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Bridging Loan Rates Guide

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Understanding bridging loan rates

To give an accurate picture, bridge loan rates must be broken down by the type of security offered. Commercial property rates are higher than those secured against residential, and loans against land tend to command the highest rates.

Regardless of the type of security offered, our team of specialist brokers are on hand to help you secure the lowest rates.

What rate can I expect to pay?

Residential bridging finance rates start from 0.43%, although this rate is only available up to a maximum of 50% Loan to value (LTV).

Due to the individual pricing of loans and the number of lenders out there, it is hard to quote an average rate. In general, most loans will fall between 0.43% and 1.25% per month. Below, we break down the factors that affect the cost of loans, and how you can secure the best deal.

Commercial bridging lenders tend to price each loan on risk, they will look at the type of property, location and you as the client. The best commercial bridging rates usually start at around 0.65% per month.

As a guide, an interest rate of 0.85% per month is a good benchmark. For a riskier deal, such as an unusual property or an applicant with heavy adverse credit, rates will be around 1% – 1.35% per month.

Finally, loans against land will usually be priced between 0.9%-1.25% per month. As each application is judged on its own merits, we do sometimes secure lower than standard rates if the risk is low for the lender.

The lowest rates are usually reserved for LTVs below 50%

Most lenders heavily base their interest rates on the required loan to value. The more you’re looking to borrow as a percentage of the value of security offered, the higher the rate you’ll end up paying.

While rates climb steady as the LTV required increases, the lowest rates are usually offered on applications that sit at, or below 50% LTV.

How to secure a lower rate on your bridge loan

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, it’s counterproductive to stretch yourself too much in an attempt to reduce your loan to value if it means you’re putting a great strain on yourself financially.

Another way to reduce your loan to value is to offer additional security to the lender by way of a legal charge over another property in addition to the main security property.

How to choose the best bridging finance product

Securing a low-interest rate tends to be the number 1 request by clients looking for bridging finance, but it is important to see the bigger picture.

The difference in fees charged by each lender 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.

The factors that affect the rate you’re charged

Loan to value

As mentioned above, LTV is a big driver of bridge loan pricing. This is due to the reduced risk of financial loss for the lender should a borrower fall fail to repay the loan when agreed.

Property type

Residential properties usually receive the lowest rates, with semi-commercial, commercial and then land each becoming more expensive. This is due to the liquidity of these assets – the more liquid an asset, the better security it is considered to be in the eyes of a lender.

Legal charge type

Loans can be arranged on a 1st, 2nd or even 3rd charge basis. 1st charge loans tend to enjoy the lowest interest rates.

Second and third charges can either be arranged as a legal charge, or an equitable charge. Equitable charges aren’t favoured by lenders, so loans set up in this way will usually pay a slight premium in rate.

Credit history

Lenders issue loans with the idea that they will be get their money back, plus some profit by way of the fees and interest charged. When working with an applicant who has clean credit history, they can be more confident that this will be the case and will charge a lower rate as a result.

Location of the security property

This factor comes down to the lenders ability to exit the loan. Property in a location has a highly liquid property market, and an abundance of available lenders will generally get the best rates. These locations are considered to be most places in England and Wales, plus parts of Scotland.

Some lenders will offer low rates on loans in Northern Ireland too, but this is less common.

Reason for the loan

Where heavy refurbishment or development of the property will be undertaken during the term of the bridging loan, the rate charged will usually increase slightly.

Heavy refurbishment and development are generally considered to be structural work to the property. Cosmetic work is usually not an issue even on low rate products.

Broker relationship with your chosen lender

Some lenders will include an element of negotiation in their pricing. When you’re working with a broker who has a strong relationship with your chosen lender, they’re often able to leverage it to secure you a better deal.