can offer and the loan-to-value (LTV) ratio.
6. Offer and terms: If your application is approved, the lender will provide you with a formal offer letter. This letter will outline the terms and conditions of the loan, including the loan amount, interest rate, repayment schedule, fees, and any other relevant details. Take the time to review the offer carefully.
7. Legal process: Once you accept the loan offer, the lender will instruct their solicitors to prepare the legal documentation. Your solicitor will also be involved in this process to review and ensure that your interests are protected. They will handle the legal aspects of the bridging loan, including property searches, title checks, and registration of the charge against your property in return for the non regulated bridging loan.
8. Loan completion: After the legal process is completed, the bridging loan will be finalized, and the funds will be disbursed to you or as per your instructions to your solicitor. The loan term will commence, and you will be responsible for making repayments as per the agreed bridging loan schedule.

Frequently Asked Questions

Bridging Loans – Cities in The UK That Our Lenders Offer Financing

Bridging Loans – United Kingdom

1. London
2. Birmingham
3. Manchester
4. Glasgow
5. Leeds
6. Newcastle
7. Sheffield
8. Liverpool
9. Bristol
10. Edinburgh
11. Cardiff
12. Belfast
13. Nottingham
14. Southampton
15. Leicester
16. Brighton and Hove
17. Plymouth
18. Reading
19. Bradford
20. Stoke-on-Trent

Bridging Loans – Scotland

1. Glasgow
2. Edinburgh
3. Aberdeen
4. Dundee
5. Inverness
6. Stirling
7. Perth
8. St. Andrews
9. Paisley
10. Kirkcaldy
11. Ayr
12. Greenock
13. Livingston
14. Cumbernauld
15. Hamilton
16. Dunfermline
17. East Kilbride
18. Coatbridge
19. Falkirk
20. Kilmarnock

Bridging Loans – Ireland

Northern Ireland:

1. Belfast
2. Derry/Londonderry
3. Lisburn
4. Newry
5. Craigavon
6. Bangor
7. Newtownabbey
8. Ballymena
9. Newtownards
10. Carrickfergus

Republic of Ireland:

1. Dublin
2. Cork
3. Limerick
4. Galway
5. Waterford
6. Drogheda
7. Swords
8. Dundalk
9. Bray
10. Navan

Bridging Loans – Wales

1. Cardiff
2. Swansea
3. Newport
4. Wrexham
5. Barry
6. Neath
7. Cwmbran
8. Llanelli
9. Merthyr Tydfil
10. Bridgend
11. Port Talbot
12. Pontypridd
13. Aberdare
14. Colwyn Bay
15. Rhyl
16. Penarth
17. Bangor
18. Prestatyn
19. Llandudno
20. Carmarthen