Raising funds for a property purchase for buyers and developers with a less-than-perfect credit history can prove to be quite challenging. Lenders offering traditional mortgages are cautious about approving loans to clients with previous financial issues as they are viewed as high-risk.

For those in this situation, bridging finance is a viable option to consider. But can you get a bridging loan if you have bad credit? In most cases, the answer is yes!

A bridging loan is a short-term, secured loan, usually 12 months, that is fast to arrange and is paid back in full at the end of the loan term, as set out by an exit plan. The exit plan assists the lender in assessing the suitability of the applicant and will have a significant impact on whether the loan is approved or not. So, for example, if a buyer is planning on paying the bridging loan with a mortgage at the end of the term, this may be a red flag for the lender as the chances of a buyer with credit problems being accepted for a mortgage may be low, and therefore the risk is high.

Not all lenders are willing to lend to bad-credit customers, so it is imperative that you only approach the ones that are. A competent, all-of-market broker will be invaluable when it comes to finding the right lender for a buyer’s individual circumstances.

Under what circumstances can I apply for a bridging loan?

Lenders who offer loans to clients with credit rating issues typically accept the following situations:

• Low credit score or no credit record at all
• Mortgage arrears
• Late payments
• Individual Voluntary Arrangement and DMPs (Debt Management Plan)
• CCJs (County Court Judgements) and defaults
• Repossession
• Bankruptcy

What are the eligibility criteria for bad credit bridging finance?

Although a credit check will be done, lenders will look at many other factors when considering an application:

• Exit strategy: This is important as it will indicate to the lender whether the loan can realistically be repaid.
• Security: This is collateral offered by the buyer that can be used to offset the loan if repayments are not made. The greater the security offered, the more funds can be raised.
• Business plan: If the loan is for development or commercial purposes, lenders will need to see a viable business plan.
• Experience: For developers and investors, this experience will give the lender more confidence in their ability to complete the project successfully.
• Deposit: The size of the deposit will have an impact on a successful application. The bigger the deposit, the better, as you will be offered more competitive interest rates. The majority of lenders will require a 30% to 35% deposit.

Only a few specialist lenders will accept non-standard strategies, which can include circumstances such as repaying the loan through inheritance or investment.

Should I use a broker for adverse credit bridging loans?

Consulting an experienced broker will significantly improve your chances of being accepted for a bridging loan. Brokers are likely to be able to easily identify the lenders who will be willing to say yes, which is important as a declined application from the wrong lender may further impact your credit record.

You have found your dream home and need to move fast, but you haven’t secured a sale on your current property. So, what are your options? We look at the different types of bridging financing available and examples of property purchases that bridging loans that can be used for.

Buying a property using bridging finance offers a fast and flexible solution when time is of the essence. Essentially, funds raised from a bridge loan allow borrowers to act like cash buyers.

This type of borrowing is typically flexible, as the loan is secured against property or other assets owned by the buyer. This enables customers with less-than-perfect credit histories to access much-needed funds.

Funds can be secured against various types of property, including residential, commercial, development plots, and land (even if the land has no planning permission).

Common uses for bridging finance:

• Buying a new home before your current property has sold for purposes of upsizing, downsizing, or relocating
• Stopping the collapse of a property chain
• BTL landlords may use bridging finance to take advantage of property deals when they need to move quickly to secure the opportunity.
• Buying auction property where completion is expected within 28 days
• Cash flow issues for individuals or businesses
• To renovate and upgrade properties.
• To purchase a property deemed not fit for a mortgage.

Before considering applying for a bridging loan for a home purchase, it is important to know exactly what a short-term bridging loan is and whether it is the right product for you. Before you apply, here are some facts you should be aware of:

Bridging finance is short-term

The most common way of purchasing a property is generally through a traditional mortgage. However, if this is not possible, perhaps due to a gap between selling and buying properties, funds can be raised using a short-term bridging loan instead.

Mortgages are long-term loans with typical terms of 20 to 25 years. A bridging loan is a short-term loan that is expected to be repaid in full within 12 months, although it can be extended to 24 months if necessary.

Bridging loans are quick to arrange

One of the biggest advantages of bridging finance is the speed at which funds can be accessed. Traditional mortgages take, on average, two to three months to arrange, whereas a short-term bridging loan can take as little as 48 hours to be approved.

Repayment of monthly interest can be deferred

Bridging loans come with the option to “roll up” interest, which must then be paid at the end of the loan term along with the principal amount. This helps to avoid monthly interest payments and enables you to use the loan solely for the purchase of the property.

A high LTV is available

The majority of lenders offering bridging finance will lend up to 75% LTV (loan to value), but some may go up to 85% for property development. The amount will depend on the circumstances and the amount and type of security being offered by the borrower.

You must have a viable exit strategy

For lenders to even consider an application for bridging finance, the borrower must provide a valid exit strategy. This is an achievable plan to repay the loan in full in the agreed-upon time period following the sale of a property or the arrangement of long-term finance such as a mortgage.

