Property Bridging Loans
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Minimum annual Interest rate
(typical rate 1% pcm)
LTV overall against GDV
3 - 24 Months
24 months Max term available
Bridging Lender loans are often used in the housing ,market to either ‘bridge’ the gap between buying and selling a house, or equally as common to enable some property development for example extensions to be built, whereby the client can then refinance onto standard mortgage deals once the works completed .
Property bridge loans here’s some of the main questions often asked ;
- how to qualify for bridging finance
- do i have to prove income for a bridging loan?
- How much bridging finance could i borrow?
- what interest rates would i be charged ?
- where can i access a bridge finance calculator ?
- can i get bridge loan with bad credit ?
- can i get bridging finance if previous bankrupt?
- what is a bridging loan?
- example of bridging finance
- finance for property developers
- property developers loans
- builders loan
- self certify bridging loan
- What is the difference between an open bridging loan and a closed bridging loan ?
what is a bridging loan?
what is a bridge loan? – well its essentially a commercial mortgage – as in its a mortgage that is secured on property or assets eg land. Bridging is mostly unregulated bridging loans, but if you intend to live in the property yourself then it becomes a regulated bridging loan. Not all credit lenders have the licences to offer regulated bridging loans, most prefer to just stick with true commercial mortgages ie unregulated bridging loans.
This is a secured finance ie a mortgage ie they secure the finance against the security property. ( it can be more than 1 security property ) If its your existing property then it would become a regulated second charge bridging loan.
The bridge lender / the mortgage lender will of course charge legal fees and valuation fee that are normally required upfront, so that the mortgage lender can understand from an independent valuer exactly how much the land or property is worth and what the gross development value will be at the end.
You dont have to take mortgage advice in the unregulated world, but getting some mortgage advice on what finance and lenders are best could save you thousands in interest fee’s and charges.
If you are renovating a property then cashflow is also important if you intend to draw the bridge finance down in installments. This can drastically reduce the interest payments and again where an advisor can guide you through how to structure the loan.
Bridging loans are commercial finance – and commercial lenders will charge commercial interest rates. Although the banks are traditional lenders there are many private investors and bridging specialist lenders willing to lend.
These types of finance are often called fast bridging – as they can typically be completed and the borrower have the property purchased within 7 days – of all the paperwork and fee’s such as the legal fee and valuation fee being paid upfront to help speed the process through and get the fast bridge construction loan.
Regulated Bridging Loan
If you are renovating or extending your own security property ie your own residential property, then you will need to use a regulated bridging finance.-
If you are building for a profit then it unregulated finance and as such its a commercial loan or equity loan.
more on the difference between them later.
How to qualify for bridging finance
how to qualify for bridging finance? – well thats fairly easy. The main item is the property value – as it stands. So how much is the house or plot of land you are looking at worth now ( before any work has been done ).
You also need to be clear if its an open bridging loan or a closed bridging loan, more on that later, but its an important question. Equally you need to be clear about the loan term – ie how long do you expect the project to take and the interest payments to run up for?
Most Bridging lenders work on 90 day OMV ( Open Market Value ) it all gets confusing but the easiest way is to think of 55% loan to value of the proposed property – so if your proposed purchase is a house worth £200,000, then you can expect to get around £110,000 of bridging finance towards it.
But what if you need more ? – well thats where your current property comes in. for example lets say you are wanting to move house and your own property is worth £300,000 with a £90,000 mortgage on it.
Is the loan amount for a property purchase ? – You want to buy the next property and do it up before selling. Well we know that the new property is worth £200,000 currently so we an get at least £110,000 on that. But you can also secure some monies against your current house as well, so lets say we secured an extra £120,000 against your current home, taking the finance on that to £120 + £90 = £210,000.
That would now give you £110,000 from one part and £120,000 from the other giving you a total of £230,000 enough to buy it and start any renovations you needed to get on with. Use our calculator to help you determine the monthly interest or see our page on the top 10 bridging loan rates.
In some cases you can arrange similar finance via a second charge loan, either with a commercial mortgage lender or even a second charge bridge loan.
Do i have to prove income for a bridging loan?
Do I have to prove income for a commercial bridging loan – your bridging loan questions answered – in short NO you don’t need to prove income.
In the majority of cases the lending company or private investor, will roll up any interest and charges into the overall loan amount they issue. thus there are no repayments to be made during the bridge period and thus no need to check affordability. Typically these are used by property investors to buy and renovate properties for them then to rent or sell on at a profit.
