Unregulated Bridging Loans

Unregulated bridging loan interest rates & costs

What interest rate will I pay?

Unregulated bridging loans interest rates start at 0.45%, however this is unrealistic for most applications. In addition to this, these loans carry higher fees and revert to a much higher rate after a fixed term.

Realistically, interest rates start at 0.6% with rates of 1% or above being common in some situations, especially when speed is of the essence.

This means that at an interest rate of 0.6% per month, the bridging loan will cost £600 per month per £100,000 borrowed.

The interest rate charged is based on the lender chosen and the LTV of your application. Lower LTV applications tend to come with lower rates, with bridging loans under 50% LTV being the cheapest.

Are there other set up costs to consider for residential bridging loans?

On top of the interest charged, there are some fees to consider when looking taking out a bridging loan. They are:

• Lender arrangement fee – These fees are charged by the lender and are between 1-2% of the loan amount in most cases. This fee can be added to the loan if preferred and is the most common option.
• Broker fees – Most brokers charge a fee for arranging finance, often around 1-1.5% of the loan amount. This is usually only payable when the loan completes, although some charge a portion upfront. We don’t charge a fee for our service, which can represent a significant saving.
• Lender exit fees – Although this is becoming less common, some lenders charge exit fees when the loan is repaid. This fee is usually the cost of 1 month’s interest. In some cases, it’s cheaper paying a lower rate and an exit fee that opting for a lender with a higher rate.
• Valuation fee – If a valuation is needed, this fee is payable near the beginning of the application process and can vary depending on the value, type and location of the security property.
• Legal fees – This fee is to cover the lenders solicitor costs and in most cases can be added to the loan, however there may be an undertaking to pay upfront. This is in addition to your owns solicitors costs.

Are there any upfront costs to pay?

In most situations yes. This is your valuation fee & solicitor’s fees.

If the lender offers an automated valuation (AVM), this is usually at no cost. Some funders will also work without a legal undertaking, meaning the only upfront cost is your own solicitor.

Why work with ABC Finance?

ABC Finance have been helping clients arrange bridging loans since the year 2000 and have a strong reputation for providing great customer outcomes.

We don’t just arrange your loan with no regard for the bigger picture. Instead, we look to understand your circumstances and ensure that you can not only take out the loan, but also repay it without issue.

This is the key to taking out bridging finance. If your exit strategy is not strong, you can run into trouble quickly, so finding the right lender that understands your circumstances and will work with you is far more important than chasing the lowest rate.

We put our customers first and will make sure you get the best deal, from a lender that you can trust.

Do ABC Finance charge fees for arranging bridging loans?

For bridging loans of £100,000 or above, there is no broker fee.

How to get unregulated bridging finance

What is the application process?

The bridging application process does vary, but typically works as follows:

1. You can discuss your enquiry with lenders yourself, or speak with a bridging loan broker with experience of dealing with the bridging loans market, to discuss your finance needs.
2. When a suitable lender, and product is chosen, your application and supporting documents are submitted for review.
3. The loan underwriter will assess your application and if happy to proceed, will instruct the valuation.
4. When the valuation report is back, if the details are satisfactory the offer will be issued and solicitors instructed.
5. Both yours, and the lenders solicitor will work towards a completion date and funds release.

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

Even when applying for unregulated bridging loans, you should consider using an FCA regulated broker, especially if there is no fee. This is effectively a free bridging loan comparison tool. At ABC Finance Limited, our services include assisting with your application and liaising with the lender, valuer and solicitors for you. As we also arrange commercial mortgages, buy to let and HMO mortgages and development finance, we’re on hand to assist with your exit strategy if needed.

You can of course compare options yourself, this involves speaking with lenders. Many funders 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?

 To apply for unregulated bridging finance, you must provide the following documents:

• An application form
• Proof of ID & address
• Details of any planned works to the property
• Proof of your chosen exit strategy (while this may not be a physical document, details will be required)

How long does the application process take to complete?

Unregulated bridging finance can be completed very quickly, sometimes within a couple of days of application. Usually, a completion of 5-14 days is realistic, depending on the lender used. Commercial bridging tends to take longer than residential bridging loans.

