Bridging Loans

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Bridging Loans

Bridging Loans

Bridging Loan

Learn more about bridging loans by reading the below and to get advice about choosing the right bridging loan product for you, contact our team.

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Bridging Loans

Bridging Loans

Bridging loans are short-term loans. Borrowers use them to bridge a gap between purchasing a property and receiving funds from another sale. Suitable for property developers and residential purchasers alike, a bridging loan for property is useful when you need funds rapidly.

What Can Bridging Loans Be Used For?

Bridging loan can be used to purchase a property that is un-mortgageable or a borrower requires funds quicker than traditional lending. Like at a property auction. Furthermore, no income is required for the loan and no age limit.

Madison Carter Finance can offer you a high-quality bridging loan to meet your needs.

Bridging Loan For Property Development

Bridging loans for property development are some times search for as property bridging loans. This applies to residential and commercial properties. Bridging finance can provide funds for properties that aren’t mortgageable by standard borrowing.

How Much Can I Borrow?

Typically you can borrow up to 60-85% of the value of the property and up to 60% of the land value and 100% of ‘costs’ can be fully funded by the bridging loan.

For new build schemes, building out the ground, a development finance facility is likely to be more appropriate.

What Are The “Costs” Involved?

The costs involved will always vary between asset classes. 

You may need to finance a permitted development (Office to Residential) scheme. A bridging loan is the ideal solution in this scenario. 

Alternatively, you may be carrying out heavy or light refurbishments on a property. This may require you to pay off the first charge lender (say, Halifax). Again, a bridging loan is the perfect option. 

If you are buying a property to refurbish it, you can obtain 100% of the funding for your build costs.

How Does It Work?

Here is an example scenario to demonstrate how it works: 

You buy a property with a loan to value (LTV) of 70%. Your schedule of works comes to £300,000. You finalise the transaction then begin work using your own funds. An asset manager or QS will asset the site after the first month of work. They will confirm how much work is now complete. The amount of funds agreed at the start of the facility is then released. It’s even possible to get a refund on works carried out during the first month depending on your lender’s criteria.

Can I Use A Bridging Loan For Buying Land For Development?

Although a bridging loan is an option if you are buying land, you will find the LTV is restricted. The majority of property developers have an option agreement with the landowner. When planning permission is granted, the land benefits from a gain in value. Therefore, it’s possible to have better leverage on such sites. This makes a development finance facility a better option in this scenario. 

Why Is A Development Finance Facility A Better Option?

A development finance facility uses Gross Development Value (GDV) and not Loan To Value (LTV).

LTV is a metric that supports the value of an asset that has already been created. On the other hand, GDV relates to the development’s value after the asset is complete. For this reason, GDV is typically used for new build developments. 

To get a more accurate quote for your property development check out our bridging loan calculator.

Bridging Loans For Residential Property

If you are buying a residential property or are adding value to one through property development, bridging loans for residential property are ideal for you. This type of bridging finance is suitable for any type of residential project. It could be either a single dwelling or an HMO development scheme.

Residential bridging loans are also available for a wide range of properties including unmodified and unmortgageable units.

Bridging Loans For Commercial And Residential Real Estate

If you need short-term finance to fund a residential or commercial real estate project, a bridging loan is the ideal solution. Typically, we arrange funding for residential property with a commercial angle and this type of loan is suitable for both individuals and property developers.

However, this marketplace is an especially competitive one. Therefore, in this live market, bridging loan lenders change their appetite for deals on an ongoing basis. With this in mind, it is always worth getting in contact with our team to get the best possible product for your needs.

What Is Bridging Finance?

Bridging Finance is just another way of referring to Bridging Loans. Some people even call it short term finance. We discuss that further on that article as there are many types of short term finance which arn’t bridging loans.

Madison Carter Finance can supply you with high-quality Bridging Finance that will deliver the short-term funds you need. With the right Bridging Finance product, you will have cash rapidly at your disposal to enable you to take speedy action.

Bridging Rates

Bridging Rates vary depending on a number of factors. These include the:

  • Type of asset.
  • Loan to value.
  • Overall loan size.
  • Profile of the sponsor or borrower.

To find out more about the full costs of a bridging loan we have created a separate article to give you further information.

Property Bridging Loans In The UK

Property bridging loans are secured loans against a property. Typically, you have a loan to value of 65-85% and have a first charge and/or a second charge loan. If there is a second charge it will sit behind the first charge.

The property bridging loan market is a rapidly a moving one. Lenders compete on LTV (loan to value), Rates, and Speed. The product you eventually choose will depend on your personal circumstances. Get in touch  to get the help you need to find the best product to meet your requirements.

