A bridging loan (also referred to as a bridge loan or bridging finance) is a form of short-term secured property lending that allows people to buy or refinance a property asset when a mortgage is not the best option eg a property that is uninhabitable or being bought under value.
Bridging loans are suitable for individuals and limited companies who have capital tied up in property or assets that aren’t immediately accessible – in which case a bridging loan will cover the cost of a property purchase until the borrower is able to sell the existing property to repay the loan.
Funds are available much more quickly than a mortgage; typically 3-4 weeks, and the bridging loan is often based on the value of the property, rather than the purchase price, which is useful when buying under value or from a receiver/auction house.
Also, the interest for the bridging finance can be rolled up throughout the term, which means there would be no monthly payments to worry about.
Bridging loans are secured against property via a first, second or equitable charge.
How long can a bridging loan be taken out for?
As a short-term loan, they are generally taken out for between 3-12 months, but can be for up to two years.
Are there monthly payments?
It depends. You have the option to either service the loan, or to have the interest “rolled up” and deducted from the gross loan, meaning there will be no monthly payments throughout the course of the loan.
What can a bridging loan be used for?
A bridging loan can be used for many different reasons such as:
Purchasing before planning permission
Buying at auction so you need finance fast
Development and refurbishment
When conventional credit is refused
When you need finance fast
You want no monthly payments
Borrowing against value and not the purchase price
When you need working capital to inject into your business
What is an unregulated bridging loan?
An unregulated bridging loan is where the borrower or a family member will NOT reside in the subject property.
What is an exit route?
As bridging loans are a form of short-term finance, each client would need to have a plan in place to pay off the loan. This is known as an ‘exit route’.
What other costs are involved?
For all loans, the borrower will usually have to pay for a valuation of the property, and the lender’s legal costs. Most lenders charge an arrangement fee of 2%, some lenders charge an administration fee, and for unusual deals, they may charge an exit fee at the time the loan is to be repaid.
What is the interest pricing?
We can arrange interest pricing from as low as 0.44% per month on a bridging loan.
What are First and Second charge loans?
A ‘first charge’ is the primary mortgage or loan secured against a property. This takes precedence over all other finance secured against it. However, If there is sufficient equity in the property, a ‘second charge loan could be secured against it.
How much can I borrow?
We can arrange loans from a minimum £200,000 to up to £25,000,000.
What is the max Loan To Value (LTV)?
The normal loan to value (LTV) is 70% of the open market value, but there are select lenders that will offer 75% or even 80% for residential property. Commercial property tend to be between 65%-70% LTV.
How long does it take?
The normal timeframe for a bridging loan application is 2 to 3 weeks, depending usually on the speed of the valuation and the preparedness of the legal teams on all sides. There are some private lenders who can offer a quicker funding option, even as quick as a few days.
Who is eligible and can apply?
Individuals, UK Ltd companies, Trusts, overseas nationals and companies can apply.
Do I need a clean credit file?
No. A bridge loan is available for all credit profiles.
How long can I get a bridging loan for?
The max loan tenor is typically 24 months.
What are the fees and costs when taking out a bridging loan?
The borrower will need to pay for the valuation, this varies from a few hundred pounds for a small residential property to several thousand pounds for a high value commercial property. You will have to pay for your own legal fee’s, as well as that of the lender. You will also have to pay the lender’s arrangement fee – usually 2% of the principal amount (taken from principal amount on drawdown). There is also in some cases, a Blackhill Private Finance broker fee, which is 1%.
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