What is a Bridging Loan?

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What is a Bridging Loan?

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  • Up to 85% Loan to Value
  • First time investors allowed
  • Investment valuations
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What is a Bridging Loan?

Date

  • July 3, 2024

Author

Seren Norton

What is a Bridging Loan?

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Bridging loans are a form of short term funding that is used on property or land transactions, where a long term funding solution such as a mortgage is not appropriate. Often we use bridging where the property is inhabitable, going to be held for a short timeframe, where the buyers plan to get a planning gain or carry out works to the property. Bridging loans are available to homeowners, property developers and business owners.

 

Types of Bridging Loans

We assist homeowners, business owners and investors with bridging loans. Below we explain all the types of variations you might come across as well as information on different ownership types and how this can impact your bridging loan options.

 

For Investment 

Bridging loans are the most common form of finance used for an investment transaction, especially due to the flexibility that comes with the products. Borrowers can find bridging loans useful for the following investment scenarios:

Local searches if required can take more than six weeks to obtain, therefore using a bridging lender that does not require searches can make way for a speedy application, often these types of lenders may accept an indemnity policy for these searches which can dramatically increase the speed of completion.

Investors using bridging may also look to acquire property with an intended planning gain, title split, or just general refurbishment to increase the value of the property for a sale or remortgage exit.

 

Business Owners

Business bridging loans to help fund the purchase of a new premises in isolation, or as part of a larger acquisition. With business bridging loans we can secure against assets owned in the business such as Residential, or Commercial property. Using bridging can be a quick solution for business owners acquiring a business and can also be useful for VAT costs, if they are due a rebait we can use a VAT bridging solution to fund the cost of the VAT and sometimes with a company that might apply for the refund on your behalf.

We assist the following sectors with bridging loans:

  • Hotels
  • Guest houses
  • B&B properties
  • Pubs
  • Restaurants
  • Construction companies
  • Agricultural businesses
  • Farms
  • Carehomes

For Homeowners

Home buyers and home movers might find bridging loans useful when they are looking to acquire a new home, in the following instances:

  • Vendors need a quick sale and borrower needs a quick bridging loan
  • Purchasing an inhabitable property
  • Purchasing land for preplanning
  • Chain delays
  • Affordability reasons
  • To repay any legal debt

Bridging loans for homeowners and first time residential buyers are regulated by the financial conduct authority. Mortgage Lane Limited is authorised and regulated by the Financial Conduct Authority for credit broking and mortgage advice (FCA 937192). Your property is at risk of repossession if you do not keep up repayment of any loans secured against it.

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BRIDGING LOANS ACROSS THE WHOLE OF THE UK

We broker across the whole of the UK and are able to provide bridging loans in the most remote of locations, whilst also being able to assist in areas that have been blacklisted by lenders. Some of the areas we cover are:

  • England and Wales
  • Scotland
  • Northern Ireland

Bridging Loan to Values (LTV)

Bridging loan lenders often lend against the Open Market Value of a property, or will also lend up-front towards the works. We are able to offer bridging products for a variety of loan to values:

  • 100% bridging loans
  • 90% bridging loans
  • 85% bridging loans
  • 75% bridging loans

All of the above will have different criteria we will need to hit in order to qualify, some of which might be subject to refurbishment or valuation.

FREQUENTLY ASKED QUESTIONS ABOUT BRIDGING LOANS  

What is the minimum loan size required for a bridging loan?

Most lenders have a minimum loan size of 50k, however, there are some instances where it can be lower, but be mindful of the set up costs that come with bridging, which might include, valuation fees and legal fees.

Will I need local searches to complete on a bridging loan?

Traditional property purchases often require local searches, which can take up to 18 weeks depending on the local council. However, specialist bridging lenders typically accept an indemnity policy instead, significantly speeding up the process.

An indemnity policy acts as insurance against potential issues normally identified in local searches, such as planning permission violations or local authority notices. For faster bridging loan transactions, seek lenders who use indemnity policies or bypass local searches entirely. This approach not only quickens the process but also ensures a smoother transaction.

Borrowers should consult their legal advisors to understand the implications of using an indemnity policy and ensure it meets their specific needs for the property purchase.

Can I lend money towards the works too?

Yes, we can also provide product options to provide funding for the purchase and works, this is known as a refurbishment loan.

Do I need a minimum income for a bridging Loan?

No. However, if your exit strategy involves remortgaging, the lender will need to ensure you have sufficient income to qualify for a remortgage.

Can first time buyers use bridging?

Although some lenders prefer experienced borrowers, most bridging lenders do not require any specific level of experience when arranging a bridging loan. Therefore it can be an incredibly useful tool for first time buyers, looking to acquire a renovation property or to get their way around mortgage criteria that goes against first time buyers.

Are bridging loans regulated?

Regulated bridging loans are for homeowners intending to reside in the property, while those for investors are unregulated. It’s important to note that bridging loans are not covered by the Financial Services Compensation Scheme unless the borrower plans to live in the property. Therefore, investors using bridging loans should ensure they are dealing with a reputable lender.

What is the minimum property value required for a bridging loan?

It will usually depend on the loan to value (LTV) you are looking to achieve, if you are taking bridging at 75%LTV, then you must consider a purchase close to £70,000 in order to achieve a minimum loan size of £50,000

How is interest repaid on a bridging loan?

There are typically two methods for repaying interest on a bridging loan:

Serviced Interest:

    • Borrowers pay interest monthly, similar to a mortgage but calculated monthly.
    • Ideal for those with a regular income who prefer to manage cash flow through ongoing payments.
    • Ensures the principal remains constant but requires consistent cash flow for monthly payments.

Deducted (Retained) Interest:

    • Interest for the entire loan term is calculated and deducted upfront from the loan amount.
    • Suitable for borrowers without regular income during the loan term, such as property developers.
    • No monthly payments are needed, but the borrower receives less initial cash.

Choosing between these options depends on the borrower’s financial situation and strategy, making it essential to understand which aligns best with their needs.

How do I get an bridging loan with bad credit?

A variety of bridging loan lenders accommodate applicants with adverse credit histories. Whether you have missed payments, CCJs, defaults, or even an IVA, we can help you find a suitable lender. Your options improve significantly if you have been discharged from bankruptcy for over three or six years.

Lenders may assess your remortgage options if you have adverse credit. However, if your exit strategy involves a sale, the underwriting process is simpler, as the lender relies on the valuer to confirm the property’s final value. For this type of exit, bridging lenders are generally more lenient regarding credit status and lend on a non-status basis.

What entities can take out a bridging Loan?

We arrange cost-effective Bridging loans for:

  • Individuals
  • Special Purchase Vehicles/Limited Companies
  • Limited Liability Partnerships (LLP)
  • Trading companies
  • Charities
  • On/Offshore Trusts

How long does a bridging loan take to complete?

To date, we’ve arranged a bridging loan in just 4 days. Speed in completing a bridging loan depends largely on the exit strategy:

Sale Exit

The valuer checks profitability and market demand, making this the quickest process, ideal for flipping projects.

Remortgage Exit

This involves more thorough checks on credit status, income, experience, and assets, typically completed within 1-2 weeks.

For a quick application, a clear exit strategy is essential. Additionally, legal requirements can affect timing. Choosing a lender that doesn’t require extensive legal searches and accepts an indemnity policy can significantly speed up the process, crucial when facing tight deadlines, such as a 28-day auction completion.

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