What is a Bridging Loan?

 

What is a Bridging Loan?

A bridging loan is a way of lending in which you have access to short-term finance to pay for something while you wait for money that’s owed to you. These short-term loans are usually for 12 months or less, however, depending on the circumstances, some lenders might offer a longer time.

 

When should I use a bridging loan?

  • You require quick access to funds.
  • Traditional financing, such as mortgages, isn’t convenient to get.
  • A previous financial source has failed to materialize.
  • Unless renovations are made to the property, it will be ineligible for a mortgage.

 

What is the maximum bridging loan available?

This is entirely dependent on the lender, your financial situation, and the lender’s assessment of the property or development.

Bridging loans often begin at £25,000. A personal loan may be more appropriate below this amount. The amount you can borrow has no upper limit; it is totally up to the lender’s discretion.

What is the criteria to get a bridging loan?

Before applying for a loan, is important that you know exactly what you are going to do with the loan as is the first thing the lender will want to know. The lenders will also ask you to provide a form of security, this is usually one or more properties such as a house, flat, commercial property, that the loan can be secured against. It’s important that you also have defined an exit route – such as any plans to sell the property, refinance or you have secured money that’s due to be received.

Please note that each lender will have their specific list of requirements for bridging finance which a borrower must meet to get accepted for a loan, and the above is just the typical requirements. This is why is a good choice to go to a broker as they might offer you different criteria from different lenders.

FAQ

Can I get bridging finance if I have a bad credit rating?

Bridging finance is available with credit issues, the case as a whole needs to be presented correctly to the lender which is why seeking advice from an experienced broker is essential. 

What happens if I am unable to repay my bridging loan at the end of the term?

The loan will generally need to be repaid by a set date. Failure to do so can result in action being taken against you, further costs and fees being added to your loan and, as a last resort, repossession of the property. It is possible to extend the term but this can be expensive and often for a term shorter than the original loan. 

Will I have to pay anything upfront?

Alongside the interest rate, there are other bridging loan fees you may have to pay. These include:

  • Arrangement fee paid to the lender – typically 2% of the loan and added to the loan.
  • Administration fee – can be payable upfront.
  • Legal fees – part payable upfront to your conveyancing solicitor and the rest on completion.
  • Valuation fees – this can vary depending on the lender and how fast you need the funds.
  • Broker fees – payable on receipt of the mortgage offer – from £500 flat fee to a % of the loan.

Unlike a traditional mortgage there are 3 ways the interest on a bridging loan is charged: 

  • Monthly – Similar to an interest-only mortgage where you pay the interest payments each month and they are not added to the loan.
  • Rolled up – Interest payments are added to the loan and paid when the bridging loan is cleared.
  • Retained – You borrow the interest upfront for an agreed period and then when the loan is paid back, any unused interest is returned to you.