Compare Bridging Loans
Now that we have pretty much discussed what bridging loans are and what these are most commonly used for, we need to point out that not all bridging loans – and bridging loan lenders or lending agencies, for that matter – are made equal. In this article, we compare bridging loans so you can decide better.
That said, you are probably wondering at this point what sort of criteria you need to consider when you need to compare bridging loans offered by two or more potential lenders. What sets one apart from the others?
Which one would be more advantageous to an individual borrower and which would be more appropriate for property developers working on either commercial or industrial properties?
Indeed, you may even ask if rates are standard across different agencies or lenders and if they charge similar fees for various services.
In this article, we share with you the different points of comparison you need to look at when comparing bridging loan providers, as well as a list of the more reputable lenders currently operating in the industry.
Criteria for Choosing a Bridging Loan Provider
There is a list of items you need to tick off as you talk to a potential lender. Interestingly enough, this criteria may also apply to you as a borrower. In this context, however, we will see how these will stack up between different lenders or lending agencies.
How Big a Loan Can They Give You?
Different lenders or lending agencies can offer various rates. These can range from a minimum of £25,000 to as much as £1 billion for infrastructure projects on a grander scale.
Note that some lending agencies claim to not have a maximum limit when it comes to issuing loans. Therefore, it is best to check what specific conditions or parameters apply in such cases.
How Long Will it Take?
In the case of loans regulated by the Financial Conduct Authority (FCA), a bridging loan may be repaid within 24 hours or for as long as twelve months. However, lenders who offer unregulated loans can extend the term for a maximum of 36 months.
What Kind of Security is the Lender Willing to Accept?
A bridging loan is normally secured against another property, but the nature of this item is dependent on your lender. For the most part, potential lenders can accept the following as security on a bridge loan:
- Owned, buy to let, or income-generating residential properties including but not limited to single-detached houses, bungalows, flats, and larger residential developments;
- Mixed-use properties;
- Commercial bridge loans for a property including but not limited to shops, offices, banks, restaurants, and pubs;
- Specialised residences such as holiday homes, student housing, or care homes and hospice facilities;
- Hospitality venues such as hotels, inns, and hostels;
- Industrial estates or factory premises;
- Agricultural land and structures; and
- Undeveloped land with or without planning permission, known as development loans
In some cases, lenders may also accept property in a state of repair as collateral on a bridging loan. This applies in cases when lenders are prevailed upon to lend against property that would not usually qualify for a mortgage.
Who Can Take Out Bridging Loans?
Most bridging loan lenders will accept transactions from the following:
- Individual borrowers;
- Pension funds or similar institutions seeking to invest;
- Corporate partnerships;
- Limited companies; and
- Companies overseas.
While the minimum age to apply for a bridging loan is eighteen, you may need to check with the lender if they have maximum limits in terms to the age of borrower. In which case, ask if there are any provisions for a special Power of Attorney for a designated representative.
Where are You Located?
Depending on the lender, services may be available across the UK or only in major cities such as London, Edinburgh, Dublin, or Cardiff. For those who are eyeing the purchase of properties overseas, it would do to check if the lender has an office abroad or has funding lines in place across the globe.
Will They Require Proof of Income or a Solid Credit History?
The neat thing about bridging loans is that some lenders will disregard proof of income or even one’s credit history. This has made this particular financial instrument appealing to those in financial difficulties or whose credit scores are not good enough for a conventional mortgage.
Some lenders may increase the interest rate for borrowers with a particularly problematic credit history or whose finances are in seriously bad shape.
Will You Need to Pay Monthly Fees?
Check if your potential lender can roll the interest into the loan, which removes the need for monthly payments. On the other hand, should you wish to or be willing to pay monthly, check if the lender or lending agency can offer a loan package with affordable terms.
What Sort of Exit Strategy to Repay the Loan Would the Lender be Willing to Accept?
It’s easy enough for lending companies to claim that they will accept any realistic exit strategy. However, most lenders will consider any of the following as a viable way to repay the loan within the prescribed schedule:
- One is able to sell off the primary property;
- Proceeds from the sale of other assets;
- Fund infusion from an investor;
- Refinancing to a loan or mortgage with a longer term;
- Proceeds from the sale of a secondary property;
- Funds received as an inheritance or grant; or even
- Sale of shares in a corporate entity.
