Open Market Value Bridging Loans

Open Market Value Bridging Loans Explained

What is an open market value bridging loan?

An open market value (OMV) bridging loan , often called 100% bridging finance, is a short term bridging loan secured against property. This loan product allows you to buy a property below market value (BMV) without the need to put cash down yourself.

Another form of open market bridging loans are when the lender works from the open market value, rather than the 180 day or 90 day value.

How can an open market value bridging loan benefit me?

An open market value bridging loan can assist you in purchasing a property undervalue when either you don’t have sufficient funds to cover the deposit, or you would prefer to retain your savings.

Also, borrowing against the open market value tends to allow you to raise a higher loan amount, compared to borrowing against the 180 or 90 day value.

How do they work?

Below market value (BMV) bridging loans are set up against a property purchase whereby you are purchasing at a price below the open market value, typically off-market or privately.

If for example you have agreed a purchase price of £150,000, but on the open market i.e. with a selling agent, the vendor could achieve a sale price of £250,000, you are buying below the open market value.

In most cases, the open market value is determined by the lenders valuer.

What are open market value bridging loans used for?

Open market value bridging loans are mostly used by buyers who are buying a property via a private sale. This can include a sale from a relative, neighbour or business associate.

Open market value bridging loans lending criteria

Will I qualify for an open market value bridging loan?

Yes, if you have agreed a purchase below market value you will qualify, as long as the purchase price is at approximately 75-85% of the open market value.

What loan term can you offer?

Typically, when borrowing 100% net against the purchase price, the maximum loan term is 12 months.

What checks will the lender carry out during the application process?

The main thing a lender will be checking is the open market value of the property. The lender will also assess your credit profile and the exit strategy for the loan.

When assessing a below market value purchase, lenders will also look at the rationale for the property being sold undervalue.

Will I qualify if I have bad credit?

Yes, in most cases bad credit, also known as adverse credit doesn’t affect your ability to take out below market value bridging finance.

The only thing to consider is that if you plan on refinancing the property to repay the loan, you should ensure that mortgage lenders are happy to lend if there is adverse credit.

We are able to offer bad credit bridging loans for applicants with adverse credit looking to raise finance. This can include mortgage arrears, CCJ’s and defaults, IVA’s and bankruptcies and repossessions.

Who can take out an open market value bridging loan?

We’re able to offer open market value bridging loans to the following applicants:

• Individuals
• Partnerships or LLP’s
• Limited Companies
• Pension Funds

How much can I borrow?

Minimum and maximum loan sizes

Open market value bridging loans for below market value purchases start at £10,000 with a maximum loan size of £1m.

When borrowing against the open market value where a deposit is to be provided, there is no maximum loan size.

The maximum loan offered is generally determined by your repayment plan to ensure you are able to repay the loan by the end of the term, without a shortfall.

Loan to value requirements

You are able to borrow 100% of the purchase price when buying a property below market value.

The main thing to consider is that the loan must be no more than 75% of the open market value.

Does income affect my maximum loan?

In most cases no, especially when the loan is to be paid back with sale of the asset.

The only time income does affect your maximum loan is if you are looking to take out a mortgage to repay the loan. In this instance, lenders will look at whether you have enough income to allow you to remortgage.

Exit strategy & the impact on maximum loan

When looking at the exit strategy for repaying a bridging loan, it usually falls into one of the following 2 routes:

• Sale of either the property to be used as security for the loan, or another property owned. When selling a property to clear the loan, the lender will make sure that the property will be sold for enough to redeem the loan and will likely take advice from a property valuer.
• Refinance the bridging loan onto a longer term product, such as a mortgage. The bridging loan lender will assess the maximum loan on remortgage to work out their maximum loan offered, to ensure there isn’t a shortfall.

Open market value bridging loan interest rates & costs

What interest rate will I pay?

If you’re looking to borrow 100% of the purchase price with no other security, interest rates start at 1% per month.

If you are purchasing a property below market value but are able to put down a 10% deposit, plus fees and interest, interest rates start at 0.6%

Are there other set up costs to consider?

Yes, there are other set up costs that should be taken into account:

Lender arrangement fee – all bridging loan lenders charge a fee to set up the loan, this is commonly between 1-2% of the loan amount and can be added to the loan. 2% is fairly standard, lenders may reduce fees on larger loans. Some lenders charge this fee on the gross loan, and some on the net loan.

Exit fee – some lenders also charge a fee on repayment of the loan. This fee is usually 1% of the loan or an extra month’s interest, and in both cases, can be added to the loan. We always aim to use a bridging loan lender with no exit fee.

Valuation fee – Most lenders require some form of valuation of the property, especially with below market value purchases. This is because the lender will need to determine the open market value. The valuation fees cost usually increases as the property value increases.

Legal fee – there is a fee to pay for the legal work involved in setting up the loan. You are usually expected to pay the lenders legal costs, as well as your own.

Broker fee – some bridging loan brokers charge broker fees for arranging bridging loans. This may be a flat fee or a percentage of the loan amount. Where charged, it is usually payable on completion but in some cases, brokers charge upfront fees. ABC Finance doesn’t charge broker fees for arranging bridging loans.

Are there any upfront costs to pay?

In most cases there are upfront costs payable before the loan completes. Valuation and legal fees are payable before completion of the loan. In a majority of cases a physical valuation is needed however in some instances the lender may offer an automated valuation (AVM) or use a desktop valuation. In most cases the lenders legal fee can be added to the loan, however sometimes a legal undertaking is payable when legals are instructed.

If you require a bridging loan with no upfront fees, please let us know upfront as this will help us decide which lenders to speak with. If you opt for bridging finance with no upfront fees, you usually pay a higher interest rate on your borrowing.

