Bridging Loans Frequently Asked Questions
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Bridging Loans
What is a bridging loan?
A bridging loan is a short-term financial loan. It’s normally between one month and two years and is used for various benefits such as ‘Auction Purchases’ or ‘Onward Purchases’.
What is an unregulated/regulated bridging loan?
With a Bridging Loan, you can get two types, unregulated and regulated. A regulated bridging loan is secured against the property that the borrower currently occupies or intends to occupy.
An unregulated bridging loan is used for investment properties where a borrower wishes to purchase a property to renovate and then sell or rent out.
Who’s a bridging loan for?
Bridging loans are typically used by property investors, developers and some business owners who have a large amount of equity. It’s a very flexible product which can be arranged within a few weeks to fit in with tight deadlines.
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What can bridging loans be used for?
Bridging loans can be used for a variety of purchases. Auctions are usually the main reason these loans are used as the sale is normally completed within 28 days and a traditional mortgage does not allow you to do this.
Another option is where you are developing or refurbishing a property and using a Bridging Loan can be used for a short term project. When Bridging Loans are used in this manner the house is typically sold afterwards so the loan can be paid back in full.
You can also get a regulated Bridging Loan if you’re selling your current house, found a new one but not sold yours. The loan can be used for the onwards purchase and paid back once your house has sold as the loan will be against your new house purchase.
How does it work?
You have a fixed rate per month which is set over a period of time. You also have interest on top of that like any other loan, however, the initial fees and interest are combined, retained and deducted from the gross loan so you receive a net loan.
If you don’t use the full period of the loan, the lender will write off the months that are not used and there are normally no early repayment charges.
How do you apply for a bridging loan?
You can apply in a very similar way to other loans. As a broker we have access to every single bridging lender available and providing you fit the criteria then we can get the ball rolling straight away.
How long does it take to arrange?
The average is normally 4 weeks, but it can take up to 6 weeks in some instances. However, if both legal teams are on the ball, particularly If there’s a set timescale, then there’s no reason why the Bridging Loan can be available in a couple of weeks.
Fortunately, with a Bridging Loan, it isn’t an elongated process due to what the nature of the loan will be used for, however, we will check with the lender to ensure they can fulfil the timescale required.
Some are first charge and some are second? What does this mean?
A ‘First Charge’ is when a property needs to be repossessed and needs to be sold off by the lender. The interest rates from a first charge lender are more preferable.
A second charge is where the leftover money from the sale goes to the second charger lender, however, if the money that has been paid to the first charge lender has been used, then the second charge lender will lose out.
Speak To An Expert
We help customers navigate the options available to them through clear information and guidance, this in turn enables them to understand their choices and make informed decisions.
What is the exit strategy?
This is an important part of the Bridging Loan and is always a conversation we have right at the beginning of the process. The exit strategy could be anything from you selling the property at a higher price or you could be looking at adding significant value, refinancing the property and then paying off the bridging loan.
What if I have bad credit?
As a Bridging Loan is an unregulated product, it’s more about the asset rather than the individual. As long as the assets are secure then that’s all the lender may need. So if the individual does have bad credit, it’s not necessarily an issue and providing they have an exit strategy in place then they should be fine.
What are the alternatives?
A bridging loan is a very unique product in that there are no comparable alternatives out there as it can help different types of people in different scenarios. There’s a lot of flexibility with favourable rates on offer and being as it’s a quick loan to arrange, it’s increasingly becoming popular.
What costs are involved?
Even though is a fairly quick product to arrange, it’s not the cheapest as it’s a short-term loan. General fees can range from a broker fee, solicitor fee and your interest and arrangement fees, these are usually 1% or 2%, but there is no exit fee. The fees such as interest and arrangement are deducted from the overall loan so the client doesn’t physically pay these upfronts.
Do you have anything else to add?
In the market itself, there are roughly 150 Bridging Loan lenders out there, so it’s worth speaking to a broker about the products on offer, particularly if you’re looking at something very niche.
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