All your bridging loan questions answered by our expert team.
What Is A Bridging Loan?
A bridging loan (also referred to as a bridge loan or bridge finance) is a form of short-term property finance, that allows property developers to buy or refinance a property asset when a mortgage is not the best option eg a property that needs renovation works, converted from a commercial, title changes or if buying at auction so a loan facility is required as quickly as possible.
With over 400 bridging loan lenders on our database, from high street banks to small niche bridging lenders and family office boutiques, no-one knows the bridging loan market better than us.
Get in touch now to see how we can help take your property development business to the next level!
A Bridging Loan Can Be Used When:
- Buying under value property from an LPA Receiver
- When you require short term finance to apply for planning permission
- When buying at auction so need to complete within 28 days
- Borrowing against value not purchase price
- If you want to refurbish the property to then sell or refinance
- Buying with a deferred consideration when the net loan amount is not enough.
- If the property is uninhabitable or requires refurbishment.
- You wish to split the title of the security property
- When conventional credit is refused
- You need working capital
- You want no monthly payments or the interest to be added to the loan
- When you need an urgent funding solution
- Your credit rating is low or you have bad credit.
- You want to buy an operational property such as a hotel or restaurant before it has started trading, so need to build up a trading history.
What Is The Difference Between A Bridging Loan And A Mortgage?
The difference between bridging finance and a mortgage is that the loan can be secured against a property that may not be suitable for a normal term loan i.e an uninhabitable property that is to be refurbished, a property whose title will be changed, or if the class of use of the property is to be changed throughout the course of the loan. In fact there are many different uses for a bridging loan.
Funds are available much more quickly than a mortgage; typically 3-4 weeks, and the bridge loan is often based on the OMV of the property, rather than the purchase price, which is useful when buying BMV or from a receiver/auction house. Also, the interest payments for the bridging loan facility can be rolled up throughout the term, which means there would be no monthly interest payments to worry about.
As a short-term loan, they are generally taken out for between 3-12 months, but can be for up to two years.
It depends. You have the option to either service the loan, or to have the interest “rolled up” and deducted from the gross loan, meaning there will be no monthly payments throughout the course of the bridge loan.
As bridging loans are for the short-term, each client must have a plan in place to pay off the loan at the end of the term. This is known as an “EXIT route” – often a buy to let mortgage to refinance the investment property.
Yes. We are directly authorized and regulated by the Financial Conduct Authority.
Typical charges on bridging loans are an arrangement fee, valuation fee, and legal fees. The valuation fee will be dependent on the type and sized of the asset being valued. The interest rate paid per month will be determined by the strength of the underlying asset and whether the borrower/buyer has bad credit or not. Some bridging lenders charge an administration fee, and for unusual deals, they may charge an exit fee when the loan is repaid.
An unregulated bridging loan is where the borrower or a family member has not and will not reside in the subject property. We can still assist if you require a regulated first charge or second charge bridging loan.
A bridging loan facility is a type of finance that is typically taken out for up to 12 months and used when a regular mortgage would either be outside lending criteria for the mortgage lender or not the best option. The bridging lenders arrangement fees and rates tend to be slightly higher than a mortgage, as do the valuation fees and legal fees, due to the typically higher complexity of bridging finance facilities.
How Much Can I Borrow & How Long Does It Take?
Many lenders have a minimum loan size of £100,000. The maximum loan size is dependent on the strength of the asset being used as security. There is no real upper limit for the right project. However, a lot will depend on the exit strategy from the bridge loan.
The time it can take to get a bridge loan is dependent on the speed of the valuation, and the preparedness of the legal team; a bridging offer can be provided with 24 hours and the funds available within 48 hours. However, the normal timeframe for a bridging finance application is 3-4 weeks, and for a development finance application 6-8 weeks.
Individuals, UK Ltd companies, LLP’s, Trusts, and overseas companies can apply for bridging finance. Other ownership structures may be considered.
Some do and some don’t. Usually, for the cheapest interest rate, this would involve a bridging loan lender that does check your credit rating. However, there are many non-status lenders who offer bridging finance at competitive interest rates that do not do a check. Although, if relying on buy to let mortgages to repay the loan, you should check with the lender first.
Yes. Bridging loans, development finance, and mezzanine funding are available throughout the UK and certain countries in Western Europe.
Yes. There are a handful of bridge finance lenders who cater to overseas residents using bridging to buy properties in the UK. These specialist facilities depend on the buyer profile.
It depends. If you take out the bridging loan in order to refurbish the property and then sell it, then no, they will not require it. However, if you are buying a property with the intent to refinance it and hold as an investment, then the bridging finance lender may require sight of a suitable mortgage offer.
