Bridging Loan Criteria
Applying for a bridging loan begins with understanding lenders’ expectations. These include bridging loan criteria and other requirements that will warrant quick approval of the bridging loan application.
A clear sense of a bridging loan, its uses, and how long should you pay it off is imperative before you choose a lender.
When you have the correct information, you can quickly proceed with the application.
In most cases, the fastest way to secure a bridging loan is through the help of experts such as The Bridging Loan Company that will connect you to the most competitive lenders.
What is a Bridging Loan?
A Bridging loan fills the gap between an immediate need for financing while waiting for incoming sales or income from another property which are not yet available.
It is also known as interim financing, gap financing, or swing loan.
If you have a property currently on sale and need finance to refurbish other properties, a bridging loan is a suitable solution.
In that way, you sustain a place in the sale chain and minimize the long wait for gains via sale.
It is a go-to finance solution for property developers, landlords, and other customers in need of short term property finance or mortgages.
Features of a Bridge Loan
- It is a short-term financing option commonly used for property
- It is faster approval and funding process compared to traditional loans.
- The interest payments are commonly imposed in a lump sum by the end of the loan.
- Credit history checks are not as intensive as that of regular loans since the borrower puts up security. However, the lender still assesses the borrower’s credit history as part of their protocol.
Bridging Loan Criteria
When it comes to applying for bridge loans, you can choose from 200 bridging loan providers in the UK to which we have access.
Each lender has its unique points regarding interest rates, loan sizes, costs, charges, fees and specific requirements. But they also share several lending criteria to assess if a borrower is qualified for bridging finance.
Eligibility and Location
The borrower must be a registered resident or private companies (Partnerships, Limited, and Offshore) in the UK. Depending on the lender’s scope, bridging loans are available in London (+ Within M25), England, Scotland, Wales, and Northern Ireland. Others can extend within Europe or as far as the USA.
The minimum loan size for any borrower is £10,000. Some bridging lenders do not impose any upper limit.
Bridging loans are known as short-term financial solutions. Thereby, payment is intended within a relatively short period. Terms of the bridge finance can range from 24 hours to 36 months. Most lenders design bridging loans for up to 18 months. Also, FCA regulations restrict regulated loans to up to 12 months.
Age and Proof of Income
Bridging lenders often require borrowers to be aged 18 and above with a clear source of income. Some lenders have an age ceiling, but the minimum age is constant. In some cases, considerations are given concerning the age if there is a Power of Attorney involved.
On the other hand, some lenders do not require any proof of income, especially if the interest rates are imposed upon clearance of the loan.
The borrower must have at least one financial asset or property that bridging loans can be secured.
The lender and the borrower will agree that the lender will assume ownership of the property upon failure to repay the entire amount or loan balance.
Security is the primary reason why it is relatively easier to get approved for bridging finance.
Here is a list of example properties that can be used as security:
- Residential property (houses, flats, holiday homes, townhouses, duplexes, bungalows)
- Commercial property (mixed-use properties, apartment complexes, restaurants, hotels, hospitals, offices, shops, pubs, parking spaces, grocery stores, gas stations)
- Industrial property (warehouses, factories, research facilities, power plants)
- Land (farms, ranches, orchards, timberland, development land)
- Personal Assets (cars and other vehicles, jewellery, watches, artworks, antiques, gems)
Bridging loan providers oblige exit strategy, which details how the borrower will repay the bridging finance based on the agreed term.
Examples of exit strategy or payment plans include:
- Sales from a property, shares, and other assets
- Debt Collection
- Property Transaction
- Claims from a Maturing Policy
- Or any anticipated income soon
Many lenders are keen on exit strategies and commonly makes it a strong preference for approval. If you aim for fast and secure bridging loans, you need to have a well-defined repayment plan.
Since bridging loans rely on security, lenders conduct credit checks to assess the interest rate that suits the paying practices of the borrower.
Most lenders are not too critical of the credit score of the customer. There are even bridging finance products intended to pay debts (CCJs, Defaults, Arrears, Bankruptcy).
A common practice among lenders is to defer the interest rates to be paid as in lump sum at the end of the bridge loan term.
Others still offer monthly payment for the interest rate or retain the interest for a specific period and pay it back when the loan is cleared.
Purposes of Bridging Loans
Bridging loans are traditionally associated with property. Over the years, the availability of bridging loans is not only directed to landlords and property developers of which development loans are very popular.
Its purposes have expanded into other conditions. Nonetheless, it remains an effective solution for immediate property finance.
Bridging finance can be classified as the following:
- Personal Bridging Loans – Choose this bridging finance if you aim to buy a new property while waiting for another to sell in the market.
