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Bridging Loan Lending Criteria
Bridging lenders have their own criteria for loans. A lender will perform a variety of checks before granting bridging finance.
Bridging lenders have their own criteria for loans. A lender will perform a variety of checks before granting bridging finance. It’s critical that you familiarise yourself with lending criteria checks before you apply, as this will give you the best chance of securing the finance you need.
The better informed you are, the faster, smoother the loan application process will be.
If you have any specific questions on the bridging loan process that you would like to discuss, don’t hesitate to reach out to LoanX’s dedicated team of financial experts at any time. Use our contact form, send us an email or give us a call.
There are more than 100 UK bridging loan providers. Lending criteria varies considerably, especially when you include both large bridging finance institutions and private lenders.
LoanX can provide affordable bridging finance to clients if they meet the current criteria:
The minimum loan size is £100,000. The maximum loan size depends on several factors, the most important of which is the value and strength of the asset being used as security.
The normal loan to value (LTV) property finance we provide is equivalent to 70% of the open market value. However, some lenders can offer customers up to 80% for residential properties (subject to a credit check of applications and suitable income).
Hypothetically speaking, for the right project with the right assets backing it, there is no limit to property loan sizes available from our panel of lenders.
We can lend against all property types, including UK holiday homes, residential and commercial properties.
A bridging loan is, by definition, a short-term loan. Bridging loans are most often taken out for between 3- to 12-months. Bridging finance may be extended to 24 months in some circumstances.
Regulated loans are limited to a 12 month loan period by the Financial Conduct Authority (FCA)
A bridging loan is said to be unregulated if the borrower or an applicants family member will not be residing in the property.
It’s also important to note that unregulated lenders are unable to offer regulated bridging loans.
Security for bridging loans
A first charge is usually used if the property has no existing loans or mortgages secured against it, or if the existing lender is being cleared using all or some of the proceeds of the bridging loan.
A second charge loan or finance could be secured against a property if sufficient equity exists. A second charge is used when there is an existing charge that is not being cleared by way of the bridging loan.
An equitable charge is most commonly used when dealing with banks that do not wish to grant a second charge.
It’s the most expensive option because it doesn’t require the consent of any of the legal charge holders.
The strength of the asset (or assets) that you are using as security is a significant aspect of whether you will be successful in your application.
Most providers prefer property and land as security assets.
The strength of each asset is determined by:
- what type of asset it is (residential, commercial, land, etc.)
- the quality of the building or land
- its age and condition
- its commercial success and revenue
- whether it’s liquid and can be sold relatively easily and quickly
- its location
- its future prospects and opportunities, among other things.
Bridging Loan Use
There are a vast number of reasons you might want to get a bridging loan. Some of the reasons include the following:
- Buying under value from an LPA Receiver
- Purchasing before planning permission
- Purchase with the intent to change the planning permission
- Buying at auction
- Borrowing against value not purchase price
- Development and property refurbishment
- Buying with a deferred consideration
- Developing an uninhabitable property
Who Can Apply For a Bridging Loan?
Anyone resident in the UK and aged over 18 years of age or older can apply for a bridging loan (subject to credit checks). There are lenders who are willing to work with overseas residents (including Chinese nationals) as well.
Other acceptable types of borrowers include:
- Private companies
- Limited liability partnerships (LLP)
- UK limited companies (with a registered company number and office address)
- Overseas and overshore companies
- Other ownership structures such as pension funds may be considered
Bridging finance is available throughout the UK, including Northern Ireland.
Compared to other types of finance, credit history is not that important when applying for a bridging loan. While provides will perform credit checks, in our experience, the most important lending criteria are the security and strength of your assets.
As long as a lender finds the security you offer to be acceptable, bridging financers in the United Kingdom will be able to offer bridging finance to individuals and companies that might not have exemplary credit histories.
For the cheapest rates, some might not even need to see a credit report or request one.
Even if you have a county court judgment (CCJ) against you, you will still be able to receive a bridging loan if the strength of the asset being used as security is satisfactory.
Proof of Income
Proof of income is not required for bridging loans because there are usually no monthly interest payments involved.
The interest on the loan is paid when the loan is cleared. Interest rates depend on your circumstances.
Lenders want to know what your exit route is before approving your bridging loan. In simple terms, they want to know how you plan on paying back the loan. This affects the interest rates and charges individuals will face.
Lenders evaluate the strength of your exit strategy in order to assess the level of risk associated with offering you a loan.
Some of the most common exit strategies for bridging loans include:
- selling the property
- selling a company or business shares
- receiving money from inheritances
- cashing in on business investments
Monthly Interest Payments
There are usually no monthly payments associated with bridging loans. Lenders will typically add interest into the loan to avoid the need for monthly payments.
Most borrowers who seek out bridging loans do so because they would rather have the interest for the full term rolled up so that they can pay the loan back all at once.
This is why lenders do not ask borrowers for proof of income when giving out bridging loans.
Associated Fees and Costs to Bridging Loan Providers
There are usually no up-front costs associated with bridging loans. However, borrowers will usually need to pay a property valuation fee. Valuation services can cost a few hundred pounds to a few thousand depending on the size and value of the property that is being evaluated.
The valuation includes an assessment of the condition of a property. A valuer will visit a site and list its condition, its current use, what services are available, whether there are any parking spaces and other information that is useful to a lender. They may perform land registry checks too, if necessary.
Borrowers will also have to pay their own legal costs involved with obtaining a bridging loan.
LoanX charge all borrowers just 1%. This is half the cost of most lenders, and one of the reasons we’re so popular.
Additional fees that you or your company may be required to pay, include:
- Asset manager expenses
- Quantity surveyor costs
- Specialist report costs for things such as contamination concerns or asbestos removal
Looking For a Bridging Loan?
LoanX is a UK Property Finance Broker specialising in Bridging and Development Finance across London and the UK.
Contact us today to chat about your bridging loan options.
And, on the subject of refurb properties, it’s worth pointing out here too that the majority of high street lending companies won’t provide a mortgage for a run-down and dilapidated property.