What Information Do I Need To Get Bridging Finance?
In most cases, you will need to submit the following supporting information to the lender in order to get an agreement in principle (AIP) from the bridging lender:
- The address of the property being acquired.
- The sales agent particulars or auction pack.
- Name of borrower or Ltd co being used.
- Name of all directors and shareholders.
- What is the purchase price.
- What is the current estimated value.
- A breakdown of the works to be done, if any, with estimated cost and timescale.
- Estimated value once work is done.
- Details of planning consent if required.
- Property CV or business bio.
- An asset and liabilities statement for all borrowers.
- A credit report for any borrower that does not have clean credit.
- Details of how the loan will be repaid.
- Details of any tenancy agreements, leases or forward sale agreements.
What Is The Difference Between The OMV And 180 Day Value?
Unlike other forms of property finance, some bridging loans are based on the Open Market Value, or OMV. The is the value of the property if there were no time restrictions on selling it. However, most lenders base the loan to value for their bridging loans on the value if they had to insist on a sale within 180 days, or 6 months. This is so that, in the event they need to repossess, they know they can get their money back in a reasonable period of time. This is not the same for all properties.
Bridging loans up to 100% of the total refurbishment cost are available, as long as you remain within 65% of the GDV. Interest rates can vary on the extent of the work being done.
Yes, some bridge loan lenders will lend against purely the OMV rather than the purchase price. This is especially useful when buying distressed assets from a receiver or at auction. The loan to value is sometimes limited to 90% of the purchase price.
Yes. This is one of the most common uses for bridging loans. Not only is the bridging loan available much quicker than regular mortgages, even in as little as 3 days. The interest rate for these urgent bridging loans is usually higher, to account for the extra speed.
Yes. Bridging finance is available regardless of the income of the applicant. Monthly interest and the arrangement fee will be rolled up for the duration of the bridging loan. The cost will vary, depending on the borrowers experience.
Yes. As long as the land has some form a planning consent, then finance is available to assist with land acquisition.
No. Unlike mortgages, bridging loans do not usually have redemption penalties. Typically they will have a 3 month minimum term and some more niche assets may have a fixed “exit fees” which will need to be paid, no matter when the loan is redeemed.
No. You can still get a loan if you have CCJ’s and other adverse credit. However, if the county court judgement is not satisfied, the lender may ask you to settle it before you get your loan.
Yes. You can borrow in a wide variety of corporate structures, including Ltd Co/LLP/Offshore Co’s and SIPP’s. Interest rates will also be the same as for a personal application.
Yes, as long as you are outside the minimum finance term (usually 3 months, but can be 1 month). If you paid back the loan early, you will have any retained interest returned to you.
The vacant possession value or “VP” value, is the value of the underlying property asset, excluding any goodwill, hope value or income multiple.
This is a major factor when using bridging loans to acquire income producing assets, like a care home or a restaurant. The loan will only be based on the value of the property as if it were a vacant, non operational asset, which can severely restrict the amount of lending available.
Normally you would need at least 30% for residential properties. However, bridging loans are often used to buy distressed properties under value from auction houses or receivers. This is a good way to reduce the deposit that you will need, with 100% loans available in some cases.
Yes, very. In fact, before you apply for any bridging facilities, you should think very carefully about how you will repay the loan. Some lenders will require evidence of the exit as part of their underwriting process.
It depends on the lender and the ltv. Some lenders will require the borrower to have carried out 3 or more similar property projects in the past. However, some lenders, especially at lower ltv are happy to work with first time investors, although they may charge a slightly higher interest rate to allow for the increased risk profile.
What Is The Difference Between A First Charge And Second Charge Loan?
A ‘first charge’ is the primary loan secured against a property. This takes precedence over all other finance secured against it. However, If there is sufficient equity in the property, a second charge loan could be secured against it.
The Bridging Loan Calculator
There are many types of bridging and security properties, all of which will have an effect on the bridge loan interest rate, including whether the loan is a first charge or a second charge.
Once you find the right bridging loan product, you can input the interest rate, bridge loan amount, and loan term into our bridging loan calculator to calculate your monthly interest payment and the total interest that will be paid. You can also add the arrangement fee, broker fee, and admin fee amounts, to see your estimated day one net loan.
Unlike other forms of property finance, with bridging finance, there are typically no early repayment charges after the first 3 months.
Tiger Financial Ltd is a financial services company registered in England no: 10225910.
Tiger Financial Ltd is directly authorised and regulated by the Financial Conduct Authority (FCA) no 915106.
The FCA does not regulate all mortgage, commercial mortgages or bridging loan products. Think carefully before securing debts against your home. Your home could be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
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