BRIDGING LOANS

What is a Bridging Loan?

Bridging Loans Explained

Bridging finance is a short term, secured loan, which can be arranged quickly when time is of the essence. A borrower can be approved in as little as a week which makes it a perfect funding vehicle for purchases that require fast access to funds.

A bridging loan will typically be repaid within 12 months, with the total amount only becoming due for repayment at the end of the term. Generally there are no monthly payments made for this type of loan and interest is only charged on the length of time that the finance is used, therefore the sooner you repay the less interest will be due.

So for example, if a loan with a 12 month term is repaid in 3 months and 8 days, then interest will only be charged for that time period, not the whole 12 months.

With bridging finance there are no exit penalties if the loan is paid early, however, the lender will most likely require an exit strategy, outlining exactly how you intend to repay the loan, before approving you for funding.

Bridging finance is particularly useful for borrowers who have not been accepted for more traditional loan products. Applicants may be refused other types of loans for the following reasons:

• When the applicant is older than the new acceptable age limits it can be difficult to secure a mortgage
• The applicant may be rejected due to being asset rich but cash poor, and therefore is unlikely to pass the affordability test in order to qualify for a long term loan like a mortgage
• The applicant may have a poor credit history and therefore not eligible for a mortgage
• If the property is uninhabitable an applicant may be rejected until the property has been upgraded to a liveable state
• The property the applicant is trying to purchase may have a seller who is only willing to sell to buyers who are chain free
• A loan could be required for a development opportunity foe which other funding products are not suitable
• The finance may be required for additional borrowing such as a 2nd charge
• The applicant may have a time limit to raise funds for urgent needs or an unmissable purchasing opportunity and traditional loans may take too long to arrange
• The applicant may only need a short term, flexible funding option
• The borrower may want to secure the purchase of a new home but the deposit is tied up in their current property which has not yet sold

How Bridging Loans Work

Many high street banks across the UK have withdrawn many their bridging finance packages leaving a gap in the market that has been filled by smaller, specialist lenders offering successful applicants the chance to secure a bridging loan at competitive rates. These lenders have made it possible for borrowers to access large amounts of funding, with approval being granted sometimes in just a matter of days.

It is important to know how bridging finance works before you choose this as your option. UK Property Finance have all the expertise to assist you in

securing the right type of financing for your requirements. You should consider the following facts:

• Bridge loans are routinely secured against existing land or property. Proof of income and good credit scores may therefore not necessarily be required by the lender to be approved.
• Applicants can typically borrow up to a maximum gross loan (net loan + all fees and interest etc) of 75%/80% of the value of the property you wish to purchase. This will vary from lender to lender with most willing to negotiate.
• Bridging brokers with access to the ‘whole of market’ will be able to search and compare bridging lenders across the UK to find the best deal for your individual circumstances.
• Bridging finance is generally repaid in full at the end of the term (usually up to 12 months) including all interest that has incurred.

Exit Strategies for Bridging Loans

An exit strategy is required by the lender in order to show them how you intend to repay the loan at the end of the loan period. It is of paramount importance that you have a clear and viable exit strategy in place in order to ensure the lender that you will be in a position to meet your payment obligations when the time comes. This is vital because of the short term nature of a bridging loan.

Due to the short term nature of bridging finance, you can expect to pay higher interest rates than you would for long term finance. If the loan is not in accordance with the agreement, those costs could become higher due to additional charges such as renewal fees and penalty charges.

An exit strategy must be strong and be of sound financial sense. Most exit strategies involve the sale of property or re-financing with a long term loan such as a mortgage.

Qualifying for a Bridging Loan

Bridging finance is often the best funding method for the following:

• Applicants who can or cannot prove income
• Applicants with a good or bad credit history
• Applicants who are employed, self-employed or unemployed
• companies or individuals
• Applicants with equity in their property/home or those with access to a cash deposit

The Below Criteria Applies to Bridging Loan Applicants:

• Commercial & Residential property (all conditions considered including uninhabitable).
• Land & property in England, Wales, Scotland & Northern Ireland.
• Land, with or without planning permission/approval
• Loan sizes from £10,000 upwards
• 1st, 2nd or 3rd charges
• Ltd company and individual loans
• Competitive interest rates and bespoke deals
• 2nd charges following Bridging Finance or Equity Release mortgages
• With or without proof of income.
• Employed, self-employed, unemployed or retired.
• No age restrictions.
• Loan terms from 1 day to 3 years.
• Up to 75% LTV (Loan to Value) without additional security needed.
• 100% or more LTV with additional security.
• Adverse credit acceptable.
• No valuation fee possible for some borrowers.
• No solicitor fees or representation on some bridging products.
• Loans for virtually any (legal) use.
• No exit fees on the majority of products.
• Quick approval and completions.