What is Bridging Finance?
Bridging is short-term finance secured against property or land by legal charge. Bridging is designed to release money quickly benefiting from a streamlined underwriting processes with flexible lending criteria, lending on a very wide range of commercial or residential property types including plots, land and unmortgageable property. Bridging can be used in situations where conventional mortgage lenders are unable to lend. Loan terms can be between 1 and 12 months although longer terms extending to 24 months are available.
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?
See ‘How much can I borrow’. Also: While the individual maximum on a residential investment property might be 75% LTV , if you can offer additional security, other properties in your portfolio with equity, we can raise the additional funds you need with a 2nd charge bridge, and in some cases 3rd charge bridging facilities.
How Long does Bridging Finance Take?
Bridging is faster to arrange than a conventional mortgage. But essentially a bridging loan shares parallel underwriting and legal processes as a mortgage with a charge secured on property. The time it takes to get the money also depends on how quickly you can provide and supply the required documentation needed to proceed. The completion is also dependent on the type of transaction. 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?
With enquiries received within normal working hours we can usually get a lending decision in 1-2 hours as an approval in principle (AIP). Please telephone us or use our online bridging enquiry form. On more complicated property transactions involving issues such as change of use or separation of title deeds or renovations we will discuss with you over the phone to ensure we can explore all lending options available to you and how we can achieve it.
Are there any Affordability or Employment Criteria?
One use of bridging is securing funding to purchase a property where the applicant does not qualify for a mortgage due to lack of earned income or accounts or rental experience. If you can show you have the financial resources to service the bridging loan interest payments, a loan can be structured for you without requiring accounts or payslips.
How Long can I Borrow the Money for?
Typically clients borrow for an average of 6 months, however it depends on the type of transaction and the use of the loan. Property developers using a bridge to renovate or convert a house may require a loan of 12 months. Some bridging facilities can be for a long as 24 months. The shortest duration may be just 1 day or 1 month.
Are there any Upfront Fees?
In most cases there are no upfront fees charged to the client upon application, however, there are a few lenders on certain products that charge an upfront facility or booking fee. This will be quoted in the initial AIP document. Most bridging lenders do not have upfront fees, with exception of the valuation fee – some lenders take this on application, other lenders only require the valuation fee to be paid on booking of the survey.
Can I Repay the Bridge Early?
The bridging loan can be repaid early and without any penalty. If payments are deducted from the initial advance then the amount of overpaid interest will be credited back to your bank. Other products that are designed as a bridge converting to a mortgage (for property refurbishment schemes) may have early repayment charges or an exit fee. We will make you aware of any such early repayment charges, where applicable, in your loan illustration. If you consider that it is a possibility you may need to repay the loan early, for example, if you are selling a property, which may end up selling sooner than expected, then we would advise a facility where early repayment is accepted.
Can I Apply with Adverse Credit?
Adverse credit can most certainly be accommodated. We have a wide panel of specialist bridging lenders who cater for adverse credit and circumstances arising to reposession. Adverse can include: Mortgage arrears, Missed mortgage payments, Defaults, County Court Judgements, Involuntary Arrangements IVAs and Discharged bankrupt.
What are the Interest Payment Options?
Bridging is a flexible form of funding and offers multiple ways of servicing intesest payments. Interest can be serviced monthly by direct debit like a regular mortgage, or interest can be calculated for the total term of the loan and deducted from the gross loan so no interest payments will then be necessary, or interest can be rolled up each month into the borrowing facility and the total repaid upon redemption.
Can I Take out Bridging to Refinance an Existing Bridging Loan?
Historically refinancing a bridging loan with another bridging loan was not something that bridging lenders used to extend to. More recently however we have seen lenders cater specifically for this market and will refinance a bridge. This is known as Re-Bridging.
Can I Refinance Within 6 Months?
You can refinance or remortgage a bridge within 6 months, however many mortgage lenders do not allow their borrowers to remortgage based on an increased purchase price within 6 months of the original date of purchase. This is often referred to online in property forums as ‘the 6 month rule’. However if you are planning on refurbishing a property we do have some specialist refurb products that will allow you to refinance (up to 85% LTV on single Buy to Lets) based on the increased market value even within 6 months.
What is the 6 Month Rule?
Many mortgage lenders do not allow their borrowers to remortgage based on an increased purchase price within 6 months of the original date of purchase. This is often referred to online in property forums as ‘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.
How Soon can I Refinance a Refurb Based on the Increased Value?
The short answer is within 6 months. While the vast majority of mortgage lenders do not allow their borrowers to remortgage based on an increased purchase price within 6 months of the original date of purchase. if you are planning on refurbishing a property we do have some specialist refurb products that will allow you to refinance (up to 85% LTV on single Buy to Lets) based on the increased market value even within 6 months. If you are refurbishing a HMO you can refinance up to 75% of the new market value and do so within 6 months. We have clients who have successfully refurbished HMOs and refinanced recovering the renovation expenditure, plus a good deal of the original deposit.