Apply For A Bridging Loan
Make A Bridging Loan Application Today
Find out how the bridging loan application process works and apply with ABC Finance to get the best deal.
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Author: Gary Hemming CeMAP CeRGI CSP
20+ years experience in bridging loans
What is a bridging loan?
A bridging loan, also known as bridging finance is a form of short-term lending, secured against property. They are designed to bridge a short gap between two events taking place – for example buying a new property before selling your existing one.
How to apply for a bridging loan
The bridging loan application process can be simple, it is broken down into the following steps:
Discussing your enquiry
Discuss your enquiry with a broker or lender, to enable them to offer a quote they will usually discuss the following:
Borrower profile
The profile of the borrower will be taken into account, this can include your asset and liability position, income and expenditure and your credit history.
Your credit history will be taken into account, some lenders don’t allow adverse credit and some do. Lenders offering bad credit bridging loans may load the interest rate depending on the severity.
Property
The property to be used as security for the loan will be assessed as this can affect which lender you should apply to.
If for example, the property requires works to be carried out, a specialist property refurbishment finance product should be considered whereas if you are securing against a commercial building, a commercial bridging loan is the way to go.
Reason for the loan
There can be many reasons a client may wish to use bridging finance, and the loan should be tailored to your circumstances.
If for example you are buying at auction and have a tight deadline, an auction finance product will be geared towards speed.
Alternatively, you may be looking for development exit finance to repay an expensive development finance facility. These loans can be slightly more complex and in-turn, can take slightly longer to arrange.
Exit strategy
Your exit strategy is crucial when applying for a bridging finance, if this isn’t viable it’s likely that the lender will decline your application.
Typically, your loan will be repaid by either selling or refinancing the property, however other options such as inheritance, lump sum pension or cashing in investments can be common.
Receive a bridging loan quote or approval in principle (AIP)
Once your broker or lender has assessed the above, you will receive a bridging loan quote or AIP detailing the loan amount, interest rate and associated fees.
Discuss your bridging loan terms
When you receive the loan terms, you should discuss them with the broker, or lender, to ensure you fully understand them.
You also have the opportunity to ask questions about anything you’re unsure about.
Complete the loan application form
When you are happy to proceed with the loan terms, you are ready to formally apply for the bridging loan.
This includes completing the lenders application form. The key part here is to be as accurate, and honest as possible.
The loan application form will be similar to a mortgage application form, and ask for basic details such as your full name, home address and date of birth. Naturally, some lenders ask for more information than others and may delve deeper into things.
Supply supporting information
The bridging finance lender will require documents to support your application, most lenders ask for the same level of documentation.
What documents will I have to provide?
To apply for a bridging loan, both brokers, and lenders will require the following documents:
- Proof of identity (ID), i.e. Passport copy or driving licence.
- Proof of address, i.e. a recent utility bill or credit card statement.
- Latest 3 months bank statements (in some cases).
- Proof of income (in some cases).
- Proof of deposit for purchase applications.
- Evidence of your exit, i.e. a mortgage AIP.
- Credit report.
If you are unable to provide any of the above, you should mention this upfront.
Key product features
Key Features
Max LTV
Up to 90%
Interest rate
From 0.45% per month
Charge types
1st & 2nd charge
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 (on a case by case basis)
Lender underwriting explained
When the application form is submitted, the bridging loan underwriter, who works on behalf of the lender, will assess the application and make a decision on whether to lend, and the terms offered.
Property valuation
In most cases, a valuation of the security property will be required. These can usually be broken down into:
Automated valuation (AVM)
To speed things up, some lenders will accept an automated valuation, known as an AVM. This approach sees the valuation figure being generated by a computer system using the property details and local sales data.
It is less reliable than a physical inspection but can be produced in a matter of minutes. This approach is not offered by all lenders.
Desktop valuation
A desktop valuation is carried out by a qualified valuer, however they don’t physically go out and view the property. They use data, including comparable sold properties in the area, to determine the value.
Physical valuation
A full valuation report is usually produced by a RICS surveyor. This approach is the one that is considered the be the most secure option by lenders, this is because the property will be physically inspected and is backed by the surveyor’s professional indemnity insurance.
It is also the slowest approach as you must wait for an appointment, and then for the report to be produced.
No valuation
Finally, some lenders will proceed without any form of valuation being produced if they’re familiar with the area and the loan is at a very low loan to value.
Lenders who take this approach tend to be those who charge much higher interest rates.
Legal process
Both yours, and the lenders solicitors will work together to get the loan complete. Your solicitor will check the finance documents, carry out searches and provide legal advice.
In some cases, the bridging lender may offer duel representation legals whereby their solicitor also acts for you, this can be quicker and cheaper.
Most solicitors require some element of payment upfront, and you are liable for the lenders legal costs as well as your own.
What should I consider before making a bridging loan application?
The biggest considerations are how you proceed (broker, online comparison or directly with the lender) and how you will repay the loan – this is known as your exit strategy.
