Bridging Loans For Property Developers

Bridging loan interest rates & costs

What interest rate will I pay?

Interest rates start at 0.45% per month and go up to 2% per month. In most cases bridging loan rates of 0.45% – 0.9% per month are realistic.

Some lenders charge a ‘stepped’ interest rate i.e. a lower rate for a period and a higher interest rate for a period. This is ideal when you feel that you will only need the loan for a short time.

The interest rate will be determined by looking at the LTV, your credit history, whether the loan is for light refurbishment or heavy refurbishment and whether the loan is a 1^st charge or 2^nd charge.

When assessing interest rates, some lenders quote an interest rate which is Bank of England base rate tracked. This means that the interest rate may look low, but the current Bank Base Rate (BBR) needs to be added to this to calculate the actual interest rate.

As a whole of market FCA regulated broker, we’ll assess your circumstances and offer you the best bridging loan interest rate available to your situation.

Are there other set up costs to consider?

Yes, the other costs to be considered are:

• Lender arrangement fee – the fee that the lender charges to set up the loan and are usually between 1-2% of the loan amount. This fee is usually added to the loan. Lower arrangement fees tend to be reserved for larger loans.
• Loan exit fee – some lenders charge a fee on repayment of the loan, if charged, it’s usually an extra month’s interest or 1% of the gross loan. We always look to use a lender who won’t charge an exit fee, where possible.
• Valuation fee – some lenders require a valuation of the property. This is to ensure it is suitable security for the loan and that the lender is protected. These fees generally increase 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. We don’t charge broker fees for arranging bridging loans.

Are there any upfront costs to pay?

On some occasions, there are upfront costs payable before loan completion. Valuation and legal fees are payable before completion of the loan. Some lenders offer a free automated valuation and add legal fees to the loan.

If you are carrying out a refurbishment of the property, it’s likely a valuation will be needed. The same applies if you are borrowing against land.

If you require a product with no upfront costs, please let us know at the outset. This may be possible however you may pay a higher interest rate on your borrowing.

Do ABC Finance charge fees for arranging bridging loans for property developers?

No, at ABC Finance, we don’t charge a broker fee for arranging bridging loans of £100,000 or above.

How to get a bridging loan as a property developer

What is the application process?

• You can speak with lenders yourself, or speak with an experienced bridging broker to run through your finance needs.
• When a lender, and product is chosen, your loan application form and supporting documents are submitted.
• The loan underwriter will assess your application and if happy to proceed, will instruct the valuation or run an automated valuation (AVM).
• When the valuation report is back, if the details are satisfactory the offer will be issued and legals instructed.
• Both yours, and the lenders solicitor will work towards a completion date.

You can instruct valuations and solicitors before underwriter assessment. This will speed up the process but is at your cost should the underwriter decline your application.

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

Working alongside an FCA regulated bridging loan broker is definitely advantageous, especially if they don’t charge broker fees. This is effectively a free bridging loan comparison.

A good bridging finance broker will have many years of experience in the property finance market and will know exactly which lenders to deal with. Here at ABC Finance Limited we also assist with your loan application and liaise with the lender, valuer and solicitors for you. We’re also on hand after loan completion to assist with your repayment plan.

You can of course deal with lenders yourself and compare bridging loans. Many lenders do work directly with the public, however speaking with multiple lenders and comparing loan offers, including interest rates and fees can be time consuming.

What documents will I have to provide?

When you apply for a bridging loan, both brokers and lenders will require the following documents:

• Application form including synopsis and loan repayment plan.
• 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.
• Proof of deposit for purchase applications.

How long does the application process take to complete?

A typical bridging loan application takes from 3 days to 4 weeks.

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

• Whether a physical valuation or an AVM is needed.
• The lenders application processing time, including their current workload.
• Whether both the lenders, and your solicitor has capacity to complete within a deadline.
• How quickly you are able to send the required forms and documents.

Of course, some lenders can release funds quicker than others, if you have a deadline to adhere to you should make us aware of this from the outset.

We can then choose a lender who can meet the deadline, and assist you in streamlining the process.

How is my application assessed?

Lenders assess loan applications from property developers on whether they feel that the project can be completed and the loan repaid within the pre-agreed timeframe.

Types of bridging loans for developers

Here are the typical bridging loan applications we see from property developers

First charge bridging loans

A first charge bridging loan is secured on a first charge basis and will offer the lowest interest rates.

Second charge bridging loans

Second charge bridging loans sit behind your current lender on a second charge basis. Due to the increased level of risk, interest rates are usually higher when compared to first charge bridging.

Light refurbishment bridging loans

Light refurbishment bridging loans are for projects that usually cover the following:

• Replacing fixtures such as the kitchen and bathroom.
• New flooring and decoration.
• Replacing windows.
• Landscaping and exterior paintwork.
• Nothing that requires planning permission.

Heavy refurbishment bridging loans

Heavy refurbishment bridging loans are for projects that usually cover the following:

• Extensions or changing the exterior footprint.
• Loft conversions or a new roof.
• Small conversion projects, i.e. a house to flats conversion.
• Large conversion projects i.e. a commercial to residential conversion.
• Projects that require planning permission.

Development exit finance

Development exit finance is a bridging loan designed to step in when a project is complete, or nearing completion. They allow you to refinance to save money, borrow extra funds or buy time to sell the property, allowing you to make a larger profit.