Bridging Loans
05 April 2023
At Peritus we believe that every client counts and no matter what size of loan you are looking for, we are the people to help you.
This month, I’m focusing on bridging loans. If you are reading this and are of a certain age, you will no doubt remember when bridging loans were the funding of last resort. Something you only took if there was no other option, usually to ensure a house chain doesn’t break. If you took a bridging loan it was really expensive and not an option you took if you could help it!
How times have changed!
Bridging loans now are an integral part of our business and the sheer numbers of lenders in the bridging market are testament to what a progressive and competitive market bridging is. No longer are they simply for chain breaks, bridging loans are used in a variety of ways and the really good news is that the number of lenders offering this funding has meant that the rates have been forced down.
But what’s available? How much will it cost? Will you be eligible?
Let’s break it down.
Bridging loans are available, in most cases, secured against a real estate asset. That could be residential or commercial, your main residence or a buy to let, a plot of land with planning or a retail unit with a new lease. The scenarios are endless.
The asset class will define the percentage of value the lender will lend against. Residential usually attract a higher LTV to commercial simply because the exit, if refinance, attracts a lower LTV.
The key to a bridging loan is the exit. Exit is king! Without a defined exit you won’t be able to secure a bridging loan. If exit is sale, the lender will need to understand what other options there are, for example, refinance.
Bridging loans are, by definition, a short term option which is why rates, although lower than ever, are still higher than standard term loans.
Let me give you a couple of examples.
The client has two properties, one is their main residence and the other is a buy to let. They want to raise a bridging loan to repay the current first charge lender whilst waiting for the buy to let property to be sold. The combined value of both properties is £7,000,000 and the client needs £3,250,000. A lender provided terms at 0.48% on a 12-month term with a 2% arrangement fee and no exit fee. This would be a regulated bridging loan (as the client lives in one of the properties).
The client has a parcel of land with planning for 60 student units. He has an agreement with a local housing association that they will purchase the land once the planning is changed to 49 residential units. He is in the process of applying for that. The land value is £1,250,000 as it stands and the housing association have agreed to purchase the land at £2,250,000 with change of use. The client wants to borrow £500,000 to carry out unrelated work on a barn. Exit will be either sale to the housing association with change of use or sale of the site with approval for student accommodation if not granted. We have terms at 0.8% per month with a 2% arrangement fee and no exit fee.
Another way in which bridging loans are used is for auction purchase. The majority of auctions require a 28 day completion period which is too short for a standard term mortgage. Bridging loans can be completed in as quick as 48 hours (!) but usually within around 2-3 weeks. Perfect for auction purchases.
Is there anything else you need to pay?
Yes! The property will need to be valued and the cost will be dependent on the type of property and the purchase price/value.
Solicitors Fees. You are liable for both your solicitors and the lender’s solicitor’s legal costs.
Broker Fees. This is the fee your broker will charge to arrange the loan for you. Our standard fee is 1% of the loan amount. Although this is always open for negotiation.
Hopefully, this has helped you to understand bridging loans and how they work.
So don’t be scared! Bridging loans are an important part of the funding process and if this type of loan is the right one for you, we will help and guide you every step of the way.
Words by Michelle Dean
