If you’re a landlord, a property developer or buying at auction Secure Finance Ltd can provide bridging finance to assist you.
Bridging loans work by providing upfront funding to complete on a project or some form of property purchase before any mainstream credit funding can be secured against the same.
The term ‘bridging’ is used, as effectively you are bridging the time frame between the two lines of credit.
As an example, if you were to purchase a property at an auction, then you may find yourself in a position where you need the availability of funding quickly in order to complete on your purchase. Mainstream traditional funding methods will nearly always take a lot longer to arrange. In this situation you could get a bridging loan for the short term, complete your purchase, while at the same time arranging more traditional mainstream funding. Once you secure your mainstream funding, you could then use this money to repay the bridging loan.
You could also use a bridging loan to purchase a property that needs development or is dilapidated. Depending on the condition of the property, a mainstream lender may not be willing to lend on it. Again, as above you could get a bridging loan to purchase the property in its current state, renovate it to a standard that is acceptable to a mainstream lender and then apply for mainstream funding in order to repay the bridging loan.
When looking at the above situations, the ‘exit strategy’ to repay the bridging loan is securing alternative mainstream funding. A bridging loan lender will not always require you to secure alternative funding to repay their loan, but they will require you to have a strong exit strategy. This could be the sale of the property you are purchasing or the sale of alternative assets.
Another point to note is that bridging loans are almost always taken on an ‘interest only’ basis and while you can make repayments on a monthly basis, the lenders are happy for you to make no repayments for the duration of the loan and roll the interest up and repay it all at the same time as settling the loan.
Bridging loans are a very specialist area of lending and as such the lenders and their products aren’t always visible to the less experienced eye. While it is possible to arrange a bridging loan directly with a provider, it may not be advisable to do so, due to the complex nature and the need for careful consideration of an exit strategy, especially if the strategy involves securing mainstream funding.
Bridging loan lenders usually prefer to work with experienced brokers who can assess the feasibility of a proposal to borrow, and repay the bridging loan.
At Secure Finance our advisers have access to some of the most well-known bridging lenders along with some of the smaller more specialist niche bridging loan lenders. This range of lender accessibility means that you can be sure that our advisers will place your case with some of the best bridging loan lenders that are suitable for your individual circumstance. Get in contact with one of our bridging loan experts today to find out more.
Bridging loans by their very nature are a niche type of lending and as such the rates are usually/almost higher than that of a high street bank or building society. The interest is usually charged on a monthly basis.
While bridging lenders will have published rates, this can change depending on the individual circumstance of a case. The rate is of course always agreed upfront before any agreements are signed.
While trying to obtain the best bridging loan rate, it is important to look at the overall package to assess the ‘true cost’ of the product. Bridging loans will nearly always have fees attached and it is important to take all this into account as well as the length of time you plan to keep the loan for, before deciding if it truly is the best bridging loan rate available to you.
Contact one of our advisers today to see how they can help and ensure that you are getting the best bridging loan rate for your individual circumstance.
In order to settle a bridging loan you will be required to repay the original funds plus any rolled up interest and fees to the bridging loan lender.
Prior to the lender agreeing and releasing the monies for the bridging loan, they would have required you to have a strong exit strategy to ensure the monies would be available to settle the bridging loan when required. This could have been agreed as selling the asset or property the bridging loan was secured on or by re-financing/ re-mortgaging the same asset to release the equity. Alternatively you may have agreed to sell an alternative asset or settle by way of other funds that were to become available in the short term.
Either way, once you are in a position to exercise your exit strategy, you will be expected to use the funds to settle your bridging loan. The term of your bridging loan is usually limited for a short period of time so any exit strategy would need to come to fruition within the timeframe for you to be able to fulfil your agreement to settle your bridging loan in a timely manner.
The assessment for a bridging loan is in essence not much different to that of securing a conventional mortgage. Lenders are going to want to know about you, the applicant along with details of the property or asset you are looking to secure the bridging loan on. Details will include but are not limited to:
- Your Credit Profile. A good credit profile with no adverse information will always put you in good stead to secure a good bridging loan rate.
- Proof of ID and Address. This will be the usual address proof and photo ID such as a passport or driving licence.
- A Valuation Report. This will give details of the property or asset you want to secure the bridging loan on. This will include its current value and the value at the end of any proposed development. If you are using extra assets over and above the property or asset you are purchasing then the lender may require you to pay for the extra valuation reports. Most lenders will have their own preferred panel of Surveyors that they will require you to use so it is unlikely you will need to get a report carried out before approaching a lender with proposal.
- Details of Your Exit Strategy. This could include written details of the Schedule of Works for the development work proposed or if you are arranging alternative finance then an Agreement in Principle from the onward lender. If you are using alternative means such as inheritance or investments then details of this will be required at the time of application along with proof that the monies will be available within a set time frame.
- Property Experience. Information about your experience in dealing with property will be required. Having no experience in property doesn’t mean you can’t get a bridging loan. It just means the lender will scrutinise the proposal in more detail.
