When you need fast financing, you also want to ensure that you are getting the best deal. Bridging loans are an excellent form of expedited lending that is essential for property developers, investors and homeowners who need to raise capital quickly.
Working with a broker is the fastest way to assess your bridging loan options, and have a deal on the table fast.
Give us a call today on 0330 304 3040, and we will work with you to get your finances in place with the best rates on the market!
Bridging loans - the basics
Bridging loans are short-term loans that bridge the time between when you need to have funds available, and when you can obtain more long-term financing. This is a popular lending option for purchasing property and tides the gap between needing to move fast on a purchase and being able to have a mortgage in place.
The amount of funding available varies significantly between lenders:
- Some bridge loans start at a minimum of £150k.
- Some bridge loans start from £30-50k and upwards.
- A few specialist lenders will loan from £10k and upwards.
Eligibility for bridging loans
Unlike other types of short-term debt, bridging loans are less focused on your income or salary, than they are on the value of the property.
The lending is secured against the asset you are buying, so your income is not a crucial factor - a high-value property and a stable exit strategy are the critical criteria.
Maximum bridging finance values
The value you can borrow depends on the property, your deposit, and how much security is available.
Most bridging loan providers don't have an upper limit on what they can lend, and some bridge finance for large commercial projects can be to the value of several million pounds.
Again, the exit strategy is key to securing your lending. If you can demonstrate a surety that you can repay the lending in full and on time, you will be able to obtain a higher value bridge loan at more competitive rates.
Interest rates on bridging loans
You can expect to pay a higher interest rate on a bridging loan than against long-term lending such as a mortgage. They are available for a limited amount of time and repaid on an interest-only basis with the capital paid back through your exit strategy - such as achieving a mortgage.
Given the short-term nature of bridge loans, the interest is usually charged by the month rather than per annum. Typical interest rates are around 0.4-2%.
This can make it tricky to compare to other lending, often expressed as an APR. As an example, a bridging loan charged at 1.5% interest per months works out as an 18% APR.
There are different ways that interest on bridging loans is charged:
- Monthly interest - you pay the interest due every month and repay the original loan amount at the end of the loan term.
- Rolled up interest (or deferred interest) - you don't make regular repayments, but repay the whole of the borrowing plus the interest incurred at the end of the loan term.
- Retained interest - you pay the interest at set intervals, with interest owed added to the amount you are borrowing.
Fees on bridging loans
As with any form of finance, there are fees payable when you compare bridging loans - and it is essential to understand what these are. Costs include things like:
- Administration fees
- Arrangement fees
- Exit charges
Fees can make a big difference to the cost of your loan - a lender might offer a lower interest rate, but with substantial charges that will make it more expensive than a slightly higher interest offer.
For example, if you borrow a £100k loan, paying 1% charges on both the arrangement fee and the exit charge will cost you £2,000 in addition to the interest payable.
If you need help understanding bridging loan fees, or how different lending rates directly compare to each other, give us a call, and we will be happy to help you understand which deals are the most cost-effective overall.
Deposit requirements for bridge lending
Most bridging loans will finance up to 75% of the value of the property - some will cap this at as low as 50-60%. You can also access 100% LTV financing, although this will usually require additional security and collateral.
Usually, a minimum deposit of 30-35% is needed to purchase a property through a bridging loan.
If you are looking for a bridging loan to help you invest in a property and have a lower deposit available - or don't have a deposit - give us a call, and we will be happy to help!
Revolution Brokers work with a vast network of UK lenders and can find exclusive deals to help your investment plans move forward.
Comparing bridging loan offers
Understanding how offers compare can be tricky - and with terms, rates and offers expressed in different terminology and on different bases it can be almost impossible to know which deal is the best.
Some lenders publish comparison tables, but these are approximations and do not always accurately present the best options. Quite often, they are written to highlight a particular product and will omit any details that make this offer seem more costly.
The only sure-fire way to know that you are achieving the best rates, and have full transparency over the costs, is to use a professional finance broker.
Brokers are independent, and so can provide a professional recommendation as to which products offer you the best value for money.
Low interest bridging loans
Interest can change fairly quickly, and different lenders might offer different rates of interest. The important thing is to be able to compare them directly - so if you are comparing an APR with a monthly interest rate, you need to know the direct comparison to understand which is cheaper.
Revolution Brokers work with the whole of the UK lending market, with unrestricted access to products and rates. We negotiate as an advocate on behalf of our clients, to achieve terms not available on the open market.