Do ABC Finance charge fees for arranging open market value bridging loans?

We don’t charge a broker fee for arranging open market value bridging loans of £100,000 or above.

How to get an open market value bridging loan

What is the application process?

1. Choose a lender and product, you can do this via a broker.
2. Submit your application and supply your supporting documents.
3. Your application will be assessed by a loan underwriter, if accepted the valuation will be instructed or the automated valuation (AVM) will be carried out.
4. If the valuation is satisfactory, the loan offer will be issued and legals instructed.
5. The solicitors will carry out their work and agree a completion date.

You can instruct your valuation and solicitors at the beginning however there will be a cost liability before the loan is agreed. The benefit of this is that it will speed up the process however, if the loan is declined, you will have paid fees.

Should I work with a broker or go to a lender direct?

It’s a good idea to work with a broker, especially if there is no broker fee. An experienced bridging finance broker will know exactly where to turn and will compare the best bridging loan rates for you. ABC Finance Limited also work with you whilst completing your application and liaise with the lender, valuer and solicitors for you.

You can compare bridging loan rates yourself, however this can be very time consuming.

What documents will I have to provide?

To apply for an open market value bridging loan, the following documents will be needed:

• Application form including a loan summary and details of exit.
• Details of the open market value.
• If you are buying below market value, the reason for this.
• Proof of photo identity (ID), i.e. Passport copy or driving licence.
• Proof of residency, i.e. a utility bill dated within the last 3 months.
• Last 3 months personal bank statements.
• Proof of income may be requested.

How long does the application process take to complete?

When buying a property below market value, the application process takes 7 days to 4 weeks typically.

The completion time from applying for the loan to completion will depend on several factors, such as:

• How long the valuation will take and report assessed by the lender.
• How quickly you are able to send the required forms and documents.
• The lenders application processing time, including their current workload.
• How long the legal process takes.

If the funds are needed urgently, we will choose a lender who can meet the deadline, and assist you in streamlining the process.

How is my application assessed?

Your application is assessed mainly on the equity, or collateral, in the property you are purchasing. The lender will want to ensure that the loan to value ratio falls within their parameters.

The other factors they will look at are your credit history, the property itself and your proposed repayment strategy.

Types of open market value bridging loans

Are there different types of open market value bridging loans?

Yes, there are different types of open market bridging loans.

100% bridging loans

100% bridging loans, also known as 100% bridging finance, is a type of bridging finance that allows you to borrow 100% of the purchase price when using additional security for the loan. This can include your home, an investment property or even 3^rd party security such as a parents property.

Below market value (BMV) bridging loans

A below market value bridging loan is a short-term loan product offering  up to 100% net against the purchase price, when buying a property undervalue. This product only applies to residential property on a non-regulated basis.

Loans against open market value

Lenders rely on valuations of the security property, this can be the open market value, 180 day value or 90 day value. The open market value is determined by the value of the property if sold on the open market.

Frequently asked questions

Is open market value bridging finance risky?

As long as you are able to repay the loan within the pre-agreed timeframe, these loans are not risky.

What are the alternatives 100% bridging finance?

The main alternative is to provide a deposit to reduce the loan to value. This can be savings or investments, a gift from family or sale of another asset.

Can I repay my loan early?

Yes, you can repay your bridging finance facility early and at any point during the term. There may be a minimum term that the loan can be held for in respect of interest payable, this is usually the first full months interest, however some lenders charge for 3 months.

Do I need to provide proof of income?

Most bridging loan lenders do ask for proof of income however it is usually only relevant when refinancing the loan to exit. This is to ensure that the refinance is possible.

If you are selling the property to repay the loan, income proof isn’t usually relevant.

What is the minimum deposit?

If you are buying a property below market value and the purchase price is a maximum of 85% of the open market value, there may be no deposit needed. This is only for non-regulated loans.

If you require a regulated below market value bridging loan, the minimum deposit needed is 10% plus fees and interest.

Are these loans hard to get?

No, as long as the gross loan size falls within a maximum of 85% of the open market value.

How do you pay back the loan?

The bridging loan can be paid back by either sale or refinance of the property.

There are other repayment options are available, these can include inheritance, shares or pensions or sale of other assets.

Is there an age limit?

Most bridging finance lenders have a maximum age limit of 85 years old at application. As a whole of market broker, we do work with lenders who have no maximum age limit.

Can ABC Finance help me find the best deal?

Yes, ABC Finance are a whole of market broker, therefore our bridging loan advisors have an extensive knowledge of the bridging loan market, and will help you find best deal.

Why work with ABC Finance?

ABC Finance have been arranging property finance for over 25 years. During this time we have built up vast number of contacts within the finance industry.

We always put our clients needs first and have a good reputation within the industry with both lenders and clients alike.

Is this type of finance regulated in the UK?

If you plan on living in the new property, these loans are regulated by the FCA in the UK.

If however the property is for investment purposes, the loan is non-regulated, much like a standard buy to let mortgage.

How can I calculate my expected costs?

Calculating your bridging finance costs is simple, especially when using a trusted broker. Here at ABC Finance we will provide a lending proposal calculating the total costs for you. If you borrow £200,000 at 0.75%, the interest is £1,500 per month.

The gross loan figure is the total amount borrowed, including fees and interest. The net loan is the amount after fees and interest, 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, assuming you keep the loan for the full term.

The longer the loan is in place, the more you will pay in interest, and vice versa. You should also consider the cost of the valuation fee and any other fees that are not added to the loan.

To calculate costs accurately, use our bridging loan calculator or speak with one of our bridging loan advisors.