BRIDGING LOANS

Available up to 80% of the purchase price

Lenders will also consider up to 100% of the purchase price if part of the loan can be secured against other properties owned by the applicants.

Usually for up to 12 months

Most lenders have a minimum term of 3 months and most loans would be repaid within a year, however lenders can offer terms of up to 24 months on more complex deals.

Can be used to purchase commercial or residential property

Not all lenders offer loans against commercial property. Commercial bridging loans may be subject to higher interest rates and lower loan amounts against the property value.

Interest is calculated monthly and rates start from around 0.4% per month

Unlike mortgages and longer term loans, Bridging rates are advertised on a monthly basis. Interest is only charged for the number of months you keep the loan.

Monthly payments are not usually required and the maximum loan amount is based on property value not income

Lenders calculate the expected interest over the term of the loan and deduct this amount from the gross loan, giving the applicant a “net advance”. If the loan is then repaid early, the remaining months of retained interest is recredited to the loan account to reduce the redemption figure.  In some cases where the applicant has sufficient income, lenders will allow the client to make monthly interest payments so no interest is retained and the net advance is higher.

The lender will expect a suitable “Exit” strategy to be in place to repay the bridging loan

In most cases the “Exit” would be via sale of the property or by refinancing on to a longer term loan with another lender.

Arrangement Fees are higher than other types of borrowing

Bridging lenders usually charge 2% of the gross loan amount as their arrangement fee. Their valuation and legal fees are also higher than on a standard mortgage.

Can be secured against properties or land that would otherwise not be suitable for a mortgage

Bridging loans can be used to purchase all types of property, including land or properties with development potential (with or without planning), properties in need of refurbishment or properties at auction.