There are many types of bridging loans offered by a wide variety of lenders. One example many people are aware of is Silicon Valley Bank that offers business bridging loans to startups that are between rounds. However, we operate only within the real estate sector with property bridging loans.

If you need short-term funds to complete a project, bridging loans in the UK are a speedy and efficient solution with us. There are many lenders who can provide high-quality bridging loans in a short timeframe.

As bridging finance is a versatile form of borrowing, it is ideal for funding a range of UK-based projects.

Bridging Loans

Largest Bridging Loan Advised On

£30m

Fastest Transaction

3 working days from submission to the lender

Largest GDV Advised On

£75m

Frequently Asked Questions For A Bridging Loan

What Can You Use Bridging Loans For?

How To Use Bridging Loans

There are many ways in which you can use a bridging loan. Here are just a few common examples:

Bridging Loans For Residential Property

If you are buying a new property and selling your existing one simultaneously, problems can arise. Many things can go wrong during both processes. That can lead to stressful situations and, potentially, financial pressures. If you take out a bridging loan you can buy a new property while waiting for your existing one to sell. 

A bridging loan will turn you into a cash buyer. This makes your purchase offer more attractive to sellers. It also gives you longer to find a buyer for your current home. You have up to a year to sell, allowing you to hold out for the best possible price. As a cash buyer, you will also have no worries about a buyer dropping out of the sale.

Downsizing Bridging Loan

Downsizing with a bridging loan allows you to easily downsize from a large home to a smaller one. This option is popular with retirees who want a more manageable property as they get older. An additional benefit of using a downsizing bridging loan is that you can usually raise more funds. That is because you will usually secure the loan against a property more valuable than the one you are buying. Tou can then use the extra funds to cover refurbishments, the cost of moving, and your legal fees.

Bridging Loans To Fix Breaks In The Property Chain

If your buyer withdraws from their purchase, you could potentially lose your new property. In such cases, acting speedily is key. Bridging finance is an excellent way to obtain funds rapidly. 

Obtaining a regular mortgage is a lengthy process. With a bridging loan, though, you can obtain the funds you need far more quickly. That means you can continue with your purchase of your new home. Meanwhile, you are buying yourself more time to find a new buyer for your old property. 

Bridging Loans For Unmortgageable Properties 

Many property developers find themselves in a situation where they have an excellent development opportunity at their fingertips. Unfortunately, though, they find that obtaining a mortgage is impossible as the property is currently in poor condition. Properties that are uninhabitable or have structural problems are often unmortgageable. If you lack sufficient cash to purchase the property, you could miss out on its lucrative potential.

A bridging loan is the ideal solution. It will secure the property, giving you a year to develop it. Once it is up to a mortgageable standard, you can refinance it with a regular home loan. Alternatively, you can sell it on at a profit.

Bridging Loans For Property Auction Purchases

Purchasing a property at an auction must be completed within a 28-day timeframe. That does not give you sufficient time to obtain a regular mortgage. However, you can rapidly arrange Bridging Loans For Property Auction Purchases  to cover your purchase. You can then remortgage the property in order to repay the bridging loan. 

Bridging Loans For Property Developers

Property developers often take advantage of bridging loans to buy residential properties that they can then flip. A short-term bridging loan will secure the development property for you. You can then carry out the necessary works before letting it out or selling it for a profit. 

Bridging Loans For Commercial Projects

It is also possible to obtain bridging loans for commercial projects. If you will operate a business from a property, securing a mortgage is often impossible until the business is operating. Of course, the business cannot operate with the property. That leaves a catch 22 situation. A commercial bridging loan can help in this scenario. It can secure the commercial property so you can launch the business and begin generating an income. You will then be able to refinance. 

Are There Different Types of Bridging Loans?

The Types Of Bridging Loans

You can apply for two kinds of bridging loans.

An Open Bridging Loan

An open bridging loan does not have a fixed date for repayment. That means you can pay it off whenever funds are available. Nevertheless, the lender will usually require you to clear your debt within a year.

There are some lenders who offer a longer repayment term. However, this is not common.

A Closed Bridging Loan

A closed bridging loan will have a fixed date for repayment. This date is typically based on the date when the borrower knows the funds will be available. Often this date will be the day when the sale of a property goes through. Closed bridging loans are generally cheaper than open bridging loans. That is because they have less flexibility surrounding repayment.

No matter which kind of bridging loan you apply for, the lender will need to know your exit plan. That is, how you will repay your loan.

