This post will look at what a bridging loan is and what they can be used for. We will also take a look at costs, criteria and how to get one.
What is a Bridging Loan?
A bridging loan is a in essence a short term loan, typically for no more than 12 months. They are usually used for one of the following reasons:
To purchase and renovate a property – This may be because the property is in a poor state and it is not possible to get a conventional mortgage on the property.
To convert a property – A prime example here is where you may want to purchase a commercial building, maybe offices, a shop or a pub and convert it to houses or flats. You would not be able to raise a commercial mortgage as the intention is to change its use. As the use would not have yet changed it would also not be possible to raise a residential or Buy to let mortgage against the property.
Bridge the gap between the purchase of a new property and selling your current property. They can also be used to help break a chain when you are trying to sell but one person in the chain is holding everything up.
If you want to purchase a property quickly, a bridging loan can come in very handy.
Costs of a Bridging loan
This is the major downside of a Bridging loan. They are quick and relatively easy to get, but that comes at a cost.
As a general rule of thumb, you can usually obtain around 70% of the valuation. Interest rates vary but you are probably look at around 0.7% per month up to around 1.5% per month (annually that works out at around 8.4% up to around 18%). There will also be fees in one form or another which equate to around 1-2% of the loan.
The wide difference is based on a number of factors including:
- The LTV,
- Your experience,
- The property,
- Your income,
- The exit strategy.
Criteria for a bridging loan
As I mentioned above, getting a bridging loan is quite a bit easier than other types of mortgages. The property can be in a poor state of repair, you may have bad credit, your income may be all over the place. Bridging lenders generally base their lending on the value of the asset. The lenders know that they will always get their money back by selling the asset.
As heartless as this may sound, it does make obtaining a bridging loan that bit easier.
How can Mortgage Success help?
We work with various bridging companies, some we work with directly and others we can refer you over to them. This works well as it ensures we are filtering out the providers who will not or can not help and that they have everything they need to decide if we can proceed.
In short we help to filter out the lenders who are unable to help. We can also ensure everything moves forward quickly and efficiently.
With over 10 years experience as a broker we have plenty of experience in this field. We have many landlords and developers that we have helped over the years.
In addition in the past we have also renovated a couple of properties ourselves so we have first hand experience of not only dealing with the lenders but also the fun and games that can arise during renovation and development works.
It is also important to note that most bridging loans are for commercial use. This may mean it is not regulated in the same way as a residential mortgage. We can discuss this in more detail if needed.