Having an exit plan gives both the lender and borrower reassurance that the loan can realistically be repaid on time. Typically, a few months before the end of the loan term, lenders check-in to ensure everything is going to plan. Should an extension be needed, this is the point at which it can be identified.

There are no additional fees for early repayment

Lenders of long-term loans, like mortgages, generally don’t allow early repayment without additional charges being applied. This is not the case with short-term bridging loans. Most lenders will only charge interest on the actual duration of the loan, so for example, if you have a twelve-month bridging loan but you pay in full in six months, only interest on the precise number of days the loan was outstanding will need to be paid.

When time is of the essence and you need to act quickly, a short-term bridging loan is just the solution you are looking for.

We specialise in securing the best available funding for our clients’ individual circumstances. So, if you find yourself in a position where you are ready to buy your dream home but haven’t yet secured a sale for your current property, then using a bridging loan for your house purchase could be the best way forward.

Our short-term bridging loans are not only used for property purchases but can be utilised for a variety of purposes. Investors looking at opportunities that require quick funding can take advantage of the fact that bridging finance can commonly be arranged within days.

What are the pros of bridging finance?

• Bridging finance can be secured against virtually any site, such as land, residential property, or commercial property
• Application acceptance time is very quick, meaning funds can be raised fast, often within 48 hours, as opposed to the average mortgage completion time of 90 days
• Bridging finance is flexible, with every deal specifically tailored to meet each buyer’s individual circumstances
• Bridging loan financing often does not require proof of income

What Can Short-Term Bridging Be Used For?

People typically apply for a bridging loan for house purchases, but this type of short-term finance can also be used for other purposes:

• Auction property purchases where speed is essential for raising funds
• Development exit for property developers and investors
• Funds are required for legal purposes
• Large or small refurbishment or renovation projects
• Buying a property that doesn’t qualify for a mortgage

Why Choose UK Property Finance?

UK Property Finance guarantees the best all-of-market service available. We offer:

• Fast turnaround times on loan applications
• We guarantee to beat any quote
• No obligation consultation
• We are a “whole of market” broker, so we can offer market-leading rates
• 5* Trust Pilot reviews
• We are FCA-regulated
• Open 7 days a week

The UK’s bridging finance sector held steady throughout Q2, achieving modest growth on Q1’s impressive overall performance. According to the latest Bridging Trends report from MT Finance, total bridging activity during the second quarter increased to £146.5 million from £144.5 million in the first quarter.

The report indicated that the vast majority of lending activity taking place during the quarter was made up of first-charge loans. MT Finance revealed that 90% of total market volume was made up by first-charge lending activity, an increase of more than 12% from the previous quarter.

The period’s impressive performance was credited in part to the number of landlords and investors looking to take advantage of the temporary stamp duty holiday. Investment property purchases remained the number-one application for bridging finance, accounting for almost 25% of all loans issued.

Chain break accounted for around 20% of all transactions, making it the second most popular bridging finance application during the period.

The report also indicated that the average bridging loan terms for Q2 were around 12 months, which is the same as the previous quarter.

The commercial director at MT Finance, Gareth Lewis, indicated no real surprise at the sector’s strong performance this year so far.

“As purchases would have been at the top of people’s minds due to the stamp duty saving, it’s no surprise to see that first charge lending has significantly increased its share of transactional volumes,” he said.

“It will be interesting to see if this percentage decreases in the coming months as consumers look to raise financing out of existing properties to fund further property acquisitions or businesses.”

Evidence of growing confidence in the UK property market

His sentiments were echoed by Chris Whitney, head of specialist lending at Enness, who commented on the generally positive outlook for the sector going forward.

“It looks like we have reached quite a stable platform over the last two quarters. Any previous pandemic worries seem to have been put to one side with the stamp duty holiday deadline, creating a frenzy of activity. The higher level of investment purchases shows confidence in the UK property market is strong,” he said.

“I am slightly surprised that lending volumes weren’t higher. The market certainly felt very busy as we struggled to get values out in a timely manner due to volumes, and many a solicitor had to burn the midnight oil to keep up with demand.”

Meanwhile, bridging and development finance specialist for Brightstar Financial, Stephen Watts, spoke of the significance of lenders and brokers streamlining application processes to reduce loan completion times.

“Some lenders are now offering automated valuation models up to 75 percent loan to value (LTV) in some circumstances, and with the ability for asset managers to benefit from modern technology and carry out virtual client meetings, more loan applications are benefiting from these time-saving factors,” he said.

Meanwhile, bridging and development finance specialist for Brightstar Financial, Stephen Watts, spoke of the significance of lenders and brokers streamlining application processes to reduce loan completion times.

“Some lenders are now offering automated valuation models up to 75 per cent loan to value (LTV) in some circumstances and with the ability for asset managers to benefit from modern technology and carry out virtual client meetings, more loan applications are benefitting from these time-saving factors,” he said.

Defying all projections, the UK’s property market has enjoyed a stellar year; average house prices have broken all records, monthly sale completions are at an all-time high and demand continues to outstrip supply in all regions of the UK.