If however you are doing regulated bridging ie a property you intend to live in then it gets more complicated, as some investors will want to see a level of affordability whereas others will look for proof of an exit route ie a mortgage offer from the onward lender.
As its an unregulated loan in most cases, proving affordability isn’t normally required, What the commercial mortgage lenders do want to see is how their unregulated bridging loan is going to be repaid.
can i get bridging loan with bad credit ?
Can i get it with bad credit ? – your questions answered – in short ‘it depends’.
If you are a current undischarged bankrupt or in a current IVA , then no lender is allowed to lend to you, and equally under the terms of the court order – you arent allowed to apply for any credit unless the court approves it.
If you recently defaulted on a mortgage or other secured loan, then of course lenders are going to be very risk averse, and will probably decline to lend.
If however its just poor credit score, or a previous bankruptcy or IVA thats been cleared or even small ccjs not related tow hat you re looking to do with the bridging finance then lender may well lend.
The best course of action is declare everything upfront, so the company lending the finance can make an informed decision at the outset.
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self certify bridging loan
As most of this finance is commercial finance either in an unregulated loan or ina few cases regulated loan basis, then repayment of the property finance is mainly down to the exit route.
What is your intention are you a house builder looking to build and sell, or a property investor looking to renovate and then sell or perhaps keep and rent out ?
All of these different options impact on which mortgage lender will lend and wether any income needs to be proven or if in effect you can just self certify it by saying the property will sell for £xxxk in 6 months time and funds will be repaid to the commercial mortgage lender at that time.
Bridging lender funding
From enquiry to completion, we’re here to help you through the borrowing process. Over the years, we’ve refined and perfected our application process to provide you with a seamless and intuitive experience. ONE simple enquiry and we will check your project and offer you a lender that WILL offer to fund 100% of the build costs.
We take a very hands-on approach to our residential development finance. We like to meet clients face-to-face, and to visit the development site to see its potential for ourselves. We study the plans, and research the local market.
100 Percent Property Development Finance loans are short-term funding loans, used to develop either an existing building, i.e. refurbishment, conversion, or a new build. The property Development Loans are usually taken over a period of between 6-18 months. This really depends on the type of Development; with a light refurbishment it could be as little as 3 months, and with a larger scheme up to 18 months
New Builder ? Impaired credit ? Discharged Bankrupt?
New Builder ? or previous Impaired credit history ? perhaps even a bankruptcy in the past ? don’t worry we know the building trade isn’t always smooth sailing. We can arrange funding for all residential and commercial development projects even if you are a first time developer. Regardless of your experience level, credit history or development project, we can help.
If you have current or recent ccjs we can still look at getting you development finance. We can even get development finance for discharged bankrupts, just make sure you tell us all the bad credit information so we can source the development finance lender that will accept your credit history.
Discharged bankrupt – you can get development finance, we just have to declare everything upfront, and lets be honest you wont get 0.64% rates at the start, your rate swill be 1% + pcm for the first few projects until you prove your track record.
First Time Developers With Little or No Experience
For Property Developers with little or no previous experience, we can still provide finance to get you up and running whilst most high street lenders will not entertain developers with no experience we have many other lenders who will look at the bigger picture, furthermore we are experts in dealing and packaging your loan application to give you the very best chance of getting finance for your first project, we work with all types of developer and have had many years of experience providing Development finance
Experienced Property Developer, Development Loans.
So what is an experienced Developer? Generally, you will have completed at least 4 to 5 projects and sold on for a profit. A builder or building contractor would not be considered a Property Developer, neither would someone who developed and kept the finished properties in a portfolio. The key is the selling. Also, there are many skill sets that a Developer has that a Builder would not possess. As always, experience and dealing with the many pitfalls that come with Property development, selling on, keeping a tight control over costs and not overdeveloping (something some builders do proudly). It is great having the best spec and design but will it add profit?
100% Closed bridging loans for builders
Closed Bridging loans for development – used to build a new building or convert an existing building. This can be residential houses, shops, offices or industrial buildings. It can be for investment purposes or owner occupied. You can be an experienced developer / builder or a first-time developer: A builder by profession who has purchased land and wants a loan to build houses that he will build and sell on. The developer may or may not have built from scratch before.
The maximum you can borrow to purchase the site is anywhere between 50-60% of the purchase price depending on the project. The site would need to have full planning in place or can be agreed subject to planning.
Key Features of typical Development mortgages
- Loans from £100,000 upwards
- No tie-ins. In most instances you can repay the loan without incurring any early repayment charges
- No experience is required provided a building contractors contract has been provided
- Funds are available in stage payments and interest charged only on the money drawn
- Can use other properties as collateral
- You are not liable to borrow the full agreed amount should your build go below budget/plan
- With property development finance the valuations tend to be higher than standard valuations and take longer to perform.
