Bridging Loans

Can I get a Bridging Loan?

Is a Bridging loan a good idea? It is if you know what you are signing up for.

Bridging finance really should be your last place for finance having exhausted family, friends, mortgage lenders and second charge lenders because the interest rates and fees are high and not repaying the money borrowed when the Bridge comes to an end can have very severe consequences.

Interest rates range from circa 0.5 to 1.5% per month – yes per month – with lenders charging fee between 1 – 3% of the amount you borrow.

A typical Bridge term would be 6 or 12 months with interest rolled up i.e. added to the loan. How you repay all this money when the Bridge comes to an end is key to understanding how Bridging lenders think.

A lender is not really interested in your income or your job or for that matter your credit history as they are lending you money based on how they will get it back. What I mean is the ‘exit’ strategy – a word you will hear right at the very beginning of a conversation with a lender.

This exit strategy is the deciding factor to understanding if you are likely to be offered finance – how will the lender get their money back? They do not make any money until you repay the loan plus all the rolled up interest so the exit has to feasible, realistic and achievable.

For example you want to borrow £100k to finish a house you bought at auction for £200k and then sell it for £450k – think what is the exit for the lender? Easy – you complete the property improvements, put the house on the market and sell it. A lender would be comfortable with that arrangement knowing the works would take 6 months, the value would increase to £450k and then you would have 6 months to sell it.

You owe the Taxman £250k in unpaid taxes going back years and if you do not pay within 30 days they will instigate Bankruptcy proceedings against you (and believe me they will if they feel they have reached the end of the road with you). You do not have £250k but you have a house worth £1.1m and a small mortgage of £100k. Normally you would simply raise funds from a mortgage on your property but you have left it too late and do not have time so you decide to take a Bridging loan. What is the exit? You could either sell the property before the Bridge needs to be repaid or arrange a mortgage to cover the existing mortgage of £100k and the Bridging loan of £250k.

One more. You have sold your home and found one to buy. Exchange of contracts is on the same date, but the completion dates are staggered, for whatever reason. Let’s say completion on your sale will be after completion of the purchase so where does the deposit come from as it is tied up in your property and will not be available until you have completed on the sale. So you take a Bridge for the deposit on your purchase to be repaid when you sell your home.

There are many other reasons why a Bridging loan would work but remember the lender want to know what the exit strategy is.

Bridging loans are provided by introduction only.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

For more information on how I can help you with Bridging loans please call me on: 01494 526400 or complete my online enquiry form.