Can A Bridging Loan Affect Your Mortgage Application

When taking out a bridging loan, the key to doing so safely is down to considering what your next step after the bridging loan is, before you take it out.

This is known as your exit strategy. A robust and well considered exit strategy is vital as it helps you avoid problems further down the line.

At ABC Finance, we’ve been arranging bridging finance since the year 2000, so our experienced team are well aware of this fact. That’s why we always consider your exit strategy in depth, before we apply for a bridging loan on your behalf.

In this guide, we break down how mortgage applications are assessed, whether a mortgage lender will be comfortable repaying a bridging loan and how bridging impacts your credit history.

How are mortgage applications assessed?

Mortgage applications are assessed according to your chosen lender’s lending criteria.

Each application is then assessed on an individual basis against these criteria to ensure that your application fits within their rules.

Key checks that are generally undertaken include:

• Credit history – Your credit history is key to a mortgage application, as the lender will want to ensure that your history of keeping up repayments on your debts is strong enough to suggest that you will keep up repayments on this new mortgage.
• Debt to income ratio – Lenders check your income, the proposed mortgage repayments and any other outgoings that you have, such as credit cards, loans and car finance.
• Property checks – Each lender will check the property to ensure that it is suitable security for their loan. These checks include a formal valuation to check that it’s worth what you say it is, checking there are no issues with the property and ensuring the new mortgage falls within their loan to value (LTV) rules.

Read more – Remortgage after a bridge loan or Buy to let mortgages vs bridging loans.

Will a mortgage lender be comfortable repaying a bridging loan?

Yes, almost all mortgage lenders are happy repaying a bridging loan, as they are with other types of finance such as credit cards, loans and car finance.

Repaying a bridging loan with a mortgage is not frowned upon at all by mortgage lenders, it’s actually quote common.

Will a bridging loan affect your mortgage application?

As may be becoming clear by now, a bridging loan will not negatively impact your mortgage application.

When you apply for a remortgage, your lender will want to understand why you took out a bridging loan initially, but this can be easily answered.

As long as there is a good explanation that makes sense, this will not be viewed negatively.

The only concern that could come up here, would be if the loan was taken for a reason that would be a concern to a mortgage lender, for example, if it was taken to pay off bankruptcy proceedings, this would be a concern to the lender.

That is not due to the bridging loan, however, but to recent bankruptcy proceedings against their applicant.

Read more – Non status bridging finance or Bridging loans – how much can I borrow?

How does a bridging loan affect your credit history?

There is no great impact on your credit history when you take a bridging loan.

Bridging is viewed much the same way as any type of finance when it comes to your credit report.

As long as payments are up to date and the loan repaid on time, there will be no negative impact.

Why not just go straight for a mortgage?

The natural question here is why not just skip the bridging loan and take out a mortgage straight away.

There are several reasons why this may not be possible. The first is speed. A fast bridging loan can be completed in just a few days, while a mortgage takes 6-8 weeks.

Secondly, the application may not initially meet lender criteria, for example, if the property is in an unmortgageable state.

In this scenario, a borrower may take out property refurbishment finance to fund the property while refurbishment takes place and once complete, it can be remortgaged.

Finally, some borrowers take a chain break bridging loan to buy a new property before selling their existing one. In this scenario, the borrower may not meet affordability rules for both mortgages at the same time, meaning bridging is the only viable option to complete the property purchase.