- The Size of Your Deposit. As with any lending, the assessment to lend is based on the risk to the lender. A larger deposit will not just make you a better ‘risk’ but also help you secure a better interest rate.
- Evidence of Income. Some lenders may require proof that you have alternative income to help cushion any unexpected costs that arise. They may ask to see bank statements as evidence.
As bridging loans are very niche in their nature, every case is assessed on an individual basis. To get a clearer understanding of exactly what you may need to get a bridging loan, why not start by speaking to one of our in house advisers at Secure Finance.
Bridging to the value of 100% of the property or asset is available but is not as straight forward as it sounds.
While a lender will be happy to lend 100% (LTV) of the value of the property or the asset you are purchasing, they will require you to make available additional assets as security to offset the risk to the lender. This will naturally bring additional risk to you the borrower as if you are unable to settle the bridging loan within the agreed timeframe, then you could end up having several assets repossessed at the same time in order to repay your bridging loan.
Most bridging lenders will require you to have a deposit of 25-30% of the value of the property or asset you want to secure the bridging loan on. This will usually include the rolled up interest and therefore is categorised as the Gross Loan Amount.
If you do not have the required deposit amount then bridging loan lenders can usually take security over other property or assets you are willing to include.
A lot will also depend on your exit strategy. If it is deemed secure and strongly viable then you are likely to be able to secure a product which requires a smaller deposit. While in the same situation if your exit strategy is deemed as not so strong and secure then a lender may require a deposit of between 40-50%.
To find out an indicative idea of how much deposit you may need, speak to one of our in-house brokers who can help you get started.
If a family wants to buy a new home before the sale of their existing property has gone through, they might choose to use bridging finance to ‘bridge’ the short-term shortfall in their finances. Alternatively, bridging loans can be used to access a short-term loan, for what can be relatively large amounts of money, in a range of pressing circumstances.
Bridging loans are predominantly used by landlords and property developers, particularly those buying a commercial or residential property at auction. In this case, the property will need to be paid for in full within a short space of time. The bridging loan allows landlords and developers to complete the purchase while they put mortgage arrangements in place.
- Ltd company loans
- Employed, self-employed or retired
- NO age restrictions
Given the banks’ current reluctance to lend, some borrowers are also using bridging finance as an alternative to mainstream lending. Although a bridging loan can represent a viable alternative in certain circumstances, borrowers should be aware that interest rates can be high and substantial administration fees may be added on top. For this reason it’s essential you plan your exit strategy carefully, i.e. know exactly how you’re going to repay the loan.
What are the benefits of bridging loans?
These easy-to-access financial products are ideal for borrowers who need finance fast. When time is of the essence and your dream property is on the line, while your money is tied up in your old property, bridging loans may ensure you do not “miss the boat”, removing much of the stress and uncertainty from the tricky cycle of selling and buying.
Bridging loans are also very useful for non-residential buyers. As a way to source auction finance for those who make their living through property, bridging loans present a speedy way to pounce on promising properties when the time is ripe. For those seeking short-term business loans, bridging loans may also offer a way to move on to greener pastures and keep enterprises ticking over while loose ends are tied up at old premises.
What are the risks of using bridging loans?
There are a few risks to be aware of when choosing bridging finance. Like most short-term finance options, interest rates are often relatively high and admin fees are typically applied. It’s important that anyone using a bridging loan is aware of all of the charges and the level of interest they will be expected to pay, on top of their actual loan amount, before proceeding.
At Secure Finance Ltd, we have worked hard to earn authorisation from the FCA (Financial Conduct Authority), but not all lenders are as trustworthy. With a range of lenders offering bridging finance, including one-man bands and unregulated outfits, it’s essential you ensure any provider you borrow from is regulated by the FCA to protect your finances.
It’s also important to know exactly how you will repay your bridging loan. Missed payments on short-term financial products can quickly spiral into penalty fees and rising repayments. Having a concrete idea of precisely when and how you will be able to repay, and agreeing to realistic terms, will protect you from the potential risk of growing debt which, in very serious cases, can result in you losing your property.
Many borrowers now take on bridging loans to cover the cost of purchasing a property over the short term, with a view to later arranging a mortgage. Mortgages can take time to arrange and mainstream banks have been especially slow to lend in recent years. When you need to purchase property quickly, bridging loans can provide the funds to do so while the “nitty gritty” is ironed out with your future mortgage provider.
However, while the majority of borrowers are able to successfully purchase property with a bridging loan, then make the switch to a mortgage, there are risks involved in “banking” on mortgage approval. If you use bridging finance to purchase a property, intending to later mortgage it, there is a risk that your mortgage may not be approved. This will leave you with a substantial, high-interest, short-term bridging loan and you’ll probably be without the finance to repay it. For this reason, it is essential that you only use bridging finance for this purpose if you are 100% certain of receiving mortgage approval.
advisable to contact an FCA-regulated broker. At Secure Finance Ltd, we know which lenders to approach to find the most competitive deal given a particular set of circumstances. We will also be able to advise you as to whether alternative finance sources might represent a more affordable option.
Get in touch with our specialist team today to see if a bridging loan is right for you.