Bridging Finance
A bridging loan is a short-term loan used until an individual or company refinances to a longer-term loan or by selling the property to repay the loan.
What is a bridging loan?
A bridging loan is a short-term loan used until an individual or company refinances to a longer-term loan or by selling the property to repay the loan.
Bridging loans are typically between 1-18 months, with the loan repayable in full at the end of the term. Unlike other forms of borrowing the monthly interest is often rolled into the loan, meaning there are no repayments to make during the term of the loan however some lenders do allow you to service the loan on a monthly basis but this is based on affordability.
Are bridging loans expensive?
Bridging loans are undoubtedly a very useful option when looking to raise finance, but they are more expensive than longer-term finance and as such, it’s important to carefully consider your options before proceeding and specialist advice is always recommended.
The bridging market is very competitive, and this is leading to a reduction in interest rates. With rates starting from as little as 0.49% per month, bridging finance has never been cheaper.
The rate is dependent on the proposition and the Loan to Value.
Bridging loan process
The bridging loan lending process can be swift and efficient. A typical bridging loan application will play out as follows:
- Initial call: This is where our brokers find out exactly what you need. This will usually require you to provide details of the loan size you want and the asset you intend to use as security
- Indicative terms: Documentation will be sent to you providing a breakdown of our terms and conditions, along with a quote for the costs you will incur.
- Lender search: Our brokers scour the market place to find the lender that will accommodate your financial needs.
- Decision In Principle: Lenders provide a document to show they are happy to provide the loan size based on the information they have.
- Client confirmation: Upon receipt of the Decision In Principle, you send notification that you want to proceed with the loan application.
- Valuation: Our brokers instruct a professional surveyor to value your property, which is sent to the lender.
- Lender confirmation: The lender will send the surveyor’s report to their credit community team for confirmation that the loan is an appropriate size based your property’s value.
- Offer: The agreed loan amount will be sent to you.
- Solicitors instructed: Solicitors will send all documentation of offer to you to sign.
- Funds released: Once you have signed and returned the documentation, your funds will be released.
Who can apply?
Bridging finance can be offered against almost any type of property or land and can be used for a number of different reasons such as :
- Purchasing a property quickly – such as auction purchase
- Buying an unhabitable property
- Breaking a mortgage chain
- Funding property restoration or conversation works
- To bridge a shortfall of funding between buying and selling a property when a sale is delayed
- Repossession prevention
- Buying a property under market value.
Timescale
Bridging loans can be sourced and released within hours however typically applications take between 2-4 weeks to complete from start to finish.
Lender’s Arrangement Fee
This is a fee charged by the lender in providing the facility and is typically between 1 and 2%, in most instances, this can be added to the loan facility.
Bridge Loans vs. Traditional Loans
Bridge loans typically have a faster application, approval, and funding process than traditional loans. However, in exchange for convenience, these loans tend to have relatively short terms, high-interest rates, and large origination fees. Generally, borrowers accept these terms because they require fast, convenient access to funds. They are willing to pay high-interest rates because they know the loan is short-term and plan to pay it off with low-interest, long-term financing quickly. Additionally, most bridge loans do not have repayment penalties.
Commercial mortgage advice is offered as part of Commercial Finance Brokers UK Ltd.
Openwork accept no responsibility for this part of our business.