Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in bridging loans
Every lender conducts certain checks before agreeing a bridging finance application. Although each lender views applications differently, it’s very important to be aware of the more common queries you’re likely to encounter.
Read on below to find out more.
What are the main areas of an application that bridging finance lenders look at?
There are several key areas of any bridging loan application that lenders will check.
Security
Your chosen lender will be keen to ensure the security you put down is suitable for their lending policy. For example, some lenders will only accept residential property as security for a loan, whereas others will increase interest rates if the property is in a state of disrepair.
Bridging loans are a short-term, property backed loan and as such, the security offered is usually the lender’s number one concern, as this is their fail-safe way of getting their money back.
Loan to value
The lender is ultimately looking for confidence that they will get their money back no matter what happens. As such, the loan to value is of the utmost importance. Lenders will want to ensure they don’t lend more than they should against the value of the property.
Once the application is fully submitted, the lender will look to cement this position by instructing a formal valuation of the property by a RICS (Royal Institution of Chartered Surveyors) registered surveyor.
In some cases, an automated valuation can take the place of a formal survey. This is more common for applications are lower loan to values. The maximum varies from lender to lender, and is usually between 50-60% LTV.
Is the application regulated?
Some lenders are unregulated and as such, can’t offer FCA (Financial Conduct Authority) regulated bridging loans. This is an important regulatory point and can’t be overlooked.
An application becomes regulated if it is to a private individual and secured against a property that is to be used as their private dwelling.
Credit history
Not all lenders are overly concerned by an applicant’s credit history, but many are. Lenders will generally be keen to check credit history before releasing funds. In addition, all lenders will conduct bankruptcy searches to ensure the applicant is not currently bankrupt.
Is the application regulated?
Some lenders are unregulated and as such, can’t offer FCA (Financial Conduct Authority) regulated bridging loans. This is an important regulatory point and can’t be overlooked.
An application becomes regulated if it is to a private individual and secured against a property that is to be used as their private dwelling.
Second charge bridging loans for business purposes are unregulated, although as they’re secured against your home, some lenders will still underwrite the loan as if it were regulated.
Credit history
Not all lenders are overly concerned by an applicant’s credit history, but many are. Lenders will generally be keen to check credit history before releasing funds. In addition, all lenders will conduct bankruptcy searches to ensure the applicant is not currently bankrupt.
If your credit is poor, you will need a bad credit bridging loan. Where there is adverse credit, you will generally be asked for an explanation of what it is and how it came about.
Some lenders may insist on any adverse credit being settled before completion of the loan, although this is rare.
ID checks
Customers will need to prove that they are who they say they are using formal identification. The lender will usually require the following:
- A certified copy of your driving licence or passport
- A certified copy of a recent utility bill (within the last 3 months is usually classed as recent)
Affordability checks
Although most applications don’t include affordability checks, information around affordability can be requested in certain circumstances. Lenders only usually want to understand affordability in the following situations:
- Monthly interest is being paid each month
- The loan is FCA regulated
- Where your chosen exit strategy is to refinance and income evidence will be required by the lender who will be refinancing you
Sense-checking the exit route
The first thing a bridging loan lender looks at is whether they are likely to actually get their money back if they lend it out. This includes looking into the proposed exit route to ensure it is robust and realistic.
Where the planned exit is a refinance to a term loan, the lender will usually expect to see a formal agreement in principle from a suitable lender.
If the lender feels your method of repaying the loan is unrealistic, they may be unwilling to lend.
Legal checks
The lender will always look to instruct their own solicitor to conduct independent legal checks. This includes checking the loan documents are all completed correctly, the parties are all aware of exactly what they’re doing and ensuring a charge can be registered successfully against the property.
It’s only once the lender is completely happy with everything that funds can be released and your loan completed.
Do all lenders underwrite applications in the same way?
No, each lender has their own method of underwriting applications and will consider things in different ways. This means that even if you have had an application rejected by one lender, another may be happy to lend.
In addition to deciding whether they will lend, each lender will weigh risks differently, apply different bridging loan rates and a different legal process.
