Bridging Finance and Bridging Loans
What is Bridging Finance?
Short-term finance secured against a property or “bridging” finance is widely used by property investors and developers as well as business owners for a variety of reasons. Bridging lenders will lend in situations where the more traditional lenders will not, and can provide loans in a much shorter timeframe if a quick completion is required. Acceptable security includes residential and commercial property of any type and in any condition, and land with or without planning consent.
A Bridging Loan is very different than a standard bank loan or mortgage – it is fast and very flexible form of short-term funding.
Short-term facilities can be used for as little as 1 day or up to 24 months, and in some cases longer. In most cases a provision for interest is deducted from the gross loan amount on completion of a bridging loan, but some lenders allow interest roll-up if interest cannot be paid monthly (“serviced”).
As the cost of a bridging loan is higher than a more traditional loan, an exit strategy is important. Exits are usually via refinance or a sale on the open market.
There is a massive range of bridging lenders to choose from, so it is essential to have an understanding of the intricacies and mechanics of such facilities so the most appropriate and cost-effective option is utilised, from the right lender.
We can fast-track you through the process and identify the most suitable option swiftly.
What is Bridging Finance used for?
The uses of Bridging Finance are wide ranging. Some examples are:
Fast purchase of a property. This could be from an Auction, for example. When a sale is agreed at an auction the purchaser usually has 28 days or less to complete. Bridging Finance is perfect for this.
The purchase of an uninhabitable or “un-mortgageable” property. A property is not deemed to be mortgage-able if it is not habitable. Perhaps the property has suffered from fire or flood damage, or it has no working kitchen or bathroom.
Refurbishment, restoration or conversion or a property. A bridging loan is ideal for buying a property which needs works carrying out on it. Funds can often be provided to facilitate the works on the property, as well as the purchase.
Business Tax Payments. A bridging loan could be used to raise funds quickly against a property to pay a Tax bill, or any other urgent business-related bills.
Below Market Value purchases. Bridging Finance lenders will often advance a loan based on the value of the property, regardless of the purchase price. We have helped clients obtain 100% of the purchase price using a bridging loan.
Equity release. As long as the funds being released for business purposes, and not secured by a first charge on the borrowers’ main residence, equity can be released from properties owned quickly.
Lease Extensions.
Redeeming Development Finance facilities, to allow further time for sales.
Re-bridging, where a borrower needs another bridging loan, but the existing bridging lender will not extend the loan.
What are the Key Features of Bridging Finance?
Loan to Values (LTVs) of up to 80%, and up to 100% with additional security.
Interest rates from 0.4% per month, dependent on the LTV required.
Loans sizes from £25,000 upwards, with no maximum!
No redemption fees or exit fees in many cases
Available throughout the United Kingdom, and some European countries.
Bad or Adverse credit Bridging Loans available
Loans from 1 month to 3 years
No upper age limit for borrowers
What are the Bridging Finance Lending Criteria?
First, Second (and even Third!) charge loans available. Some lenders will lend relying on an Equitable Charge.
Property types include Residential investment property, Buy to Lets, Semi-Commercial/ Mixed-Use, Commercial Property, Land with planning, Property Portfolios, HMOs, Ex-Local Authority, Grade 2 Listed, and rural properties.
Bridging Loans can be arranged for UK citizens, expatriates, Foreign Nationals, UK companies and Trusts, Offshore Companies and Trusts, SPVs, Funds, Executors, LLPs, sole traders, partnerships etc.
The borrower will be responsible for legal fees and valuations where applicable.
What Information do you need to progress an Bridging Finance loan?
Who will be borrowing the money? A limited company, individual or other? We need the full name, last 3 years address history and Date of Birth for each borrower. If the applicant is a Company, we would need the company name and number along with all the Directors details, and the details of the significant shareholders (i.e. those owning more than 20% of the shares).
Full Address of the property to be purchased including postcode.
Sales Particulars or valuation if you have one (do not instruct your own valuation!)
Planning permission details, if applicable.
Explanation of your plans/ intentions for the property.
How will the Bridging Finance loan be repaid? (usually via a sale or refinance).
How long does it take to arrange?
A bridging loan can actually be completed in 48 hours. At Positive Commercial Finance, we can provide you with an offer in a matter of hours. Subject to all the professionals (valuers and solicitors) carrying out their roles in a timely manner, loans can be completed very quickly thereafter.
Who uses bridging loans?
Anyone can find themselves in need of a bridging loan. Applicants can be Companies and Individuals, including property developers, landlords, property investors and entrepreneurs.
Why use Bridging Finance?
The main uses for bridging include:
To raise monies quickly, perhaps for a corporate tax bill
To complete on a purchase quickly
To renovate or refurbish a property
Auction purchases
Purchasing a property which is un-mortgageable (no working kitchen or bathroom, or roof!)
How much does Bridging cost?
Bridging Finance has got cheaper recently with rates from around 0.49% per month.
Interest rates can be determined by Loan to Value, the property type, and the borrowers credit history and profile or level of experience.
What Fees are involved?
Arrangement Fees – A fee charged by the lender for providing the loan
Exit Fee – this may be charged when the loan is repaid
Surveyors or Valuer Fees – a RICs valuation is usually required
Legal Fees – Solicitors fees for dealing with the loan
Interest – usually calculated on a monthly basis.
How do I choose a lender?
This is where Positive Commercial Finance come in. We will save you time and money by using our experience to get the best fit for your proposal.
What information will I need to obtain a loan?
