Bridging loans

How much you will be eligible to borrow will depend on the value of the property as well as your financial situation. Bridging lenders typically allow you to borrow up to 75% of the property value.

If you are refurbishing your property you may be able to borrow up to 85% LTV of the current value of the property, providing that this does not exceed 75% of the end value of the property.

If you own other property, which has equity in it, you could remortgage to raise capital from it to meet the LTV requirement of a bridging loan, or take out a second charge on the property without touching any existing borrowing to raise capital from it.

Extending any borrowing you already have to borrow more, via another product, carries risk. You must have a robust plan (or "exit strategy") to repay it. Bridging loans can be used pay for works to increase the value of the property by improving it.

This has to be done with care, because the works have to increase the property value by enough to repay the borrowing, when you either take out long-term finance or sell the property.

The minimum deposit for a bridging loan is typically 25% of the property value.

However, if your available cash leaves you short of this amount, you may be able to raise additional funds by extending your borrowing against other property you own (e.g. your residential home, a buy to let property, a commercial property).

A specialist mortgage broker will be able to investigate all these options with you.

There are two types of bridging finance, serviced interest, where you pay back interest monthly or retained interest, where the interest is calculated at the start of the loan but paid back at the end of the term.

You can take out a bridging loan for a term of between 1 and 24 months. You will need an exit strategy for paying off the loan. This might be to sell the property, or remortgage to a buy to let mortgage or commercial mortgage.

Bridging loans can also be regulated or unregulated.

Regulated bridging loans are used where you want to live in the property. The Financial Conduct Authority regulates this type of bridging loan. This regulation is used to protect the borrower, as it is assumed that as a domestic consumer you may not be familiar with how bridging loans work.

Unregulated bridging loans are for buying property to do up and sell (flipping property), for property that will be let to tenants who will live in it, or for property that a business will occupy.

Unregulated bridging loans are not overseen by the Financial Conduct Authority, because it is assumed that those using them will be familiar with how bridging loans work.

An exit strategy is how you plan to pay back the loan.

This strategy will need to be agreed on, in advance, with the lender for your application. You can exit a bridging loan by remortgaging, through the sale of shares, through inheritance or selling a property.

Many unregulated bridging loans have no early repayment charges. If your situation changes and you are able to repay your loan early, you might pay a percentage of the original loan and or an administrative fee to close it.

Bridging loan rates tend to be variable, but may be fixed. If you take out a fixed rate bridging loan, the monthly charge will be the same for every month of the term. If you take out a variable rate bridging loan, your payments may vary.

Variable rates typically track another rate, often the Bank of England base rate. If the rate it tracks change, the variable rate can change. It can go up or down, which means your payment can go up or down.

Bridging loan interest can be paid at the end of the term, or monthly.

Bridging loan interest payments can be “Serviced” or “Retained”.

A serviced bridging loan is where you pay the interest on the loan each month, and pay back the lump sum you borrowed at the end of the loan term.

A retained bridging loan is where the interest is added to the total loan amount, and this whole amount is repaid at the end of the loan term (you might also know this as a "rolled-up" bridging loan).

On a like for like basis, you are typically able to borrow more where you opt to pay interest monthly.

A specialist bridging loan broker can discuss these options for you and help you identify which type of loan is best suited to your needs.

Bridging loans are faster than mortgages, when it comes to getting the money from the lender.

This is why bridging finance is commonly used when buying property at auction. Auctioneers tend to want the purchase funds settled within 28 days of the hammer falling.

A specialist broker should be able to get you a lender decision in principle within 2 hours of speaking to them. A decision in principle is an agreement that, if all details of the deal remain the same, the lender will accept a bridging loan application from you.

The minimum term on a bridging loan is usually three months.

However, if you think you may not need to borrow for that long, you can discuss this with a broker. You may be able to take out a three-month deal, but not be charged large exit costs if you repay in full after say, one month, or it may be possible to get a one month term.

A bridge to let loan is a specific financial product that is used to buy a property you intend to let, which you may not be able to get a traditional buy to let mortgage for.

Bridge to let loans combine a mortgage and bridge product together so that when you are ready to “exit” your bridging loan, your buy to let mortgage is ready and waiting. This is sometimes referred to as a bridging mortgage.

Yes! Being retired shouldn’t stop you from getting bridging finance.

Age limits are amongst the criteria related to bridging loan borrowing, but a specialist broker can help you by finding a lender who is more flexible on upper age limits.

Yes! Being self-employed shouldn’t stop you from getting a bridging loan.

A lender will just need to see proof of your financial status (e.g. accounts or SA302’s).

There are lenders who offer bridging loans to those who have poor credit.

There are likely to be restrictions around how recent your credit issues were, how many instances of credit there were, how big the sums of money involved were and whether or not any outstanding debt has been repaid.

If you have raised a dispute with a lender about an amount falsely recorded as unpaid, then it may be useful to get this resolved whilst you progress a new lending application.

It is very easy to over or under-estimate the impact of credit issues, so speaking to a specialist broker will help you understand if you can get the borrowing you want.