Commercial bridging loans

Bridging loans provide access to quick finance to people who need to complete a property purchase fast. This may be for buying a property at auction or to fund a building or renovation project until it qualifies for a mortgage or they sell their previous property. Our guide 5 ways to use a bridging loan explains the additional ways they can help your business, including refinancing, refurbishment or accessing cashflow for their business. 

A bridging lender does not look at long term affordability in making their lending decision, simply focusing on whether the property used as security for the loan is sufficient versus what they are lending. One way they do this is to use a 90-day sale fixed valuation, which is often up to 20% lower than open market value. Bridging lenders then offer loans for up between 60% and 90% of this value. In addition, some lenders will also allow for special conditions or assumptions on your property’s value. If the bridging lender thinks your property might be harder to sell due to its commercial status or location, then they may offer a lower LTV.

Bridging loans come with interest rates and arrangement fees that are higher compared to other types of property finance such as a high LTV mortgage.

You can take a bridging loan over a term from as short as one day and for some the loan is open ended, but in most cases, lenders offer terms up to 24 months.

The minimum you can borrow on a bridging loan is £25,000 and many lenders are open to negotiating a maximum amount. Your property can be of any value for some lenders, but you will find more lenders available if your property value is over £40,000.

Bridging loans are secured against property, this may be as a first, second or even third charge. For example, if you have a mortgage on your current property, but want to buy a new one, the bridging lender can ask as collateral for the loan both your current property and new property. If you fail to repay the bridging loan, the lender would repossess your new property and be second to receive funds from a repossession of your current home.

While bridging loans are quick and sometimes essential, this is an expensive way to borrow that does come with the risk of losing all the properties covered under the agreement. You should be clear that you can afford payments for the duration you expect to need the bridging loan. You should also identify how long you could make both payments for, should your sale be delayed.  

The average monthly interest rate in September 2019 for a bridging loan was 0.75%, with a range from 0.43% up to 1.5%. This is equivalent to 5.16% per year up to 18% per year.

All bridging lenders charge an arrangement fee this is often around 2%, while some may also charge completion and early repayment fees.

With such a wide range of rates it’s important to review the market and find a lender that can offer you the best rates for your circumstances. Our preferred broker for bridging loans can guide you through the market.

The traditional high street banks do not offer bridging loans, it is usually more specialist banks and lenders that provide these. Here is a list of banks and lenders that offer bridging loans:

However, not all bridging lenders are authorised by the FCA, there are at least 300 unregulated bridging lenders at present in the UK.

A remortgage is worth considering if your mortgage lender can complete in the time required and if this plus perhaps any savings you have can cover the price of your new property. You should check that no early repayment charges apply to your remortgage as you will want to pay this off once your existing property has sold.

If a remortgage and additional funds will not cover the cost of your new purchase or if you need to complete faster, then a bridging loan, while more expensive will be the your primary choice.   

It is possible to obtain a bridging loan in a matter of a few hours and receive funds within a matter of days. The standard amount of time however is usually a couple of weeks.

Yes, it is possible to get a bridging loan when you have poor credit. This is because the lender’s focus is on ensuring the property you use as security for the loan will sufficiently cover them in case you default and that you have a clear route to exit the loan in the future (i.e. a way to pay off the whole debt). If you plan to sell a property to pay off the bridging loan, then the bridging lender is unlikely to be concerned about a bad credit history. However, if you plan to remortgage then they may judge that your credit score will inhibit from you doing this successfully.

The types of bad credit issues that shouldn’t affect your ability to exit your bridging loan include:

• No credit history
• Low credit score
• CCJs
• IVAs
• Late and missed payments
• Debt management schemes

In the majority of cases the lender will judge the severity and age of any credit issues in relation to how this might impact your ability to pay off the bridging loan in full when required. For example, a late payment for a digital entertainment package from ten years ago versus a declaration of bankruptcy in the past six months.

Bridging loans are regulated like a mortgage when this is for an individual buying a property. Any bridging loan used for commercial reasons or as an investment is not regulated.

Prior to considering a bridging loan, you should establish if a remortgage or secured loan against the properties you already own might fund your new purchase instead. Other alternatives to raise capital include refinancing of existing debts to improve cashflow or invoice factoring where you sell on your invoices at a discount rate to a third party and gain an immediate flow of cash as result. If you are developing a new build or completing a significant refurbishment then a property development loan may be a better solution for a longer term loan.