Bad Credit Bridging Loan
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Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in bridging loans
Bad credit bridging loans explained
What is a bad credit bridging loan?
A bad credit bridging loan is a short-term loan, which is secured against a property. These loans are designed to bridge a gap between two events, such as the purchase of a new property and the sale of your current home.
These loans are usually taken out for a maximum of 18 months. They are limited to 12 months for bridging loans secured against your own home as they become regulated by the FCA. These loans are known as regulated bridging loans.
In almost all cases, where a loan is repaid before the end of its term, you only pay interest for the period that the money is borrowed.
How can a bridging loan benefit me?
They tend to be used in situations where other types of finance wouldn’t be possible. The main consideration for potential borrowers is your exit strategy – your plan for how you’ll repay the loan.
As the interest is usually added to the loan, meaning there are no monthly payments to make, you may be able to borrow funds in the short-term that otherwise wouldn’t be affordable.
For example, if you’ll be repaying the loan through the sale of the property, your income and credit history don’t impact your ability to repay the loan.
As such, the likelihood of selling the property for the expected price during the term of the loan is far more important during the application process than your income or credit history. This will be reflected in the documents and information that the lender requests during the application process.
There’s no right or wrong way to get a quote, but there are several options available to you. The main ones are the following:
Key product features
Key Features
Max LTV
Up to 80%
Interest rate
From 0.45% per month
Charge types
1st, 2nd & 3rd considered
Term
1-36 months (maximum 12 months for regulated loans)
Interest type
Added to the loan, deducted or serviced
Completion timescale
5 days – 3 weeks
Criteria
Residential, commercial property or land acceptable
Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds
Minimum applicant age 18 years – no maximum age
Available in England, Scotland, Wales and Northern Ireland
Adverse credit accepted
Bad credit bridging finance criteria
Can I get a bridging loan with bad credit?
Yes, previous credit problems are less of a problem when taking out a bridging loan than with other types of borrowing. This is because the interest rates, arrangement fees and other costs are often rolled into the loan terms, meaning the lender is not reliant on you to make monthly repayments.
We’ve arranged lots of bridging loans for people who are looking to avoid repossession, those who have already been repossessed and even those who have previously been made bankrupt.
As long as your chosen exit strategy is realistic and can be backed up when the lender checks, we should be able to arrange a loan for you.
What checks will the bridging finance lender carry out?
The lender will still do credit searches on you as part of the process, although they may choose to ignore negatives on there. This allows them to check for other issues such as fraud markers on file which, if present, will be frowned upon and make lending much less likely.
The main checks that the lender will focus on are, as stated above, are around evidence of being able to meet repayments (where interest isn’t added to the loan) and the exit strategy of the bridging loan. Where you are planning to sell the property, the lender will look at the sale prices of other properties in the area, along with the average time taken to sell a property locally.
Where refinancing the property is your preferred exit route, the lender will focus on ensuring that your refinance is realistic. They will do this by requesting a copy of your agreement in principle (AIP), and often by requesting proof of other documents such as proof of income to ensure that you can repay and that your AIP is realistic.
Whichever exit route you decide to take, the valuation will be a key factor to your finance application, should the lender require one. If you need more information on what checks are needed and the funding options available – our team of specialist brokers is on-hand.
What types of credit problems will bridging loan lenders consider?
Bridging finance lenders are generally very flexible and take a common-sense approach to lending. As such, they will consider most circumstances, including:
- Defaults
- CCJs
- Mortgage arrears
- Bankruptcy
- IVAs
- Debt management plans
- History of payday loans
How much can I borrow?
Loan sizes
We can offer loans to borrowers with adverse credit from £50,000 with no maximum loan size.
We also offer a range of specialist large bridging loans.
Loan to value
We can offer a maximum of 80% loan to value, with 75% being common.
The LTV that’s offered may vary depending on your financial situation and your chosen exit strategy.
Adverse credit bridging loan rates & costs
What rate will I pay?
For borrowers with previous adverse credit, the lowest available rate is 0.45% per month, with rates between 0.48-0.75% being common.
Lower rates are usually reserved for applications at lower loan to values, with applications at 50% LTV and below usually achieving the lowest rates.
When repaying an existing bridging loan with another, you will require a refinance bridging loan, which may mean a slightly higher interest rate.
Do I have to pay other set up costs?
Yes, in addition to the interest, there are other setup costs to consider when taking out bridging finance. The main ones are the following:
Lender arrangement fees – These fees are usually 1-2% of the loan amount and are paid to the lender for arranging the loan. This fee is payable when the loan application completes and can usually be added to the loan.
Lender exit fees – These fees are becoming less common as competition between lenders increases. Where charged, they are usually either 1 month’s interest or 1% of the loan amount. Where possible, we work with lenders who don’t charge an exit fee.
Broker fees – Many brokers charge a fee for setting up your loan, often 1-1.5% of the loan amount. We don’t charge a fee for our service.
Valuation fees – This fee is payable for a valuation report to be produced by a chartered surveyor of the lenders choosing.
Legal fees – You will be responsible for both your own, and the lenders legal expenses in setting up the loan and will usually be charged these fees towards the end of the application process. Although some of this fee can be added to the loan, a portion is usually payable pre-completion and can’t be added.
Will I end up paying more for bridging finance because of bad credit?
The options available to you when looking for a bridging loan maybe slightly restricted depending on the level of adverse credit you have. That said, the difference in the product you end up with as a result of credit problems may not be as big as expected and in some cases, bad credit may not increase the cost of your bridging finance at all.
The rate you will pay depends on several factors. Depending on your circumstances, your credit history may be ignored.
Types of bridge loan for people with bad credit
Bridging finance for people with CCJs and defaults
As mentioned above, CCJs and defaults won’t necessarily increase the cost of your bridging loan. We can still arrange bridging finance for those with CCJs and defaults up to 80% loan to value (LTV).
Some lenders will view CCJs and defaults more favourably if they have been satisfied either prior to, or as part of the application.
Can bridge loans be used to stop bankruptcy proceedings?
Yes, if there is sufficient equity in your property to raise funds through a bridging loan, then some lenders will allow you to borrow to stop bankruptcy proceedings.
This is a specialist area and it would be better to discuss your specific circumstances with an expert rather than taking general advice online.
Can I use bridging finance to avoid repossession?
Yes, there are a number of lenders who will lend to avoid repossession. Usually, when your current lender is seeking repossession, payments have been missed on the current mortgage, so the exit will be especially important here.
Again, this is a very specialist area and it would be wise to take specific advice on the options available to you.
Second charge bridging loans with bad credit
Second charge bridging finance can be arranged for people with adverse credit, subject to a suitable exit being in place.
One main consideration is that in most cases, the first charge lenders consent to a second charge is required. Where there are current, or even recent arrears, they may be unwilling to approve this.
In these cases, we can arrange a loan using an equitable charge, but this may result in a slightly higher interest rate.
Commercial bridging loans with bad credit
Bridging loans secured against commercial properties can be offered on both an owner occupied, or commercial investment basis.
As long as the exit strategy is strong, funding should be available.
Frequently Asked Questions
Are bridging loans risky?
Bridging loans can be a risky type of finance, if they’re not well managed. That said, there are a number of ways to reduce the risk upfront and ensure that you don’t have any issues.
Ultimately, your exit strategy is key to success. Making sure that your exit is robust and realistic will prevent many problems further down the line.
For this reason, working with an experienced bridging loan expert can ensure that you are well prepared and don’t take undue risks.
What are the alternatives to bridge loans?
The main alternatives to these loans are residential mortgages, buy to let mortgages and secured loans.
