Bridging loan is a special type of loan which allows you access to large funds. You can use the funds to pay off purchasing any property while selling your existing property. Short term access to money, bridging loan is a good option for the people who are in the property business and are in a state of financial emergency.
The trend of taking bridging loans has increased in recent years. There is a huge incoming of lenders for bridging loan in the market in recent years. In simple words, the bridging loan is a short term property finance to bridge the gap.
What are the eligibility criteria for getting a Bridging Loan?
Before you apply for a bridging loan, there are few factors to consider. These factors decide the eligibility criteria for getting a bridging loan:
- If your project has a commercial plan, there may be a requirement of a business plan.
- In case you want to invest in a property for development, the lenders may ask you to produce your record in the said property.
- There are situations where a bridging loan lender will only give a bridging loan if you take a mortgage from them as well. However, this isn’t the case every time you apply for a bridging loan.
- Lenders may ask you to produce your income proof. However, this is not required every time, since you don’t have to pay your loan interest every month.
- Usually, lenders ask for your property as security against the loan.
To ensure that you are applying for a Bridging Loan, you need to pay attention to the following factors:
- First charge or Second charge loan
If you have a loan secured against a property, against which the mortgage is outstanding already, a second charge loan is applied in such situations. Hence, you are required to take a second charge loan for any kind of improvements including extensions. Though, you can easily qualify for the first charge loan against the property.
- Fixed or Variable rate payment
If stability is your priority, then there will be a fixed rate of interest. This will tell you about the amount of interest that you are required to pay for the rest of the term. Since the rate of the interest which is to be paid, is confirmed already beforehand; however you may have to pay extra as you make payment for the security. The other side, the variable rate may change, though you are required to save the amount which will depend on the base rate. However, if security isn’t that much important for you, the variable rate allows saving even when you have the interest in your favor. But in case there are low-interest rates, it is suggested that you lock the loan at that fixed rate.
Different types of Interest Rates on Bridging Loans
We know that bridging loan comes with a loan period which limits to a few months only. There are different ways the loan for bridging finance can be paid.
- The loan can be paid monthly – The interest can be paid whereas the loan balance will not include the sum.
- The loan can be paid in a rolled-up deal – You can pay the compound interest including the loan if you have the repayment due.
- Retained interest – There will be an agreement upon a date which will cover the payment of your monthly interest. When the amount gets due, you can make the payment in full amount.
There are different types of fees involved in the process. There is an arrangement fee which is used in the loan set-up. This fee is around 2% against the total amount of loan. You will have to pay 1% of the loan, known as the exit fee. Repayment fee is paid to cover the paperwork cost of the administration. The cost of a surveyor is covered as valuation fees.
How much Bridging Loan can I take?
The total amount of bridging loan which you can take varies. You can take anything from £ 5,000 to £250 million. However, the total amount of the loan depends on the property value which you have to secure the loan. You can get more loan if you secure many properties against the loan. You will get a quote from the lenders on Loan to Value (LTV). This can be from 65% to 80%.