So what Does the Future Hold for Bridging Finance? Ten years on from the economic crash, generally speaking, the UK property market is healthy. With a high demand for new houses, the need for bridging finance in the future looks assured. However, in a world that is becoming increasingly politically unstable, nothing is guaranteed.
The prediction is that Bridging Loans will grow in popularity over the next few years but many people are still unsure what they are and how they are approved.
In summary, a bridging loan is a short-term loan, secured with property, that generally runs for between 1 and 12 months. A typical term is around 6 months at which point a borrower usually either looks to refinance into a longer-term loan (e.g. a commercial mortgage) or they sell the property the loan was secured on. The amount you are allowed to borrow will depend on your equity with most lenders willing to give a maximum of 75% LTV. You can borrow anywhere between £100K and £10M depending on the LTV of your equity and your credit rating.
Having a great credit rating is not the main thing that lenders look at, although it is usually important to have good credit when looking at any loan. The lower LTV you have on your equity the lower risk you are as a candidate. They will always look for an exit, i.e. how you are going to pay them back and how quickly. Another confusing factor of bridging loans are the terms “First charge” and “Second charge”. For those who have never needed a bridging loan before and therefore not needed to know these can be unfamiliar terms.
A first charge is basically the first finance secured to your property, the lender, in this case, have the first right to foreclose on this property if payments are not kept up with. First charge loans can have a LTV of up to 80%. The second charge could be where you perhaps buy a second property but secure the loan against your current property that has a mortgage on it. So this lender becomes second in line if the loan forecloses, behind the mortgage lender. Second charge loans are generally up to 65% LTV. Most lenders prefer to have a first charge on your equity as this gives them better security on such a short-term type of finance. The main types of security include: – Main (First charge) or secondary (Second charge) dwelling on house – A buy to let property – Commercial Property (i.e. shop/office) – Land with planning permission Most bridging lenders look to lend within the M25 and South East of England as they see this as the lower risk areas, however, it is not the only place you can get a bridging loan, there are lenders out there that will lend in other areas including Scotland and Northern Ireland.
If you are looking to get a bridging loan to finance a piece of land you would like to buy to build on, the LTV is much lower, up to 50%. In most cases the land would preferably have planning permission already approved on it, however, lenders will still approve loans without planning permission. Both Open and Closed bridging loans are available. Open bridging loans are set up without a set date that the final repayment should be made. A closed bridging loan is set up with a final repayment date put in place.
So if you know exactly how long your project is going to take you, you may choose a closed bridging loan, if the project is an indefinite one then an open bridging loan may suit you better. However, if your project or process takes longer than you anticipated then it is a possibility to roll it over, lenders are usually very friendly and amenable and will help you set a new repayment date and go through your options with you.
For further information or help with a bridging loan please contact us…