FAQ for Bridging Finance


How much can I borrow?

The amount you can borrow is dependent on the value and type of security property being used. This question is very difficult to answer properly without reviewing the case fully however based on 1 property as security, in theory, the maximum loan size available on a regulated bridging loan (arranged on a property where you or an immediate member of your family live, have lived or intend to live in over 40% of the useable floor area) is 70% of the security properties valuation and on an unregulated bridging loan (an investment property where you or a member of your immediate family has never lived, does not live and does not intend to live in over 40% of the useable floor area) is 75/80% of the security properties value.

The above figures are based on the gross loan (including all fees and interest). The net loan (without any fees or interest) would be between 5 & 10% less than the figures stated above.

Additionally, it is possible to borrow a larger amount of say 100% or more of the properties valuation via using additional security. For instance, if you wanted to purchase a property for £500,000 and required the full £500,000 or more you could use other properties as additional security properties to make the deal more appealing and less risky for the lender i.e. if you had another property valued at £500,000 which was unencumbered (without a mortgage) or even if it had a small mortgage, the lender could secure across this property also to allow the full loan amount required.

Example:

New property value:£500,000
Loan required:£550,000
Additional security value:£600,000
Outstanding mortgage:£100,000
Total security values (£600,000 + £500,000):£1,100,000
Loans: £100,000 (outstanding mortgage) + £550,000 (loan required):£650,000

£650,000 is approximate 59% of the £1.1million value of the securities (£650,000 / £1,100,000 x 100) making the loan acceptable to the lender as the maximum loan allowable in this situation would be 70% LTV of the value of the securities, including all fees and added interest.

As interest payments are not required on a monthly basis, the loan increases in size throughout the term, until repaid. Depending on the scenario, by the end of the agreed term, fees and interest can add a further 5 – 10 % to the size of the original loan.

It may also be possible to use more than 2 properties as security to borrow the funds required and/or to qualify for better rates by reducing the LTV.

Lenders will determine the maximum LTV available by adding the net loan plus arrangement fees plus interest generated should the loan run for the full term arranged.

What happens if I do not pay the loan back by the end of the agreed term?

Bridging Loans are arranged for short term requirements and the lender would be expecting the loan to be repaid within the set timeframe.

Bridging Loans are always arranged with the 1st question being, how will the loan be repaid. Brokers and lenders will put a huge amount of emphasis on this point and if the exit does not sound feasible or make sense, then the lender will normally not allow the loan to proceed as the loan will have a good chance of a failure to repay.

Acceptable exit methods are more often than not, sale of property or refinance. If sale is the stated exit route, then a lender would expect agreement that the property to be sold would be either on the market prior to commencement of the loan or on the market within a specified timeframe, such as following completion of certain renovation works. If the exit route is listed as refinance, then lenders will do much due diligence beforehand to ensure that this is a possibility i.e. the lender will perform checks to ensure that the clients credit is likely to be good enough to achieve a refinance at the end of the term and that the income is sufficient to raise enough funds via a refinance to repay the bridging loan plus any accrued fees or charges etc.

Even with very careful underwriting, it is inevitable that some loans will overrun the term agreed as not everything in the housing market goes to plan. Lenders will normally contact the borrower approximately 3 months prior to the end of the agreed term to determine how the exit is coming along. If the lender believes that the exit is looking unlikely, then they will normally make recommendations, such as reducing the asking price of a sale, to help the borrower get the exit back on track.

The lenders clearly want the loan repaid as per the offer but will normally work with borrowers who have overrun provided they are keeping in regular contact and provided they are working together on action plan.

We would always suggest taking out a bridging loan for the longest term available as experience suggests that many plans overrun the expected timeframe.

How long will it take to obtain funds?

We suggest commencing the bridging loan process as early as possible to limit the potential problems arising from funds not being available. Our quoted guidelines however are:

Decision in Principle:within 1 – 2 days
Formal offer:within 1 – 2 weeks
Completion:within 2 – 4 weeks

How long can I have a bridging loan for?

The industry average term for a bridging loan is approximately 6/7 months. We can however arrange bridging loans from 1 day up to 12 months. In certain circumstances longer terms of 18 months or more can be agreed.

What rates can I expect to pay?

We can source the most competitive rates in the market and we have many special and unique offers that are not available to other companies. Rates can be dictated by LTV, security type, client profile etc. Following a short discussion, our staff are experienced enough to be able to immediately provide a written quotation, showing the applicable rates and costs for most scenarios.

Are there any early repayment charges?

Most bridging loans do not have early repayment charges although any penalty if applicable will be explained at the beginning and listed in the paperwork provided.

Can I still obtain bridging if I have credit issues?

Bridging finance is usually determined by the security in the property being offered and the exit route. Providing the chosen lender is happy with the answers on these two points, credit issues should not be a problem.

It is important to note that refinancing a client with credit issues from out of a bridging loan is extremely rare, so the exit route in this scenario would normally be sale.

