Loan applications can often feel stressful and long-winded, so knowing what information you need, and what documentation is required can streamline the whole process!
Here we'll run through what is involved in applying for a bridging loan.
For help with your bridge finance application, or to source a competitive deal, give us a call on 0330 304 3040 or drop a message to the Revolution Brokers team on email@example.com.
How Complicated is a Bridging Loan Application?
Bridge loans are usually easier and faster to apply for than most other forms of loan since they are short-term and interest-only. Lenders won't be as interested in your income as in your exit strategy to repay the original balance.
The steps usually work like this:
- First, you contact an independent broker who will assess your borrowing needs, discuss your circumstances, and recommend the best lender to apply to.
- We work through your exit strategy, confirm whether your application is viable, and advise what documents you're going to need to get approved.
- The next stage is comparing the current deals available, and approaching the best lender for an agreement in principle - or go for a full application straight away if you have limited time.
- Lenders will go through the application and risk-assess it through their underwriter, and then make a conditional offer setting out what information they need, and conditions such as having the property valued above a particular amount.
- The application then passes over to solicitors for the legal paperwork to be completed.
- Once everything has been returned, and the conditions met, the funding is released, usually through your solicitor.
What Do I Need to Start a Bridging Loan Application?
There are a few key things you'll need to get started:
- Valuation - the lender will need to know what the property is worth. Most lenders will organise this themselves through their appointed surveyor.
- Proof of your ID, address, and exit strategy explaining how you will pay back the original loan - e.g. mortgaging the debt, in which case you will need an agreement in principle.
- Business plan and evidence of how much experience you have in this type of development, particularly if it is a commercial venture.
- Proof of your income, although not always required if you have a robust exit strategy.
What is the Best Way to Apply for a Bridging Loan?
Many lenders offer online applications. Still, it's always wise to consult an independent broker before going ahead, as there may be more cost-effective options available to you.
We recommend using a whole-of-market broker to recommend any financing product from any lender that we think is best suited to your bridging loan requirements.
What Time Scale Applies to a Bridging Loan Application?
One of the critical benefits of bridging loans is that they are so quick to organise. You can have funding in place within a few days, depending on the valuation.
Are there Regional Restrictions to UK Bridging Loans?
There can be, and if you're in, say, Scotland, there may be fewer lenders to choose from. Some areas also have regions where developments are strictly controlled, where it might be harder to come across bridge loans.
What are the Eligibility criteria for a Bridging Loan?
Lenders will always look at a few critical factors to decide whether they can offer to lend, these include:
- Exit strategy - how you will repay the debt.
- The purpose of the bridging loan.
- How much deposit you have available.
- Where you are based.
- Your credit history.
- How experienced you are in property developments.
How Important is the Exit Strategy in a Bridge Finance Application?
Your exit strategy is crucial and an essential aspect of a bridging loan application.
This type of borrowing is interest-only, so you need a secure way of repaying the original balance at the end of the term.
Most borrowers plan to remortgage or sell the property at a profit as their exit strategy. Therefore, things like valuation reports and an analysis of your type of project's property market will be required.
Remortgage exit strategies usually require an agreement in principle from a mortgage lender.
Some lenders also have policies about what sort of exit strategies they will accept. Non-standard strategies include using investments or an inheritance to repay the balance, and there can be more strict criteria if you plan to use this type of asset or income.
How Does my Planned Development Property Impact my Bridging Loan Application?
The lender will need to know details about what property you are financing with the bridge loan, to assess whether it is likely to be worth enough to repay the debt.
You might find that some lenders specialise in specific types of property, and some will only lend against commercial undertakings, such as developing a hotel, if there is a viable business plan.
Other difficult properties to get a bridge loan against include petrol stations and restaurants, since this type of project is perceived as a higher risk.
Can I Get a Bridging Loan on an Uninhabitable Property?
Potentially yes, and it's often an option where a property is purchased as an investment and needs substantial refurbishment before it would be suitable to live in.
Some lenders will not lend against this type of property, so it's vital to work with a broker who can recommend which bridging loan provider is comfortable with developments concerning uninhabited properties.
Can I Get a Bridging Loan with an Adverse Credit History?
Bad credit is always a stumbling block when you need to take out borrowing, but isn't as crucial for a bridging loan as for a mortgage.
If you have mild bad credit issues, but a robust exit strategy, you will probably be able to find a bridge loan without significant problems.
Revolution works with lenders who offer bridge loans against a variety of circumstances, including:
- Having no credit history, or a low credit score.
- Record of late payments or missed mortgage payments.
- Defaults or CCJs.
- IVAs or DMPs.
- Repossession or even bankruptcy.
A lot depends on when the issues occurred, what values were involved, and whether you have since repaid the debt.
How Much Property Development Experience do I Need to Get a Bridging Loan?
The more experience you have, the easier it is to be approved since experience mitigates the lender's risk.
Some lenders might require a specific amount of experience, whereas others are happy to lend to first time developers provided the exit strategy is viable.
What Deposit is Required for a Bridging Loan?
Generally, lenders will offer up to 70% or 75% of the investment value. There are additional costs of the interest to budget for, so you will usually need a deposit of around 30% to 35% to secure a bridging loan deal.
If the property is higher risk, you might have the Loan to Value capped at 60% or even 50%, in which case you will need a 40-50% deposit to proceed.
Are Bridging Loans Available for Rental Property Investments?
They certainly are, and it is common for a landlord to use bridging finance to purchase an investment property through a bridge to let loan.
Can I Get a Bridging Loan Through a Commercial Business?
You can take out a bridge loan as a limited company, and pay similar rates to a private borrower.
Most of the time, the deals are similar to a buy to let commercial mortgage, and the lender may ask for a personal guarantee from the directors before releasing the lending.
Expert Advice with UK Bridging Loans
The best way to find a competitive bridging loan is through an experienced, independent broker such as the Revolution team.
We search the entire market to find the most competitive rates and negotiate the deal tailored to your borrowing requirements.
Get in touch at 0330 304 3040, or email us at firstname.lastname@example.org to get started with a new application!