We will need the borrowers name (or company name and number) and address, security property address, source of deposit, length of term required and the “exit strategy” or the method of repaying the loan. We will also need to know if the borrower(s) have any experience of doing what they are proposing to do, and if there is any adverse credit history.
Do you have more questions about Bridging Loans and Bridging Finance from Positive Commercial Finance?
Please see our Frequently Asked Questions below:
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Frequently Asked Questions
What is Bridging Finance?
It is short-term finance, secured against any type of property, and often against properties which mainstreams lenders cannot lend against. Bridging loans are used to purchase properties and/ or release equity from properties owned, and can be arranged very quickly.
Why is it called Bridging Finance?
It is used to “bridge” a finance gap.
How does Bridging Finance work?
Like a conventional mortgage, a Bridging lender will take a charge over a property, and provide you with a loan amount up to a certain value of the property. Once the loan is repaid, the charge is lifted.
Are Bridging Loans very expensive?
Not anymore! Bridging is a huge industry, and massive competition from lenders has driven the costs down. That said, it is usually more expensive than a conventional mortgage, and therefore is only used for the short-term.
How long can I have a bridging loan for?
Typically, up to 12 months, but some lenders can provide a 24 months term. There are some open-ended terms available, but strictly speaking that type of loan wouldn’t be a bridging loan, given it wouldn’t be seen as a short-term loan.
How is a bridging loan calculated?
The maximum loan amount available will be a percentage of the property value, which gives a Loan to Value (“LTV”).
What type of property can I buy with a Bridging Loan?
Any type of property.
Do I have to pay interest monthly?
No, interest can be “retained” (included in the loan) or “rolled-up” (added to the loan), if you cannot or do not want to pay interest monthly.
Will I qualify for a Bridging loan?
Unless you are currently bankrupt, or under 18, then you can qualify for a bridging loan.
How do I repay a Bridging Loan?
Usually the “exit strategy” (the means to repay the loan) is via a sale of a property, or refinancing to a long-term mortgage.
Are Bridging Loans regulated?
If a bridging loan is secured by a first charge against a main residence, then it is classed as “regulated”. Even though Positive Commercial Finance are regulated by the FCA, we do not facilitate bridging loans secured by a first charge against the borrowers main residence.
Can I buy Land with a Bridging Loan?
Yes, you can.
What is 100% bridging finance?
This is where the lender provides 100% of the purchase price of a property. This can happen if you are buying at Below Market Value, or if you give additional security (other properties) to the lender.
What is Loan To Value?
This is the loan amount expressed as a percentage of the value of the property/ properties which the loan is secured against.
How does a Bridging lender value a property?
A lender will instruct a 3rd party RICS qualified surveyor to value a property. For a fee, the valuer will inspect the property and produce a report on the property itself, and the general marketplace as a point of reference, to come up with a value for the property. Some lenders work off Open Market Value (“OMV”), or alternatively a 180 Day Value (the price a property would have to be marketed for, if it had to sell within 180 Days), or even the 90 Day Value.
Can I use a Bridging to renovate a property?
Yes, that is a very common use for a bridging loan.
What fees will I have to pay?
An arrangement fee (typically between 1% and 2%), and sometimes an exit fee (usually equivalent to 1 months interest). In addition, there are valuation fees, and legal fees to pay. Given the competition in the marketplace currently, check with us for details of current deals some lenders are offering, such as no valuation fees or legal fees.
Are there many bridging loan lenders?
There are more than ever, and that is why it is recommended that you use the services of a broker to guide you through the process, and identify the most appropriate lender for your circumstances.
How do I choose a Bridging lender?
Provided the loan amount and fees/ costs are satisfactory, you should also consider any additional costs (professional fees and application fees), how quickly the lender can act, what “type” of value they lend against (“OMV”, “180 Day” or “90 Day” Value) what the underwriting process consists of, which valuer and solicitors the lender uses, as well as factors such as how the lender is funded, and whether there are any significant conditions to satisfy to enable you to get the loan.
Are there valuation fees and legal fees?
Yes. As the borrower, you have to cover the cost of a valuation report, your own legal fees and the lenders legal fees.
What happens if I can’t repay in time?
Provided you have communicated with the Bridging lender to explain why you can’t repay on time, and can offer an alternative exit strategy, the lenders are usually happy to work with you, provided a repayment strategy can be provided in a reasonable time-frame. As with all mortgages though, if you fail to satisfy a lender, they can repossess the property.
Will the property be repossessed?
If you cannot repay the loan on time, and can offer no agreeable means of repayment, then ultimately a lender can repossess the property.
Do you have to put down a deposit with a bridging loan?
If you are buying a property, yes, you will need a deposit.
Can I use a bridging loan to get planning permission?
Yes. A bridging loan can give you up to 12 months to get any necessary planning consents.
What type of people use bridging loans?
Our customer base is very diverse. Anyone can use a bridging loan.
Can I get a bridging loan if I already have a mortgage?
Yes. The bridging lender would either provide a loan on a “second charge” basis, i.e. put their legal charge behind the first mortgage lender, or they will refinance the first mortgage lender so they can take a first charge themselves.
Does the property have to be in the UK?
Most bridging lenders only work in the UK. That said, we have a small panel of lenders who will also consider lending against properties in some parts of Europe.
Are all bridging loans secured against property?
Yes.
Is there a maximum age for a bridging loan?
No.
Can I get a bridging loan quickly?
Yes. The quickest bridging loan we have facilitated was completed in 24 hours. Typically, the process takes 2 to 3 weeks.
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