Eligibility for bridging loans
There are lots of different criteria lenders will assess before they can make an offer. These include:
1. Exit strategy - the more robust your plan to repay the borrowing, the easier it is to secure financing.
The exit strategy is more important than any other factor, and you need to be able to demonstrate how you will repay the loan at the time you apply.
This could be through a mortgage, a remortgage, an asset sale or another form of capital - and different lenders have different restrictions on what exit strategies they consider suitable.
2. Credit rating - your credit rating shows potential lenders how creditworthy you are, and form part of their risk assessment.
If you have an adverse credit history, you may find that some lenders are not willing to lend to you. Others may lend but at higher interest rates and fees.
Don't rule out bridging finance if you have experienced credit problems in the past; give us a call, and we will work through all the options available to you.
3. Funding purpose - your lender will always want to know what you plan to do with the loan. If your plans involve a development, they will need to know how experienced you are in this sector, and have access to your business plans.
If your plans are clear, well researched, and provide a stable profit margin, your lender is likely to be more assured that the project is safe to invest in, and that you will be able to repay your borrowings on time.
4. Security - the security is the collateral a lender takes against your property or another asset, to ensure that if any unforeseen circumstances occur, they will be able to reclaim their debt.
If your property is in a prime location and highly sellable, this will provide robust security that a lender can be confident making an offer against.
5. Sector experience - while you can access a bridging loan as a new developer, some lenders will only accept applications if you have a minimum number of years of experience within the property sector.
This applies to larger bridging loans and commercial projects when an experienced developer is a safer lending proposition.
6. Deposit value - the higher the deposit you have available, the lower the LTV you are borrowing at and the more competitive the rates you are likely to be offered.
Most bridging loan property purchases require at least a 30-35% deposit, but if you have a deposit available of 40% or more, you will achieve the best rates on the market.
Bridging loan interest rates for Ltd companies
By and large, the interest rates offered to companies are similar to any other type of borrower.
Lenders consider a commercial bridging loan application as the same type of financing as a company buy-to-let, and they might ask for personal guarantees from the company owners and Directors as an added layer of security.
Special Purpose Vehicles (SPVs) are a type of limited company incorporated solely to manage the ownership and trading associated with investment properties.
Applications from an SPV company are likely to be more widely accepted, and attract more favourable terms.
Bridging loan rates in London
In most aspects of finance, London tends to be the most expensive location in the UK. However, when it comes to bridging finance, the rates tend to be very similar to elsewhere, so you wouldn't expect to pay significantly more.
Some lenders do carry minimum values that they will consider, against both the loan amount and the property value, in which case lower value property acquisitions are unlikely to be accepted.
There are also specialist lenders working on high-value bridging loans that concentrate their work in the capital, where properties are of a sufficient value to meet their minimum thresholds.
Types of property financed with a bridging loan
Most bridging loans are taken out to finance the purchase of a property or land. They are also available for other types of property including commercial, semi-commercial and residential.
Different lenders focus on different sectors, so if you are looking for a bridging loan for a specific type of property, contact Revolution Brokers, and we will point you in the right direction to finding a lender who has experience in your property market.
The criteria lenders will look at vary in order of importance depending on the type of property, but will always include:
- The stability of your exit strategy.
- How good your credit rating is.
- The value and security of the property.
- Your experience as a developer or landlord.
- How much deposit you have available.
Interest rates on commercial property bridging loans
When purchasing a commercial property, you might expect to pay higher interest rates than for a residential property. As with any bridging finance application, your exit strategy is vital.
Some lenders exclude particular types of property, and some only lend against residential premises, so commercial bridging loans are a more niche area and one where we strongly recommend using an experienced broker to secure the best deals.
Commercial bridging loans tend to be capped at 50-60% LTV which means that you will need to have a good deposit and a robust business plan to secure a competitive lending offer.
Alternative finance options to bridging
There are other ways to secure funding if you need finances to assist with property investment. These include:
Ideal for buy to let investors needing a fast turnaround mortgage to expand their property portfolio. Buy to let mortgages can be in place in just a couple of weeks.
This mortgage option allows you to release equity from an existing property, and to use those funds as a deposit to take out a new mortgage on an investment property.
If you own a business, you can release capital from your assets - such as stock, machinery, property or debtors. This type of financing is often more cost-effective than bridging lending but will depend on your type of business and the value of your assets.
Revolution Brokers are an expert bridging loan finance provider, working with our network of lenders across the UK specialising in bespoke financing solutions to meet every need.
For help understanding the best lending solutions for you, and which bridging loans are the most cost-effective, get in touch at firstname.lastname@example.org.