What Criteria Do Bridging Finance Lenders Look At?
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.
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.
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.
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)
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
Exit refinance and income will be required to understand if the refinance is realistic
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 [link to exit route guide] to ensure it is robust and realistic.
If the lender feels your method of repaying the loan is unrealistic, they may be unwilling to lend.
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.