Bridging finance can be ideal if the circumstances are right, however, for those who are new to the industry or the market they can sometimes be complex so we’d urge caution in your approach and to seek advice before applying for this type of finance.
For those with experience in property, development and other industries that require bridging loans, they’re ideal for short-term cash shortages or to cover periods of time, for example, before a mortgage is agreed.
In many examples our clients approach us for bridging finance when they’re buying residential property whilst waiting for another to complete. Some look for bridging loans to bridge the gap between making a new residential property habitable before agreeing a mortgage.
Another example that we often see if when developers seek to finance an auction purchase. This type of residential and commercial property purchase must be completed within 28 days of auction and sometimes the property requires some extra work or the buyer is in the process of waiting for a sale to complete.
These are just a small number of examples, and bridging loans can be used for a number of situations so it’s best to get advice from a broker.
How do I repay the loan?
Bridging loans and loans of this type tend to be quite flexible as the developers and investors that tend to take them have hugely varying circumstances. For example, Gross Development Value (GDV), track records and length of the loan may differ hugely, so the terms of repayment will vary accordingly.
In terms of interest payments with bridging loans, you have a few options for repaying. Most choose not to service the interest payments on a monthly basis, rather they either have the total interest taken out of the principle sum before it’s transferred or pay it off as a lump sum at the end of the term.
Most lenders will want to see your exit strategy of how you intend to pay the loan off at the end of the term, but this is something our brokers are happy to help you put together.
Rates for large bridge loans
In taking a large bridging loan you’re not likely to pay significantly more in interest just because it’s a higher amount, this will depend on your risk profile which is built up with, for example, your track record and credit.
A large bridging loan, typically, will have an interest rate of between 0.43% per month and 1.10% per month depending on the Loan To Value % (LTV) of your finance.
Lending facilities will vary in this regard.
Best alternatives to bridging loans
Lending facilities vary depending on your circumstances, and bridging loans aren’t always the best solution to your finance needs, which is why we have a large team of experienced brokers to discuss this with you.
Other types of finance and loans that could help are, for example, mezzanine loans. These are more complex arrangements where the borrower can’t raise the full high amount required through debt or equity finance alone. In these circumstances they’re often repaid through profits.
Alternatively there are types of bridging loans and we also have access to lenders who can provide a mortgage either for residential or commercial properties. The best advice is to speak to a broker who can give you more detailed advice.
What are Open Market Value (OMV) loans?
With bridging loans for commercial and residential market and a mortgage too, the lender will often calculate your rates and repayments based on the Loan To Value % (LTV). This means the amount you want to borrow as a percentage of the value of the property, and this is the price you paid for it.
As an example, if you purchase a property for £100,000 and want to borrow £80,000 with bridging loans, most of the time the lender will calculate that as an 80% LTV.
With open market value loans, some lenders will calculate it based on the open market value of your property. Let’s say you purchase a property for £80,000 but it’s been valued at £100,000 on the open market, and you want to borrow £40,000. Usually the LTV of that loan will be 50%, affecting your rate, but some lenders will take an open market valuation, meaning the LTV goes from 50% to 40%.
What assets can I borrow against?
In most circumstances for bridging loans the lender will expect you to provide an asset as security. That can usually be a property and will tend to be a commercial or residential property.
If you have property that already has a mortgage or finance secured against it, many lenders will be happy to provide a second charge loan if you’ve got a good track record of success and a good business plan behind you, and there are other types of assets you can borrow against, but it will largely depend on your circumstances.
To learn more speak to our brokers today
Our team of experienced and knowledgeable brokers are ready and happy to talk to you about your finance needs.
They’ve worked on thousands of projects and bridging loans just like yours, so they know what you’ll need to be accepted and who the best lenders are for you.
They’re available to help you every step of the way, and can advise you on what to do to prepare your application and get the funds you need as quickly as possible, so talk to us today.