In This Article
What is a bridging loan?
A bridging loan is a short-term finance facility used to buy a property. This is done so on the basis that the loan is repaid within a certain amount of time, for example, one year.
Bridging loans are taken for scenarios such as a purchase where there is not enough time to wait for a standard mortgage to go through, a purchase when someone is buying a property but does not have time to sell their current one to pay for the new one or when a property would not meet criteria to get a standard mortgage.
Bridging loans are usually paid back by sale of the property that the loan is secured against, sale of a property in the background or otherwise refinancing of the loan onto a standard term mortgage, for example, over 25 years.
A bridging loan can be used to purchase a range of properties such as houses, offices, pubs, shops and more.
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Is bridging loan criteria the same for every lender?
No. Like a standard mortgage lender offering term products, bridging loan criteria changes from lender to lender. For example, where one person’s experience of renovating a property may not be enough to satisfy one lender, another may be fine with the deal.
The same could be for an applicant’s credit file, residency status or the property. Different lenders have different appetites for certain scenarios so best to speak with a bridging loan professional who can understand the situation and then give advice accordingly.
What is the bridging loan criteria around the applicant’s income?
Often, the applicant’s income will not be a deal-breaker when applying for a bridging loan. This is because, most of the time, the interest is retained rather than paid monthly and then the loan is clearer at the end (so perhaps when a property sells or the bridging loan is refinanced).
This means that a net loan amount is released and a gross loan amount is paid back at the end of the process to take into account the retained interest and many of the fees.
Sometimes people choose to take the bridging loan on an interest-only basis which means that monthly payments need to be paid. When this is the case, bridging loan criteria changes as income needs to be underwritten so the lender is comfortable that the applicant can afford the repayments.
If for example, it’s a residential bridging loan and the plan is to refinance the loan at the end of a residential mortgage, the bridging loan lender may want to see evidence that the applicants qualify for a residential mortgage to reduce their chances of being stuck on bridging finance with no exit.
What is the age criteria for a bridging loan?
The youngest age for someone taking a bridging loan is 18 years old. Regarding the latest age that a lender can go to, some lenders have no limit.
The main caveat when there is no upper age limit is that the applicants can clearly understand the terms of the finance that they are signing up for and not being put up to it by other parties.
Your bridging loan adviser would be able to select a lender based on your age among many other things.
What is the criteria for repaying a bridging loan?
When it comes to the bridging loan criteria for exiting the loan, some lenders can be flexible on the repayment method as long as it makes sense.
Common ways to repay a bridging loan are sale of the security property itself (for example, once it has been renovated), sale of other properties that are owned or a refinance of the security property onto a standard mortgage.
It may be that before the bridging loan, the security property was not in a good enough condition to qualify for a standard mortgage or that there was not enough time to arrange one (for example, the property being bought at auction with a small window of time).
What is the criteria for condition of property with a bridging loan?
Some lenders can be very flexible with the property condition and that is one of the main reasons that a bridging loan is taken in the first place as the property is unsuitable for a conventional mortgage. The property value may affect the interest rate that is offered but all sorts of conditions can be considered.
These range from properties requiring light improvement, to heavy improvement needed including structural and even properties that need to be demolished and rebuilt from the ground up.
The applicant’s experience will be a factor on the heavier stuff and different lenders will accept different property conditions so the bridging loan criteria for property condition will change from lender to lender.
What is the criteria for bad credit when taking a bridging loan?
As the interest charged by a bridging loan lender is often retained and repaid at the end, many bridging lenders can have a large amount of flexibility when it comes to an applicant’s credit file.
This means that all kinds of adverse history can be looked at such as bankruptcies, IVAs, defaults, county court judgements and more.
This may be affected on residential bridging loans when the lender’s bridging loan criteria may insist that the applicant demonstrates that they can get a residential mortgage if they are applying on the basis that one will be used as the exit strategy for the bridging loan.
Talking with a professional bridging loan adviser will allow them to look for a suitable lender that can accommodate an applicant’s credit history.
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What is the criteria around maximum loan to values on bridging loans?
The bridging loan criteria for many lenders allow them to go all the way to 100% LTV as long as there is sufficient equity to secure the loan.
This would mean spreading the bridging loan across multiple properties, For example, if you owned property worth £600,000 with a £300,000 mortgage on it and needed to buy another property for £300,000 and borrow the full amount, this would mean £150,000 could be secured to each property.
So the original property has total finance of £450,000 (including the original mortgage) and the new property has finance of £150,000.
This is only an example of course and there would be fees and interest retained etc but hopefully illustrates how spreading the bridging loan over multiple assets would work.
What is the criteria for companies taking a bridging loan?
Bridging loan criteria for companies does not change much and the lenders are more interested in the security properties, people behind the companies, the exit route and the amount of lending needed.
Many bridging loan lenders use similar criteria looking at the applicants (usually the directors) credit and experience for the project, along with the plan to then make a lending decision.
What is the criteria for foreign nationals taking bridging loans?
Bridging loan criteria for foreign nationals is usually the same as that of UK citizens with them being accepted by almost every lender.
Different lenders will have their criteria around visas, right to remain, settled or unsettled statuses but similar to the other factors, there is usually a lender for every scenario. Bridging loans are even available to ex-pats.
An experienced bridging loan adviser can look for a lender that can lend to you accordingly based on your residency status. If you would like I NEED ADVICE to match you with a bridging loan broker, please complete the contact form.
Should I take professional advice when taking a bridging loan?
You should always take professional advice when you are thinking about a bridging loan.
The rates on bridging loans are higher than standard mortgages so they can be very risky if you do not have a clear plan of how to repay them or if it takes longer than expected to pay them back (for example, you struggle to sell another asset in the background or have trouble refinancing away from the bridging loan).
Lenders all have different rules too so keeping on top of these if you’re not in the industry can be a challenge.
Discuss with your adviser your plan for the project and how you intend to repay the bridging loan so they can make a bespoke recommendation to you aligned with your scenario. Read more: Bridging loan broker in London.
Conclusion
Bridging loans can be flexible in terms of who they lend to, a person’s income level, their residency status, the property, loan to value and so on.
Different lenders have different criteria so where one person may be acceptable to a lender, they may be unacceptable to another lender. A bridging loan broker will be able to get an understanding of your situation to then make a recommendation accordingly.
Most bridging loan brokers will be regulated by the Financial Conduct Authority and members of the National Association of Commercial Finance Brokers.
If you would like I NEED ADVICE to match you with an experienced bridging broker, please complete the contact form.
They are experienced, which can boost your chances of being approved.