One can also borrow up to a 100% of the build cost provided that it is within 60% – 70% of Gross Development value (GDV) depending on the lender and experience (set on a case by case basis). Maximum term you can borrow for development finance is between 12- 36 months. Exit is usually sale of properties or refinancing. And the interest rate you will pay will be determined by the overall risk / gearing against the site and if the monthly interest is being paid or rolled up.
The Skys the limit !
Advantages of 100% bridging loans
The biggest benefit of development finance is the way in which it allows borrowers to access much larger sums of money. In fact, it is the most extensive borrowing facility currently available on the UK market. Initially, funds are provided to get the project underway. As the project continues, grows and edges closer to reaching its goals, more money is released for the developer along the way. The total sum of money lent can be up to 100% of the total cost of construction, with no specific upper-limits as to how much can be borrowed.
Additional advantages to development finance include:
- The ability to secure money on properties, plots and developments that may be considered unsuitable or unviable by other lenders. This includes rundown and derelict buildings.
- Development finance can be repaid relatively quickly, keeping overall borrowing costs to absolute minimums. Far more affordable than many long-term borrowing facilities.
- Interest is only charged on the funds released which again can impact the overall costs of the facility in a positive way. A benefit of funds being released in stages throughout the project.
- No specific limitations on how much can be borrowed. If the project is deemed viable, development finance may be offered to cover up to 100% of the costs, irrespective of the total construction cost.
Main bridging lender Finance Costs
What Costs to Expect on a Development Finance Loan?
This is dependent on the experience of the property developer. Rates can be as low as 4% pa and they can go as high as 20% pa for say an ex-bankrupt, so the range can be anywhere in between. Also, most lenders charge an arrangement fee of between 1-2% of the loan amount. Some Lenders also charge an exit fee, although not all. This is usually a percentage of the GDV (gross development value), and around 1% to 1.25% depending on the Development Loan period, i.e. 1% of gross development value for a 12-month loan 1.25 % of GDV for an 18-month loan.
What Are the Main Development Finance Costs?
Fees, charges and general borrowing costs vary significantly from one lender to the next. The following will apply in most instances as the primary costs of development finance:
Facility fee – More commonly referred to as an arrangement fee, the facility fee is calculated as a percentage of the total cost of the loan (gross or net).
Interest rate – Interest on a development finance loan can be charged on an annual or monthly basis. Annual interest rates of 7% are not uncommon, as are monthly interest rates of 1%. Longer-term facilities attach lower rates of interest, though cost more than those that are repaid quicker.
Exit fee – Sometimes called a completion fee, the exit fee is usually calculated as a percentage of the total cost of the loan (gross or net). Some lenders charge a percentage of the total value of the completed project – not the sum borrowed.
Mortgage adviser fee – Most brokers charge typically 1% to 1.75% of the total value of the loan. If a fee is charged, you will be informed of this in our initial quotation.
These are just some of the primary costs to take into account when considering development finance. Working with an independent broker will help ensure you gain access to the best possible deal to suit both your requirements and your budget.
Other Development Finance Costs to Take Into Account
Additional development finance costs to take into account (which may or may not be applicable) include the following:
Valuation fees – It will usually be necessary for an initial valuation to be carried out by a neutral third party, in order to assess the open market value of the security. This will also typically include a projected valuation of the completed project.
Application fees – UK Property Finance does not charge application fees. Some lenders and brokers impose fees simply for submitting an initial application, or seeking advice on development finance.
Legal fees – If it becomes necessary to hire a solicitor or seek qualified legal advice, the applicant will be responsible for meeting all such costs accordingly.
Administration fees – This is a somewhat vague term, which can apply to almost any additional cost imposed by the lender. Some brokers also charge administration fees – UK Property Finance does not.
Monitoring fees – Development finance lenders will naturally need to monitor the progress of the project, in order to ensure it is reaching its predetermined goals. This is to make sure their investment is sound, and the funds allocated are being used as agreed. All monitoring fees are picked up by the borrower.
Draw down fees – Each time a new instalment of funds is transferred to the borrower, an additional fee known as a draw down fee may apply. This could be a set fee, or charged in accordance with the size of the instalment.
Telegraphic Transfer fee (TT Fee) – This is a cost imposed by the banks handling the money transfers, which in the case of development finance can be comparatively large. Nevertheless, TT fees are generally quite small and charged at a fixed rate.
Discharged Bankrupt? bridging loan deals
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