Prepping for a Bridging Loan – What do you need to provide?
By Jemima Hayes -
When it comes to looking for a bridging loan, there are hundreds of pages and lender explanations on the process, what happens at each stage, and why their service will best suit your needs.
But there is very little about what the broker and borrower will need to prepare when enquiring about a potential bridging loan. Whilst underwriters take on the majority of the paperwork, there will be a few details you’ll be asked to provide.
The 4-part process (as followed by MFS)
When providing bespoke bridging loans, it is important that the whole process is made as simple as possible for the broker and borrower, especially as the circumstances may be complicated. MFS like to initially break down the loan into 4 key categories:
Borrower. Asset. Loan purpose. Exit strategy.
Whilst a bespoke style allows loan flexibility to cover complex circumstances, there is an obligation to lend responsibly. Just like you need to research lenders to find the right lender before applying, underwriters will need a greater understanding of you and your situation before issuing a loan.
Who doesn’t like to know who they’re doing business with, right?
Before a lender offers a loan, they like to know a little bit more about the borrower. This is standard practice from any responsible lender. To establish proof of identity, you will be requested to provide certain information at the start of the process. This will include:
Documents to prep
Photo of the borrower’s passport
- Lenders don’t always meet their borrowers in person, especially if they’ve come through a broker. And since the pandemic, MFS are taking active steps to help avoid the spread of Coronavirus. Therefore, a scanned photo of your passport will be requested via email, and all documents can be verified via Zoom.
Proof of address
- This can be a utility bill, a council tax statement or bank statement.
- Underwriters will ask for these to clarify and confirm your identity.
- They must all be clearly dated within the last 3 months.
- This is usually for the past 3 months, but on complex circumstances may require up to 6 months.
Being the key reason for the loan, documents about the property that is being purchased will be required. The type of property that it is and how it is currently being utilised, will determine the type of information needed:
General documents to prep:
1. Redemption statement
- This is a key piece of information that underwriters require a copy of, as it will determine the LTV percentage that your lender will be able to provide.
- It is particularly important if the borrower needs a 2nd charge loan.
Purchasing / New builds:
2. Purchase contract
- If a property is being purchased outright, (one of the most common uses for a bridging loan) then a copy of your purchase contract will be requested.
- This will provide evidence for the amount requested on the loan.
3. Assured Shorthold Tenancy (AST)
- This is the most common form of tenancy agreement used within the UK. This is only applicable if the borrower is a private landlord or a member of the housing association.
- A copy of the AST provides knowledge of the property and whether it’s your tenants’ main accommodation, as well as the length of the tenancy. As the asset will be taken as security, it is important for all involved to be aware of the situation, and all future scenarios.
- This will be required so that your MFS underwriter can understand how many years are left on the lease. If there are minimal number of years remaining, further details about if – or when – the lease will be extended will be required.
- It also provides additional knowledge of the existing rental income from the asset.
5. Valuation report
- Since the pandemic, it is sad to see lenders struggling, and unfortunately this has led to many having to pull out of existing deals, causing them to fall through. In cases such as these, valuation reports that contain the correct information for your new lender will be able to be readdressed and reused, saving you time and money*
- It will need to be dated within the last 3 months.
The Reason For The Loan
Additional paperwork may be necessary and will need to be provided from the borrower, depending on the reason for the loan. This can relate to:
- If the property is a new build, you will need to pass along the address, as a title will not be created until completion.
- Those looking to invest in property for business purposes will need to provide underwriters with evidence of the business purpose. This can be proof of income or accounts from the company.
- This will also be the same for those looking to use a refurbishment / conversion loan. By providing quotes of expected or agreed upon costs from builders, underwriters will be able to correctly assess the risk of your loan and provide the best rates and LTV levels available.
The Exit Strategy
This doesn’t need to be set in stone before the borrower begins their bridging loan journey. But they do need to have a clear idea that shows they’ve given thought about how the loan will be repaid.
This can be done in a variety of ways. The most popular exit being through means of a traditional loan. This tends to be the case as many use a bridging loan to cover quick purchases.
Most loans have common exit strategies including:
- Traditional long-term finance – e.g. Waiting for a mortgage to be completed
- Waiting for the sale to complete on a current property
- Refurbishing before selling an asset to maximise profit
- Renting out the property and then re-mortgaging
- Waiting for delayed funds – E.g. inheritance, business / investment funds
The way the borrower intends to repay the loan will determine what evidence you will need to provide our underwriters at a later stage in the process.
These can vary from: acceptance of a mortgage offer, to the accounts from a business (to provide evidence of annual growth), to the contact details of the solicitor that can confirm inheritance is due, and is currently going through probate.
MFS provides bespoke bridging finance, ensuring your experience is made to measure. Tailoring loans around specific requirements, whether it be one property or a portfolio, complex circumstances, or under a tight deadline. With over 14 years in the industry, The MFS team has a deep understanding about what borrowers require.
It’s as simple as 1,2,3…4!
* If all of the details that the lender needs are included in the report