If you’re looking to secure the lowest rates, it is a good idea to allow slightly longer for completion as the lender will generally insist on more stringent criteria checks.

There is often a trade-off to consider between how long it takes to receive the funds vs how much the loan costs. Lenders that offer the best bridging loan rates tend to underwrite your loan more diligently and as such, will take longer to complete.

The second point that impacts speed of completion is the instruction of your survey report and the start of the solicitor work. Instructing both on day one will speed up your application significantly, but does mean you’ll have to pay a fee to the surveyor and solicitor to begin work.

Frequently asked questions

Are bridging loans risky?

Most forms of finance are risky, but only in terms of not being to repay the loan.

You should ensure to the best of your ability that you can repay the loan, especially when you aren’t covered by the FCA.

Should I be wary when dealing with an unregulated lender?

Although you should always undertake due diligence on the lender that you’re looking to borrow from, it’s even more important when taking out an unregulated loan. A good broker can be priceless when it comes to understanding the unregulated sector.

There are a lot of new bridging lenders entering the market all the time and it’s important that you work with the right ones. While it’s rare for a lender to be fraudulent, there are often terms included in the contracts that could come back to haunt you.

Although we offer unregulated bridging finance, we are FCA regulated and we strive to treat every client with the same level of care whether their application is regulated or unregulated.

What are the benefits of an unregulated loan?

There are a lot more unregulated lenders than regulated, meaning you have a wider choice when taking out this kind of finance.

In addition, there is less restriction around the term offered, unlike regulated loans, terms over 12 months are commonly available.

Finally, there is more scope for lenders to base LTV decisions on the open market value of a property rather than the purchase price.

How can I ensure I’m protected when working with an unregulated lender?

Undertaking research on your chosen lender is a great start.

If you’re still uncomfortable working with an unregulated lender, you could look to work with a regulated broker, to ensure you’re well looked after.

Although the loan would still be unregulated, as FCA brokers, we hold ourselves to a higher standard and will be able to provide clear complaints procedures and accountability.

Can I repay my loan early?

Yes, you can repay your loan early and at any point during the term. There may be a minimum interest amount payable, this is usually the first full months interest.

Some lenders charge longer interest earning periods, i.e. 3 months. If you only need the loan for a very short period you should discuss this upfront.

If you only require the loan for a short period, before making the call you should consider whether this is suitable given the set-up costs involved.

Do I need to provide proof of income?

More often than not, proof of income is asked for as part of the loan assessment.

If you are repaying the bridge via sale of a property or asset, proof of income can sometimes be avoided. However, if you are to remortgage the loan onto a mortgage, proof of income will likely be required to make sure this is achievable.

In some cases, an accountant’s reference or projected future income or forecasts may suffice.

What is the minimum deposit?

The minimum deposit needed is determined case by case, you should look into this before committing to a purchase. We will happily assess this for you.

For auction purchases, the minimum deposit is 10% plus fees and interest, however not all funders offer this.

Refurbishment bridging loans can be agreed with a deposit of 15% plus fees and interest.

In most cases, the standard deposit for residential bridging is 25%, for semi commercial bridging it’s also 25%, and for commercial loans it’s 30%. 

Is there an age limit?

Typically yes, the maximum age limit for bridging loans is aged 85.

In some cases, older applicants are accepted by referral if the exit route is solid. For retired applicants, this typically includes sale of the property or assets.

How can I calculate my expected costs?

To calculate your costs, you can use our bridging loan calculator or speak to one of our advisors.

Calculating your costs is simple, here at ABC Finance we’ll calculate the overall costs for you. An example is, if you borrow £1m at 0.6%, the interest is £6,000 per month. You then multiply this by the loan term, and include the lender arrangement fee and solicitor fees.

The gross amount is the total amount borrowed, including fees and interest for the term. The net amount is the amount after costs, available to you. The difference between the gross and net loan is how much the loan will cost over the pre-agreed term.

The only things to add are the valuation fees or other fees that are not to be added to the loan. If the interest is to be paid monthly rather than added to the loan, this must be taken into account.