A breakdown of bridging loan fees
Bridging finance applications are usually subject to several different fees, which can become confusing. They can usually be broken down into the following:
Lender arrangement fee
This fee is payable to the lender for arranging the loan. Often, this fee is added to the loan, meaning you don’t have to pay it out upfront. Some lenders will take part of the arrangement fee on offer to signal commitment from the applicant. Lender arrangement fees are usually between 1-2% of the loan amount.
This is payable to your broker for arranging the finance. Most brokers charge a fee of 1% or more on completion of the loan, this can often be added to or deducted from the loan. At ABC Finance Ltd we don’t usually charge broker fees for arranging bridging finance.
Upfront broker fee
Brokers often charge an upfront fee for processing your application. This can’t be added to the loan and must be paid upfront. We never charge upfront fees for processing your application and recommend that you do not pay upfront fees under any circumstances.
The valuation fee is payable for the undertaking of a basic survey of the security property. The report is usually quite basic and covers only the value of the property, some structural and demand issues and whether the property is suitable security for the loan.
The fee is usually payable early in the application process. We always try to ensure the lender is otherwise happy with the application before asking for the valuation fee to be paid.
Lenders usually require separate legal representation, which is paid for by the applicant. Some lenders will accept dual representation (use of the same solicitor for both sides), which can save time and money.
Some lenders charge an exit fee, usually either equal to one month’s interest, or 1-2%. Exit fees are charged on repayment of the loan and are usually added to the redemption figure.
What are the factors that affect the rate charged?
Several factors affect the rate you pay, including the following:
- Type of property used as security
- Loan to value
- Purpose of the loan
- Whether the loan is first or second charge
- Location of the security
- Loan size
- Condition of the security property
- Credit history
Always look at total cost – not just interest rate
Bridging loans will often be advertised with ‘rates from…’ – this will generally be a low headline rate. Although there is an element of salesmanship to this tactic, it is the only viable approach due to the wide range of products on offer and the bespoke pricing structure of bridging finance lenders.
To be sure of finding the best deal, you would have to compare options from various lenders either yourself or through a broker. Obviously, contacting every lender yourself would be time-consuming, meaning you could discuss your needs with only a few lenders.
Therefore, many people engage an experienced broker to do the legwork for them.
We offer two levels of service, allowing you to compare the latest products yourself, or talking through your requirements and issuing you with suitable terms. Of course, you’re able to compare your options online and then request a call back to discuss your preferred products.
Securing a low-interest rate tends to be the #1 request by clients looking for bridging finance, but it is important to see the bigger picture.
The difference in fees charged by different lenders can be vast. Many lenders will charge additional fees for things such as fund management, redemption or administrative fees.
If you’re determined to save money, a comparison of all costs, not just the interest rate, is crucial.
How does the loan to value (LTV) rate of my property affect bridging finance?
As mentioned above, many lenders charge different fees depending on how much you’re looking to borrow as a proportion of the property’s value.
By putting down a larger deposit, thereby reducing the LTV, you may well fall into a product tier with a lower interest rate.
But remember, you should only put down money that you can afford to be without during the whole term of the loan. It’s counterproductive to stretch yourself too much to reduce your loan to value if it means your putting too big a strain on yourself financially.
How long does a bridging loan take?
It’s typically much faster than a traditional mortgage. Some lenders can complete applications in as little as 5-7 days, although many take 10-20 days.
If you’re considering taking out a bridging loan, make sure you start the process early to give yourself ample time to complete your application.
Most lenders will allow you to take your time once the offer is issued, so it’s much better to start early than to rush, especially when facing a strict deadline.
How can I improve my chances of being accepted for a bridging loan deal?
It’s always a good idea to do any required housekeeping on your credit file before applying. Make sure there are no late or missed payments, if there are, it’s a good idea to catch them up if possible.
Equally, there may be mistakes or disputed items on your credit file, if there are, query them before applying.
Finally, making sure that your proposed exit strategy is sound is the most important factor in securing a bridging loan. Putting the time into your exit strategy and being confident in it will dramatically increase your chances of success.
Do I need advice when taking out a bridge?
Bridging loans can be complex and difficult to understand. A good broker will be able to explain the process and any confusing terms to you and will act on your behalf, not the lenders.
In many situations, expert help from a broker also provides you with much more protection as they will be advising you on the most suitable route. Their advice is generally backed by professional indemnity insurance, which is in place to protect you.