Competition for desirable properties has become ferocious on an unprecedented level. Consequently, those who encounter delays or disruptions during the purchase process are often finding themselves being beaten to the punch by rival buyers.

With demand at an all-time high, lenders are finding themselves with inevitable backlogs and bottlenecks to deal with. Mortgage completion times have been on the up for much of the past year, making it difficult for would-be buyers to take advantage of time-critical opportunities.

One of the many reasons why bridging loans have become a popular choice for homeowners is because it is a flexible and cost-effective option for preventing their property purchases from falling through.

Bridging Loans for Faster Property Purchases

To put the benefits of bridging finance into context, consider this typical everyday example:

You have been scouring the market for a new home when you find your dream property at an unbeatable price. It is well within your budget, but you have not yet found a buyer for your current home. This is where bridging finance can help, it can be secured against your current home and repaid in full when you sell it.

Bridging loan completion times typically average just two weeks. The loan is secured against your current home, providing the fast-access funds you need to buy your new property, after which the loan is repaid in full a few months later using the proceeds raised from selling your former home.

With monthly interest rates starting from less than 0.5%, bridging loans can be far more affordable than any comparable loan or mortgage.

The same benefits also come into play in the event of a home sale that falls through at the last minute. It could be that you have a buyer lined up for your home and everything seems to be in place, only for them to pull out unexpectedly at the worst possible time.

Rather than such a scenario costing you your dream home, an affordable bridging loan could be used to buy your new property.

A Reliable Exit Strategy

As bridging finance is designed to be repaid as quickly as possible, it should only be considered with a reliable exit strategy in place. If you are 100% confident that your current home will be successfully sold within a few months, the facility could be surprisingly affordable.

Bridging finance is not a viable option for long-term borrowing; monthly interest rates of less than 0.5% are highly competitive in the short-term, but could prove costly if the loan remains unpaid for some time.

If interested in using a bridging loan to help you purchase your dream home, we can help. Contact a member of the team at UK Property Finance anytime for an obligation-free consultation.

Having successfully broken the £100 million barrier in June, the UK’s second-charge lending sector is back to its pre-pandemic norm. According to the latest figures published by Loans Warehouse, total second-charge lending activity hit just over £104 million last month, which is the highest rate since the COVID-19 crisis began.

The report from Loans Warehouse painted a predominantly positive picture for the second-charge sector, with the slight exception of an increase in completion times. Due to the applications involved in processing such high volumes of applications, the average second charge completion time in June was 17 days.

“The second charge lending market has now officially hit pre-pandemic levels of lending and surpassed the £100m barrier,” commented Loans Warehouse managing director Matt Tristram.

“With figures reported directly to the Loans Warehouse Secured Loan Index in June from multiple lenders, second-charge lending totalled £104.3 million in June 2021, a post-pandemic high.”

“Lending increased 16% month-on-month and highlighted an incredible 365% record-breaking year-on-year increase, but let’s remember, this was one of the pandemic lows for second charge lending. A more realistic comparison would be lending figures from June 2019, which were all but identical to those from June 2021, with £105 million reported by the FLA.”

“This is also a landmark month, with Optimum Credit posting lending figures of £37.9m, which is believed to be the most lent by a single lender since the Credit Crunch of 2006!”

Better access to equity for more borrowers

Mr Tristram went on to highlight the effect high-equity loans have had on the sector as borrowers continue to enjoy access to high LTC loans for all purposes.

“One of the biggest impacts on mortgage lending during the pandemic has been on the level of equity available to borrowers. Second charge lending continues to offer an alternative method of raising capital for many; as such, we will have highlighted the split of lending over 85% LTV,” he said.

“In the year to date, we have now recorded £493 million in second-charge lending, and monthly new lending figures continue to improve.”

A recent opinion survey, published by The Association of Short-Term Lenders, indicates a positive long-term outlook for the bridging market and the UK economy as a whole. Following the budget announcement in early March, more than 73% of bridging finance providers remain confident about the long-term health of the economy, in comparison with just 64% recorded last July.

The survey shows that 87% of bridging lenders are expecting a significant increase in their business turnover over the next 6 months, with a 77% expectation that the wider bridging sector will achieve healthy growth in turnover too. These figures have shown a great improvement from the previous survey, where 36% of respondents predicted the sector as a whole to shrink, with 41% of bridging providers anticipating a decline in their own business turnover.

On the subject of competition between bridging loan providers, survey participants were divided in their opinion, with 47% believing competition will remain the same over the next six-month period and 43% expecting an increase. A mere 10% thought competition would actually decrease.

Vic J. (CEO) said, “This latest sentiment survey of the members is an important one as it gives us an opportunity to take a step back and reflect on the year we have been through”. The significant increase in positivity compared to last summer reflects not only the general optimism about the rollout of the vaccination programme but also the way that bridging lenders have been able to evolve and adapt to the changing environment.

“The sector is in a strong position to continue to support the recovery with fast, flexible short-term lending to meet the diverse needs of a range of customers.”