Guide to Bridging Finance
What is Bridging Finance?
Bridging Finance is a secured loan used for rapid capital raising, acquisition or refinance of real estate, from Residential to commercial properties including industrial properties and Land (with or without Planning Permission).
Why is Bridging Finance Expensive?
The cost of this class of Property Finance is high and is reflected by the speed from start to finish. It’s an expensive option and borrowers should always bear in mind the reasons for this should they chose to use it.
Bridging Finance Loans usually mature on or before 12 months from completion. Some lenders offer 2- and 3-year terms. Be mindful of the financial position when paying such high interest charges.
These are not Term Loans, they are Short Term Finance Loans, so always have an Exit Strategy before you commit to a Bridge.
Loan to Values (LTV) range up to 90% if the land values higher than the contract price. Some lender even offer up to 100% with Additional Security. (Additional Security refers to the lender taking a legal charge over another property in order to support a higher LTV on the initial property).
Always seek independent legal advice if you’re unsure of the proposed position. You can source suitable accounting professionals from the ICAEW.
Bridging Finance Interest Rates have become highly competitive over the recent years with some companies rates from .45% per month for lower LTV facilities. However typically Bridging Finance rates usually range from .65% to 1.25% per month, depending on the security and risk.
Do I need to prove Income when taking out a Bridging Finance Loan?
No, if you opt for a Rolled Up or a Deducted Interest Loan. This is because the borrower has allocated the interest to be rolled into or deducted from the loan. This option results in a lower Net Loan because the interest has been factored into the loan facility.
Yes, if you decide you’d like to service the loan. The lender requires confirmation you can afford to cover the monthly payments. This results in a higher net loan as the interest is not factored into the loan.
I have Bad Credit, can I borrow?
Yes many Bridging Finance Lenders may approve the loan if adverse credit is recorded, but they may require the borrower to roll the interest into the loan or deduct it from the loan. This is to eliminate the risk of missed monthly payments. As mentioned above, Rolled up or Deducted Interest Loans result in a lower Net Loan amount.