The UK Bridging Loan Market Free Guide On How to Apply For Bridging Finance

YOUR simple guide to help YOU on your way to understanding bridging finance.

As you will no doubt know by now bridging loans are short term loans, usual between 1 and 12 months secured against residential or commercial property on a first or second charge basis. Commonly Bridging Loans are offered with no credit checks or requirement to prove affordability. This makes them a very attractive vehicle to secure short term funding.

Bridging loan are usually up to 70% of the open market value of the property. This percentage is commonly known as the Loan to Value or LTV. They can be secured against residential properties, investment properties, commercial properties or land.

Given sufficient equity in the property all interest and other fees can be rolled up and added to the loan. These are then settled at the end of the term of the loan. Interest rates for bridging loans reflect the risk and the LTV of the loan against the property. Obviously the greater the LTV the higher risk to the lender and hence the higher the the interest rate.

Bridging loans can be arranged banks, private finance companies or through specialist Bridging Loan Brokers. Banks are very conservative and tend to take longer to set up bridging loans. Boutique Finance Houses are quicker and lend on a non status basis.

There are a number of reasons to use bridging loan, the main reason is the speed with which they can be drawn down. All the reasons below are suitable for bridging finance, but the list is much broader.

• Property purchases at auction.
• Stop repossession
• Pay tax or VAT liabilities.
• Complete house purchase when current property remains unsold
• Purchasing property at below market value for a quick sale.
• Short term cash flow problems
• Divorce settlements.
• Any other legal purpose.

Costs of using bridging finance are:

• A RICS survey for the property will be required. The price will vary depending on the value of the property, the higher the value of the property the higher the valuation fee. Commercial valuations are more costly than a residential property valuation.

• The borrower will have to pay for their legal costs AND the lenders legal costs.

• Arrangement fees of between 1% and 2% of the loan amount. On some products there can be exit fees paid when the loan is redeemed.

• Some loans have a minimum term. This can be three months for some loans or one day for others.

Like any other method of funding your business a Bridging Loans has advantages and disadvantage. Speed being the largest advantage and cost being the largest disadvantage. By using a specialist Bridging Loan broker you can reduce a significant amount of these costs.

If you have any questions or would like some of the above points explaining further please contact us as your convenience.