Can I still get a second charge bridging loan if my 1st charge lender will not allow it?

Certain Bridging loan lenders can arrange a second charge bridging loan by securing their interest by way of an “equitable charge”. An equitable charge still fully secures the bridging loan lender but importantly does not require the authority or permission from the first charge lender prior to entry onto the land registry documentation.

Is bridging finance available if I do not have any income?

Although most lenders require some income proof, albeit small, a bridging loan is normally arranged with all fees and monthly interest payments added, so no monthly payments to make. This aspect normally removes the need to prove the loan is affordable by income.

What can a bridging loan be used for?

Bridging loans can be used for any number of reasons, although the originally intended use of these products is the financing property transactions.

How can UK Property Finance arrange bridging loans so quickly?

As leading UK bridging providers, we have worked tremendously hard over the years in order to streamline the online application process whilst fine-tuning our services for optimum efficiency. We also know exactly what our lenders require in order for an applicant to be successful, which speeds things up dramatically.

What type of security can I use when applying for bridging finance?

The bridging lenders we work with are very flexible when it comes to the type of security they are willing to accept from a borrower. Examples of property that can be used as collateral include primary residences, commercial buildings, mixed-use developments and building plots – regardless of the state or condition of the property or real estate in question.

Will previous defaults, CCJs and arrears affect the outcome of my application?

UK Property Finance are experts when it comes to finding workable solutions and appropriate borrowing products for those who have had credit problems in the past. Even if you are a recently discharged bankrupt, as long as you have the relevant security to offer – we can help!

Can I apply for a bridging loan as a partnership or limited company?

Yes! Provided you are able to prove your ability to pay and you have sufficient equity in the real estate you are using as collateral, we will find commercial bridging loan that fits in with your needs and circumstances.

My property is mortgaged. Can it still be used as security for a bridging loan?

As long as there is sufficient equity in the property, once you have deducted the outstanding mortgage balance from the market value, we will find you a suitable product. We arrange second and third charge bridging loans all the time for our clients.

Do I need to pay anything upfront?

The only item you will need to pay for upfront is a valuation report – assuming you don’t already have one. Other than valuation fees, there are no upfront costs that you will be expected to pay.

What fees and costs will I be expected to pay?

If you apply for a bridging loan through UK Property Finance, you will be charged an arrangement fee – but only if your application is successful and the finance facility is in place. If you do not receive the funds you require then the arrangement fee will, of course, be waived. You will also need to pay for a valuation report on the property, or properties, you are using as collateral to secure the loan. Any arrangement fees and legal costs are typically added to the overall borrowing facility and repaid at the end of the term, along with any accrued interest.

Can I apply for additional finance once my original bridging loan is in place?

As long as your account is in good standing order and you have sufficient equity left over to secure any additional funds you need, then yes, the possibility of borrowing more exists.

Is it possible to make capital reductions on my net bridging loan balance?

Yes, this is possible and perfectly acceptable. As well as reducing the outstanding loan balance, this will also reduce your monthly interest charges.

Is my personal information kept private?

At UK Property Finance, we take client confidentiality very seriously indeed. We will never pass on your details or disclose your personal information to a third party for marketing reasons.

What is a closed bridging loan?

A closed bridging loan is a short-term borrowing product that includes a feasible exit strategy as part of the borrower’s application. If you can show the lender that you can repay the debt once a certain transaction has been completed by a specified date, then a closed bridging loan is always the most sensible option. Closed bridging loans are the most common type of bridge finance available and have the highest rates of approval.

What is an open bridging loan?

An open bridging loan differs from a closed bridging product in that the borrower is not required to show the lender that they have a clearly defined exit route in place that will be used to settle the debt, plus any outstanding fees, by an agreed date. Open bridging loans are somewhat trickier to arrange owing to the unpredictable nature of the repayment strategy that will be used. However, provided you have sufficient security, your chances of being approved for this type of finance are still quite high.

What is mezzanine funding?

Mezzanine finance, or mezzanine funding, is a specialist borrowing product aimed at property developers who are looking for additional funds in order to complete a given project. With mezzanine funding, the bulk of the finance raised will be provided by a main lender with any shortfalls covered by the developer himself and the mezzanine finance provider. Mezzanine finance is typically lent on a second charge basis, with the main lender taking first charge over the assets.

Is there a difference between bridging loans and development finance?

To understand the differences between bridging finance and development finance, we should first look at the common attributes that both types of funding share. Bridging loans and development finance are quite similar in some respects in that they are both short-term, asset secured borrowing products that are intended to the bridge between two or more property transactions. However, with development finance, the money lent by the provider is usually released incrementally throughout the duration of a project – typically as the various stages of completion are met. As the project progresses, it increases in value and the added security that this provides is used collateral to secure the additional funds required to get to the next stage of development.

Last Updated: Feb 8, 2017 @ 5:51 pm
NACFB

UK Property Finance is Authorised by The Financial Conduct Authority (FCA)

Association of Bridging Professionals
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