Your exit strategy is the key to ensuring that you stay safe and avoid failing to repay your bridging finance on time.
While it may seem counter intuitive, it’s important that you consider repaying the loan before you settle on taking it out. Failure to do this will increase the likelihood of problems as the loan reaches the end of its term.
In addition, you should consider how you want the interest to be handled. You are usually able to choose between paying the interest monthly, or adding it into the loan.
When adding it to the loan, it is repaid at the end of the term, when the loan is repaid.
Which lender should I apply to?
This depends on your circumstances.
If the loan is FCA regulated, you must apply to an FCA regulated lender, in this instance however, the lender may insist that you apply through an FCA regulated broker.
If speed is key, such as an auction purchase, you should ensure that the lender is able to deliver within your deadline.
Using an experienced bridging broker makes choosing a lender much simpler.
How can I calculate my expected costs?
Calculating your bridging loan costs is simple, especially when using a reputable broker. Here at ABC Finance we’ll calculate the overall costs for you. If you borrow £1m at 0.55%, the interest is £5,500 per month.
The gross loan is the total amount borrowed, including fees and interest for the term of the loan. The net loan is the amount after costs, available to you. The difference between the gross loan and the net loan is how much the loan will cost over the pre-agreed term.
The only things to add are the valuation fees or other fees that are not to be added to the loan.
If the interest is to be paid monthly rather than added to the loan, this must be taken into account.
To work out your costs, you can use our bridging loan calculator or speak to one of our advisors.
What happens if my application is declined?
This isn’t necessarily an issue, you can simply apply to a different lender.
If using a bridging finance broker, it is unlikely that you will be declined unless something arises that the broker was unaware of.
In this instance, they will take the new information and place your application with a suitable lender.
Who can apply for a bridging loan?
We can lend to the following borrowers:
- Private borrowers
- Pension funds
- Partnerships
- Limited companies
- Offshore companies
Our minimum applicant age is 18 years old and we work with lenders who do not impose a maximum age.
How much deposit will be needed?
Most lenders are happy to offer a loan to value ratio of 70-75%, meaning your deposit would be 25-30% of the property value. This is true of both regulated bridging loans and unregulated bridging loans.
If you’re planning on deducting the interest from the loan upfront then the amount you receive (known as the net loan), will be reduced. As such, you will need to pay the difference by way of additional deposit, meaning that you can expect to put down 30-35% of the property in total.
In addition to this, you should consider the cost of legal fees, surveyors fees and Stamp Duty (for some purchases) as these must also be paid.
In some cases, the amount of deposit may increase where there is a history of adverse credit, the property is poor or in a low demand location. These are known as bad credit bridging loans. Your exit strategy will may also impact the loan to value that you’re able to achieve.
Frequently asked questions
Do I need to use a broker?
No, this isn’t necessary but using a broker can be an advantage. Most lenders don’t publish their rates online, meaning that other than using a reputable broker, there isn’t a simple way to compare products.
A good bridging loan broker will offer access the whole market without having to deal with lots of different lenders, and will be able to advise you on the best way to approach your application.
Their strong relationships with lenders may benefit you during the application process. That said, not every broker is a good one, and a poor one can cause delays to your application and even mean that you pay more than necessary.
It’s also important to consider any broker fees that you’ll have to pay. While we don’t charge a fee for arranging bridging loans, many brokers do.
Why work with ABC Finance?
Here at ABC Finance, our advisors will work with you to make sure the bridging loan you apply for is the most suitable and meets your needs.
We have been offering property finance since the year 2000.
Can I approach a lender directly?
Yes, talking directly to lenders allows you to remove a layer from the process, but unfortunately that layer is a person who is on your side.
That said, in some cases, it can lead to cost savings, as the lender will not be paying a broker for the introduction. Some, but not all lenders will pass on the savings to applicants.
Although this can mean a saving, if you’re not getting the best deal, then your bridging loan costs can quickly spiral.
To ensure that you’re getting the best deal, the only real option is to speak to all of the leading lenders and get a quote from each.
How long does the application process take?
The application process can take anywhere from 3 days to 3 weeks. This is one of the main benefits of taking out a bridging loan – they can complete very quickly.
This timescale depends of several factors such as whether a valuation is needed, and how quickly both the lender and solicitor can turn the application around.
In some cases, there is a choice to be made between cost and speed of completion. Some of the cheapest lenders have stricter underwriting processes and may take a little longer.
When looking to complete very quickly, looking to use an AVM instead of visit by a surveyor can shave off valuable time.
How can I get my funds quicker?
The key to getting your application completed quickly is to be thorough when providing information.
By being clear and ensuring that you leave no doubt in your answers will inspire confidence from the lender.
This will help to speed up your application and ensure you get the funds needed quickly.
Do I need to provide proof of income?
While not often required, a lender may ask for proof of income. This is usually restricted to applications where you’ll be paying the interest monthly, or where your exit strategy relies on your income.
Regulated bridging loan lenders may be more likely to request proof of income than on unregulated applications.
