What is a bridging loan?
When your client needs to raise funds against a property immediately, a long-term loan such as a mortgage may not be the best option. However, if your client has available collateral in the form of a property, a bridging loan could be the solution they need.
Bridging loans are a form of short-term loan that can be secured rapidly, often for a period of two weeks to three years, while larger or longer-term financing is arranged. Many people are not aware that a bridging loan secured by a currently inhabited or soon-to-be occupied house could speed up the process of closing on a new home. It puts them in a position of independence from the rest of the chain and can be utilised if a potential buyer of their current property has withdrawn, or if the chain has collapsed.
Bridging loan criteria
The application criteria for a bridging loan typically involves providing proof of ownership of the property or properties that will be used as collateral for the loan. This may include documents such as the property title deeds or a mortgage statement. The value of the property or properties will also be assessed, and the loan amount will be based on this value. In addition, the borrower’s creditworthiness and ability to repay the loan will also be considered. As with any loan, lenders will have their own specific criteria that borrowers must meet, which may vary depending on the lender and the loan amount.
Interest repayment for bridging loans can be deferred until the end of the loan duration, providing flexibility for borrowers. Terms can be up to 24 months, and the interest can be rolled up until redemption or serviced monthly. Rates for bridging loans vary but can start from as low as 0.4%, with a typical rate between 0.75% and 1% per month. Payments can be made at exit or on a month-to-month basis.
Specialist Finance Centre’s approach to bridging loans
At Specialist Finance Centre, we provide regulated and unregulated 1st and 2nd charge bridge financing for residential, investment, commercial property, and land. If properly advised, bridging financing can be an invaluable finance tool, especially for property professionals.
We ensure that obtaining a bridging loan is the best course of action for the client. Analysis of the exit is more essential to us than chasing the deal. Bridging is a high-risk, short-term option for both the lender and the borrower. Therefore, we reflect this in our approach before offering and recommending a product. We can help you understand the application criteria for bridging loans and guide you and your client through the process of securing the loan that best meets your clients needs.