How Much Do Bridging Loans Cost?

How Much Do Bridging Loans Cost

Bridging loans are a short-term form of borrowing. Therefore, they are more expensive than many other kinds of loan. Usually, lenders usually a bridging rate of interest on the loan on a monthly basis. It’s important to realise this bridging rate will vary depending on the lender and your financial circumstances.

Not every lender will charge their interest on a monthly basis though. Sometimes lenders roll up or defer loan payments. That means that you do not pay any interest on the loan until your agreement comes to an end.

You must also bear in mind that there are set-up fees to pay. These include:

Arrangement Fees

Typically these are about 1%-2% of your entire loan amount.

Exit Fees

These apply if you pay off the loan early. Although not every lender charges exit fees, those that do will charge about 1% of your entire loan amount.

Repayment/Administration Fees

These cover the cost of producing the essential paperwork when the loan period comes to an end. Different lenders charge different amounts.

Valuation Fees

These cover the costs involved in sending out a surveyor to carry out a property valuation.

Legal Fees

Most companies charge a specified sum to cover all legal costs.

Some lenders also charge other fees. Therefore, you must not forget to bear these in mind when selecting the right bridging loan for you.

For a more in-depth analysis on Cost Of Bridging Loan click the link.

Bridging Loans And Bad Credit?

Bridging Loans And Bad Credit

You may have concerns, if you have a poor credit history, that you cannot obtain a bridging loan. But this is not necessarily the case. Some lenders will still lend you money, even if your credit is bad. However, you will a high-risk borrower. That means your loan interest will almost certainly be higher. We advise on a case by case basis.

Are There Alternatives To Bridging Loans?

The Alternatives To Bridging Loans

There are some alternatives to bridging loans, but you need to consider carefully whether they are right for you. Bridging loans are specifically a short-term form of lending. Other options are more long term. They include:

Remortgaging

One option is to remortgage your property in order to free some money up. This is a very long-term commitment though. Therefore, you will need to consider what will happen if your income fell or the interest rate changed.

Let-to-buy

This option involves switching the mortgage on your property to a new buy-to-let mortgage. You can the use the released equity to buy another property. Instead of selling the old property, you can then rent it to tenants. Again, there are risks to bear in mind with this option. You may find it difficult to secure tenants for the property. Also, if there is a change in the interest rate, you may find it hard to pay two mortgages.

Secured loans

A secured loan will enable you to borrow a larger amount than a personal loan. The interest rate may also be lower than on a bridging loan. However, if you fail to make your repayments your property is at risk of repossession.

Personal loans

Some lenders will offer a personal loan as high as £25,000 or potentially even £50,000. If the bridging loan you require is relatively small, this could be an option for you. Lenders charge interest on personal loans annually instead of monthly. That means repayments may be more affordable. As your property is not security for the loan, there is no risk of repossession either.

Invoice Financing

This is a facility that can be used to help a growing company with cashflow and use the invoice as security.

We look at short term sources of finance on another article.

Is A Bridging Loan Regulated?

Regulated And Unregulated Bridging Loans

You may need a regulated or unregulated bridging loan depending on how you will use the property you are buying.

Regulated Bridging Loans

You use regulated bridging loans to buy residential properties that you or members of your family will live in. A regulated bridging loan is regulated and authorised by the Financial Conduct Authority (FCA). Usually, they have a maximum term of 12 months.

Unregulated Bridging Loans

If you need bridging finance for a commercial property or residential property and you won’t live in it (or family-connected parties) a unregulated bridge loan is the solution. That is also the finance product you need to fund a property you will not live in. An unregulated bridging loan can have a term extended to as long as 36 months. It will generally also be more flexible. 

How Can I Find A Bridging Loan?

Madison Carter Finance Hear To Assist

How Can I Find A Bridging Loan?

If you need to apply for a bridging loan, you can rely on Madison Carter Finance to assist. We will work with you to help you choose the best product to suit your requirements.

First, you need to be clear about what you require from the loan. You need to know precisely how much you will need to borrow. You will also need to know the length of time you want to borrow the money for. A bridging loan can be costly. So, you need to be certain you will be able to pay it off in as short a timeframe as possible.

No matter which lender you apply to, they will need to understand your situation. You will, therefore, need to prepare your answers in advance. It is important to know the value of the property and how much you owe on any existing mortgage. You should also have details of your monthly expenditure and income along with information about your equity in your property.

There are many bridging loan products to choose from. So, you need to do your research thoroughly. Here at Madison Carter Finance, we can help you find the right option to meet your circumstances.

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