A bridging loan is a short-term and secure finance product. This is used to bridge a funding gap for renovations, property purchases, or chain breaks when buying and selling property.
Lenders will always prioritise a strong ‘exit strategy’ over income, with loans that are available up to 75% LTV, which often requires specialised brokers to secure the best rates.
In this guide, we’ll look at the key steps to finding and securing a bridging loan.
Define your exit strategy
An exit strategy is something that you’ll need to define before you go looking for lenders because they’ll be looking to see how you repay the loan, through a mortgage offer, confirmed property sale or, in the case of a development, project completion.
This is an important part of the process, which is why financial products like a bridging loan in the UK are helpful to have access to.
Decide between open and closed
There are two types of bridge loans to consider: open or closed. A closed bridge has a fixed repayment date and, as such, offers a lower risk and cost. Open bridges have no set date, but they’ll usually require repayment within twelve months of taking the bridge loan.
Use a specialist broker
Specialist brokers are great when it comes to getting a bridging loan, especially as it’s a financial product that is unique and not always used.
Given the speed required of a bridging loan, which is often days and not weeks, using a broker is advisable. It helps to navigate the complex market that comes with bridging loans, being able to compare the rates and to access lenders that aren’t available to the public.
Prepare documentation
It’s important to be ready to provide ID, the last three months’ worth of bank statements, proof of address, as well as detailed proof of assets and liabilities. Don’t forget about your exit strategy, too.
Understand costs
Beyond the interest, you should also understand the additional costs involved. From arrangement fees, which are usually 1-2%, valuation fees and legal fees. These are extra costs that should be thought about and factored in when needing to have the finances ready.
Select a lender
It’s a good idea to shop around for lenders and to ensure the lender is authorised and regulated by the FCA. If they’re not, then there are plenty of others that you could look into and explore who are all legitimate.
What’s the typical criteria and process of bridging loans?
When it comes to the criteria and process of bridging loans, it’s good to know your eligibility and the interest structure and speed of it all.
You must be over the age of 18 and own a property/asset to help use as security. Interest can be retained or serviced, so it’s good to be aware of this aspect of it. Applications can be approved a lot quicker, with funds released in a matter of days, following both valuation and legal checks.
If you’re looking to find a bridging loan, then there are plenty of ways in which you can do this with success.
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