Bridging Finance / Bridge Finance – FAQ
What is Bridging Finance?
What are the uses of Bridging Finance?
Property professionals often use bridging to take advantage of purchase opportunities in acquiring property privately and through auctions. Bridging can be used where traditional mortgage lenders cannot lend against the property, for example if the accommodation is in too poor a condition to be rented out, or there are defects requiring correction before it can be mortgaged.
Bridging can also be used for capital raising to pay Tax or VAT, raising finance to purchase assets or to make investments. Other uses of bridging include: avoiding repossession, Debt forgiveness deals, Overseas property purchase, Business cash flow, Barn conversions, Land acquisition, Pre-planning acquisitions, planning-gain transactions and bridging a broken property chain.
How much Could I Borrow?
Borrowing amounts depends on several factors but can range from just £10,000 to £15 million. The maximum amount you can borrow will depend on the current market value of the property and the ratio of the loan size compared with the property value (known as LTV or Loan-to-value).
Another factor is the type of property being offered for security and the liquidity of asset and buoyancy of the local area. Residential investment property generally are much lower on risk and higher LTV will be offered, usually as much as 75% LTV. Commercial buildings and land are deemed higher in risk so the maximum LTV offered will be lower, typically 50% on land or 65% on commercial. All cases are assessed on a case by case basis and lending criteria can vary between locations and with lenders current appetite for lending.
Can I Borrow 100% of the Purchase Price?
How Long does Bridging Finance Take?
If the bridging loan is being secured on a property being purchased, there will be additional legal processes (checking title deeds and for outstanding planning issues, and registering the charge, to name a few) needing to take place that are outside the hands of the lender, therefore having a legal firm who is experienced with bridging process and who have the personnel resources to dedicate to your completion will make a vast difference. The fastest bridging loan completion times will be for simpler cases of capital-raising on unencumbered property where legal paperwork is greatly reduced. Such cases can take just 48 hours to get the money deposited in the clients account, and with much of the time being consumed with dealing with the physical logistics of getting documentation and proofs of ID to the lender. Some bridging cases have taken just 5hr30min to release the money, yet these are exceptional circumstances where clients have quite literally driven to the lenders office with all documentation pre-prepared and with an experienced solicitor having already worked through much of the overhead of legal due-diligence in preparation to receive a wire from the lenders legal team. Average completion times for secured first-charge bridging is between 5 and 7 days and more complicated transactions involving second charge or redemptions of first charges it is more realistic to plan for 10 -14 days starting from scratch.
How Long does it Take to get a Decision?
Are there any Affordability or Employment Criteria?
How Long can I Borrow the Money for?
Are there any Upfront Fees?
Can I Repay the Bridge Early?
Can I Apply with Adverse Credit?
What are the Interest Payment Options?
Can I Take out Bridging to Refinance an Existing Bridging Loan?
Can I Refinance Within 6 Months?
What is the 6 Month Rule?
The 6-month is rule observed by virtually all residential and buy to let lenders protects against artificial house price inflation as we began to see in the property boom around 2003 – 2008. In the boom, we saw property investors buying at one price on one day and remortgage days later on a drawdown facility. The refinance was based on a higher valuation with none or negligible improvements ever carried out that could justify the hike in valuation in such a short period. While the majority of lenders enforce a 6-month period, some use a 12-month period in which the property cannot be refinanced at a higher value.