- Commercial Bridging Loans – This finance solution is designed for business needs such as property financing, land purchasing, cash flow solutions, tax compliance, and more.
- Development Finance Loans – If you plan to build new properties or renovate old ones, this bridging finance is what you need.
- Auction Finance Bridging Loans – The auction finance will allow you to pay your auction purchases without the inflated APR or fees.
Here are conditions to which you can use bridging loans on:
Buying a New Property
The most popular use for a bridging loan is buying a new property while still selling another property.
Instead of waiting for the income of the previous property to purchase the new one, you can use a bridging loan to pay for your target property.
You can acquire a bridging loan as fast as a week. Thereby, it accelerates acquiring a new house, building, or land without incurring additional liabilities.
When it comes to the mortgage application, the condition of the property is a crucial requirement.
Take, for example, a residential property without a proper bathroom or kitchen. More often than not, it will be deemed ineligible for a mortgage.
A common practice among developers is applying for a bridge loan to refurbish a property to increase its market appeal, commonly known as refurbishment loans in the bridging market.
Purchasing from an Auction
Acquiring a bargained property through an auction requires an existing fund of at least 10% of the bid as a deposit.
You can arrange the rest of the payment in less than a month. With this limited period, a bridging loan fits as it suits the timeframe of its availability for the borrower and the bid payment.
You can avail of Auction Finance to seal the deal within 14 to 28 days of your bid.
Planning to transfer to another residential property can be a hassle if funds from the sale of your last house are not yet unavailable.
With bridging loans, the mortgages of the two houses are rolled up together to provide about 80% of the combined loan-to-value (LTV) ratio.
When you finally sell the original property, you can pay back the loan even long before the due date.
Cash Flow Problems
If you’re running a business, it is not uncommon to experience a shortage in cash flow for a certain period.
Money problems could be due to late payments for invoices, immediate need for repairs and product acquisitions, and other operational factors.
When cash flow is temporarily on the slow lane, applying for a bridging loan is the quickest solution.
Before you can completely get your hands on a particular inheritance that goes above the threshold (£ 325,000), you will be required to pay a tax rate of 40%.
Some bridging loan providers offer short-term financing products specific to pay fees and debts that require immediate payment.
You can still redeem a property set for repossession by securing a bridging loan.
It is more beneficial to prevent repossession, upscale the property’s value, and sell it on your terms.
Some developers also go after these types of properties to increase their gains.
How a Borrower Gets Fast Approval for a Bridging Loan?
Bridging loans are comparatively faster and easier to apply to compared to traditional loans. But to get approved real fast, borrowers must ensure to know the following:
Be sure of the purpose of the loan and the amount you intend to borrow.
Have a clear idea of how you’re going to use the loan along with the right loan size and how long you can pay it back. Lenders are interested in these details—the more specific, the better.
Determine the value of the property you will use for security.
Loan size can depend on the worth of the asset that you intend for security use. Before applying for a bridging loan, know the property’s value to get a precise estimate for your loan.
Know your mortgage and home equity.
You can get cheaper options on bridging loan products if you have these details beforehand. These are particularly essential if you want to bundle two mortgages to purchase a new property.
Compare Bridging Loan Products.
Most lenders share the same loan criteria. But they could differ from the interest rate depending on several factors.
Before applying, it is crucial to compare bridging loans and the corresponding loan rates that suit your condition. Check the website of your target lender and read the fine print.
Connect with bridging loan experts.
If you want a secure, reliable, and fast acquisition of bridging loans, the best option is to work with brokers who have access to not only one but hundreds of lenders.
The Bridging Loan Company has unfailing experience and expertise in bridging finance. You can skip the trouble of complicated application and let them lead towards the financial solution you need. Use our bridging loan calculator to get some accurate rates you can expect to pay.
Borrowers typically get a response within 24 hours of submitting the loan application. Upon approval, the release of the loan money can be within a week or two.
Find the Right Bridging Loan Providers
When choosing the right bridging loan provider, there is also a specific list of standards that customers should consider, like fees, charges, LTV, terms, and bridging loan rates.
With over 200 lenders in the UK, bridging finance products may vary along with specific requirements. Nonetheless, what matters most is the suitability of the product to your condition.
The Bridging Loan Company helps private individuals and companies find the bridging loan providers with the most competitive bridging finance products and cost-effective loan rates.
No case is too complex enough for our dedicated brokers and staff. We provide services even to customers with bad credit.
Our access with top-notch lenders like Halifax, Santander, Barclays, and many others, make it easier for applications to be submitted, assessed, and approved. Get an online quote here for a bridging loan.