Bad credit bridging loans: The facts of borrowing

If you have ever received marketing literature or seen any product advertising relating to secured loans and other borrowing products with low interest rates, then you should always be fully aware that the rates advertised are not the rates that are typically available to everyone. In fact, only a small percentage of borrowers will qualify for these unrealistically attractive loan products, and these are people with exemplary credit scores. If you have always managed your finances flawlessly in the past, then you should have no trouble at all securing a great deal on a mainstream financing product. However, most borrowers do not fall into this bracket, which is precisely why bad credit bridging loans were introduced in the first place.

With a bad credit bridging loan, the cost of borrowing and your chances of being approved for finance are not affected in the same way as with most other loan types. Moreover, the lender is mainly interested in the security you can provide, which could be the equity in a homeowner’s property, a number of rental properties in a landlord’s portfolio, or multiple commercial buildings if you run your own business. As long as the lender knows that they will get their money back, regardless of whether you default or not, your chances of being approved for this type of credit are exceptionally high, and the interest rates are much more affordable than you might initially be led to believe.

What can bad credit bridging loans be used for?

A short-term, asset-secured borrowing product such as a bad-credit bridge loan can be used for a wide variety of reasons. Perhaps you are looking to raise the funds to purchase a new property while waiting for your current home to sell. You could be a business owner or experienced property developer who was hit by an unexpected cash flow crisis or a badly timed HMRC tax demand with very little time to pay. Whatever the reason for borrowing, bad credit bridging finance can be approved and paid out in less than a week, giving you plenty of time to make that last-minute property purchase at auction or settle that urgent tax bill before it’s too late.

Bad credit bridging loans are ideal when:

• You need to raise capital urgently, and you have the required security in a number of residential or commercial properties you own.
• Your borrowing history and credit score are not of a high enough standard to qualify for a loan sourced from a mainstream provider.
• You want to borrow from £25,000 to £25,000,000.

You only require the funds for a short time. Typically, from one to 12 months

Of course, there are other types of finance available for bad-credit borrowers, although most of these options take several weeks to put in place and the interest rates can be costly.

According to a recent study conducted by Bridging & Commercial, more than half of the lenders who took part were of the opinion that the number of regulated bridging lenders would be significantly higher in 2017 than in 2016.

Unlike high-street banks and various other loan providers, bridging specialists are not forced by law to operate under FCA regulations, although a recent poll seems to suggest that borrowers are more inclined to do business with companies that are regulated than those that are not.

Bob Sturges, who is head of communications and PR at Fort well Capital, claims that the regulated bridging sector is saturated—at least from the perspective of a non-regulated lender.

He says that the number of new lenders seeking authorization from the FCA has started to slow down significantly, a move that many have attributed to basic market forces rather than a result of the recent EU referendum.

However, according to another study published earlier this month, Bridging and Commercial uncovered that no bridging lenders at all had applied for authorization since the Brexit vote.

Will there be an increase in demand for regulated bridging products?

With future market conditions looking somewhat unstable, it looks like many high-street lenders will be tightening their belts in terms of approving new loans, and this could prove to be an open door for bridging loan providers.

If this happens, then we are likely to see a significant rise in the number of new lenders appearing in a sector that some say is already overcrowded.

One problem associated with a saturated bridging market is that increased competition is leading to increased LTVs with lower rates, and this is something that has inevitably led to increased risk from the viewpoint of those underwriting the finance.

A further increase in regulated lenders may only make the situation worse.

According to Benson Hersch, CEO of the Association of Short-Term Lenders, although the number of bridging lenders applying for authorization has come to a standstill since Brexit, there are still many who are seriously considering applying for FCA approval.

One of the advantages of being a regulated lender is that it enables the finance provider to offer bridging on primary residences and self-builds, which opens the doors to a much more diverse range of potential clients.

A main worry held by the FCA is that we might see more and more unregulated lenders offering bridging products that only regulated lenders should be providing.

If this becomes commonplace, then it is feasible to assume that the FCA could seek to have the entire industry regulated.