Bridging loans are the typical go-to when using other forms of finance is impossible. You will be required to provide security for the loan as with other forms of borrowing. Current lenders will now consider high-value large loans for periods from a few days up to around three years, and their decisions are based on your exit plan for the loan.
How much can I borrow?
The amount you can borrow will depend on the property you place as security. There are various bridging loan types offered throughout a regulated and unregulated market. The most suitable loan type will depend on whether your security is, has been or will be the home of you, or a family member, or a commercial, buy-to-let or non-primary residence. The lender will also want to see a solid exit plan. A closed bridging loan arrangement is possible where capital to repay the loan will be available on a set date. However, for cases where liquidity events are known, but the exact date funds will be available is unclear, then an open bridging loan can be arranged.
Lenders generally require a deposit of around 20-25%. However, the market is highly individualised, and some lenders will offer considerably lower deposit terms, and some will only consider lending if the deposit provided is higher. The more complex the loan, the more risk to lenders, which can highly influence the sums available. Each case is viewed on its merits and requires careful presentation. The strength of the exit plan, and whilst there is generally no restriction on how the funds are spent, the plans in place for spending the capital raised can be a factor in how much can be borrowed and deposits required.
Some lenders will consider multi-asset lending, whereby the loan is secured against two houses, which can reduce the deposit required and maximise the amount you can borrow.
Interest structure
There are three main ways to repay interest, and of course, the interest rate critically affects the total cost of the loan. However, it can also impact the amount you can borrow. A vastly experienced broker for bridging finance like Enness Global can help to guide you through the effect each type of interest structure will have on the amount you can borrow and your cash flow. They can also present your case to lenders best suited to meet your financial goals and secure competitive bridging finance.
Interest can be settled on a retained basis, whereby the interest is deducted from the gross loan amount and withheld to meet the interest costs as they accrue. Interest is typically accrued monthly and payable as a percentage of the loan amount.
Rolled-up interest is added monthly to the outstanding loan amount, and paid back when the loan is settled. Serviced interest is payable monthly as expected with a traditional mortgage, so it’s essential to have the cash flow available to meet these payments throughout the loan term.
As you will see, there are many variables involved in the bridging finance market, and whilst arranging a bridging loan is a speedy process, it is essential to have a clear understanding of the market, and how lenders assess your circumstances to get the best solution for your circumstances, in addition, there are many lenders who will only handle broker assisted applications. It’s worth considering that they are often crucial to getting the best deal.
