BRIDGING LOAN FAQS
Your bridging loan questions answered
What is a bridging loan?
A bridging loan is a short-term loan of 3 to 18 months. It allows you or your business to act quickly to make any kind of financial commitment before you sell a property or secure a longer-term loan or mortgage. Bridging loans are repayable in full at the end of the term, rather than in instalments like with a traditional loan. Learn more about bridging loans.
What can I use a bridging loan for?
Bridging loans are mainly used to buy or sell property, allowing you to buy a new home or premises before selling your old one. Landlords, homeowners and property developers often use bridging finance for buying a property at auction or funding renovations. Bridging loans can also be used by businesses as working capital, for buying machinery or equipment, and paying tax bills. Learn more.
What are the key benefits of a bridging loan?
You can get bridging finance much quicker than a mortgage – usually in under 14 days – so you can seize opportunities at auctions for refurbishments or buy-to-let investments. You can also buy uninhabitable properties that would be ineligible for other borrowing. If you buy properties under value, you can also borrow against the value of the property, not the purchase price.
Bridging loan interest rates are usually much lower than standard loans. And you’re not tied into making monthly repayments with bridging finance like you are with a traditional loan.
What is the difference between a regulated and unregulated bridging loan?
Regulated bridging loans are secured against a property which is, or will soon be occupied by the borrower or a member of their family. This type of bridging finance is regulated by the FCA. Unregulated bridging loans are used for a business investment or commercial property, but these lack FCA protection. Learn more about regulated and unregulated bridging loans.
What types of bridging loans are available?
You can choose from a closed bridging loan or an open bridging loan.
A closed bridging loan has no fixed repayment date, but you are usually expected to repay within a few months, usually upon the scheduled completion of a property sale or securing a mortgage. You’ll need to explain your repayment plans to your lender beforehand. Closed bridging loans often have better rates.
With an open bridging loan, you don’t have to detail your repayment plans to your lender. This type of bridging finance is used when you’ll be paying back the loan with a property sale, but you don’t yet have a buyer or a completion date. You also have a longer period to settle open bridging finance – usually 12 to 18 months.
Is there any interest or fees?
You can usually pay the interest on a monthly basis, when the repayment is due, or on a retained interest basis. In addition to the interest, there is usually an arrangement fee for setting up the loan, a repayment fee for administration and valuation fees. Some lenders will allow early repayment which can also incur an exit fee.
How much can I borrow on a bridging loan?
Depending on the value of the property you are securing the loan against, you can loan between £5000 and £250million. Should you secure a loan against several property assets then further funds can be borrowed. Your quote will be based on the loan to value (LTV) which often ranges between 65-80%.
How do I apply for a bridging loan?
Specialist lenders, banks and brokers can help you secure the right bridging loan in a matter of days. The process will vary from lender to lender, but often includes:
• The initial enquiry
• Indicative terms (often the same day)
• Decision in principle (DIP), subject to valuation, due diligence and terms and conditions
• Valuation and solicitors instructed
• Legal paperwork is issued
• Funds are issued
How long does approval for a bridging loan take?
Once we receive your enquiry and supporting paperwork, you should receive a decision in principle within 24 hours. Checks, valuations and the release of funds maybe 1-2 weeks.
How do I repay a bridging loan?
The loan is usually settled from the sale or refinance of the property inside the specified timeframe of your closed or open bridging loan.
What are first and second charge bridging loans?
When you take out a bridging loan, a ‘charge’ is placed on your property. A first and second charge loan refers to the two separate sources of debt. A bridging loan lender knows that they are a priority when it comes to repayment, so it’s easier to secure more funds. Your second charge loan, therefore, carries more risk and subsequently rates vary.
What is a regulated bridging loan?
In the UK, a bridging loan is regulated when it is secured against a property that is currently occupied, or will soon be occupied, by either the borrower or an immediate member of their family. These bridging loans can be either first or second charge and must abide to the same regulations that are applied to residential mortgages.
What is an unregulated bridging loan?
All bridging loans that are being undertaken to support a commercial acquisition of a property are not regulated.
What is a finish and exit bridging loan?
A finish and exit bridging loan provides funds to finish a development as part of the exit plan to pay off their existing development loan. Learn more about finish and exit loans.
What is development finance?
Development finance can be for both commercial or residential properties. The loan usually covers the construction and professional costs, purchase of a site, infrastructure services and the capitalisation of interest.
Which developments can be financed?
Development finance can be secured for many commercial property developments, such as new builds, refurbishments, conversions, restaurants, retail sites, hotels, pubs, bars and leisure facilities.
How much can I borrow on a development finance loan?
You can usually borrow from £25,000 to several million pounds. The loan amount depends on the development, the lender, the location, the forecast profits and the perceived risk.
- United Trust Bank appoints new Senior Manager for Property Development
- OakNorth Bank completes £26.3m loan to leading real estate fund manager
- Confidence against Covid – how lenders are living through lockdown 2.0
- Abu Dhabi Islamic Bank provides £18.9m Sharia compliant funding for UK commercial property
- Hospitalisations and hiring sprees – brokers take on lockdown 2.0
- Shawbrook Bank expands sales desk team
- Aspen Bridging launches 0.54% Christmas bridging loan offer
- HTB Specialist Mortgages introduces new low LTV band for large loans