How Does a Bridging Loan Compare to a More Conventional Bank Loan?
Over the past three years, bridging loans are becoming more popular – and are being used more frequently – than more traditional loans offered by high street banks. We have mentioned above a few of the reasons why this is so, but there are also others. These include:
Short term loans like most forms of bridging finance are more manageable
Most bank loans, particularly those referred to as secured loans, were designed to be repaid over a prolonged period of time, years as a matter of fact. Bridging loans, on the other hand, are paid in full within an average of six months, though some agencies offer loan periods of up to twelve months in the case of regulated loans and eighteen for unregulated loans.
You have more flexibility when it comes to what to use as security
Any sort of loan – bridging or conventional – tends to be secured against property. However, mortgages and more conventional loan products are always secured to habitable property owned by the applicant or a holding company they are affiliated with.
Bridging loans, on the other hand, can be secured against the value of any type of property regardless of the state it’s in at the time of application. Likewise, in the event that the borrower has no property assets, material assets of similar value (jewellery, vehicles, timepieces, and antiques) may be substituted. If it’s a loan to buy land then the actual land would be used as security.
It is easier to get a bridging loan because the conditions are less strict
We have stated earlier that most bridging loan lenders tend to eschew proof of income or even one’s credit history, making these loans more appealing to those who would normally not be considered for a mortgage or any other traditional instrument.
This is similar for development finance lenders who offer a range of bridge loans for developments such as new build homes and commercial builds.
Bridging finance lenders are more interested in what collateral borrowers will offer to cover the cost of the loan, making bridging loans more flexible than more traditional loans. Indeed, bridging loan lenders consider applications on the basis of individual merit as opposed to the more common yes/no systems used by banks and repayment terms are stated based on the borrower’s capability.
You can get 100% of your loan when you apply for bridging finance
Unlike traditional banks or lenders who will not offer a loan or mortgage equivalent to 100 per cent of the purchase price of the property you have an eye on, bridging finance providers offer 100 per cent loan-to-value (LTV) loans.
Banks and other traditional lenders will make you wait days – even weeks – to get your money. Bridging loan providers can release funds within hours, making bridging loans ideal for situations calling for immediate payment such as a down payment for a winning auction bid.
Borrowing costs are much lower
Because of the short term nature of bridging loans, overall borrowing costs are considerably more cost-effective for those who are on a tighter budget than most.
Where bridging loans are concerned, age doesn’t matter
As with other financial instruments, the minimum age for borrowing is eighteen years old. However, banks and more conservative lending agencies tend to shy away from loan applicants older than 55. Bridging loan lenders, on the other hand, are not as discriminate. Indeed, so long as the applicant is fully aware of the stipulations of the loan, age is not a problem.
I Need a Quick Comparison, How Do I Go About It?
The best solution to this would be to check out lending companies that offer an online bridging loan calculator. This widget computes the LTV of your loan based on specific parameters you enter. Looking at different bridging loan provider websites and using their calculators will give you points of comparison that you can use when shopping for a potential lender.
Also, go over any and all information available on each website regarding the typed of bridging loans offered, base rate, broker fees, exit fees, and how interest payments are done.
If I Were to Look for a Bridging Loan, Could I Get One at a Bank?
Here’s the thing: bridging finance is what is referred to as a specialist product. This is to say that, while high street banks have products and loan programmes of a similar nature, it would be best to deal with a company or an individual licensed under the Financial Conduct Authority (FCA) who is specifically focused on short term loans that can bridge the gap until such time that you can get adequate funds to cover the cost of the loan.
Likewise, going beyond high street institutions and traditional lenders accords more flexibility for borrowers who can easily shop around for a provider who can match them with the appropriate bridging loan types. Also, when shopping around for a bridging loan provider, check out the interest rate offered by each company for both open-ended and closed bridging loans before signing off on anything.
The interest rate can be considerably higher for open bridging loans – essentially a bridging loan with an exit strategy but not a definite end date – because of the higher risk involved.
Which Bridging Loan Providers Do You Deem Most Suitable?
We specialise in linking potential borrowers with the right lender. Our focus is not just in and around the high streets, but even beyond them. For your bridging loan or other short term loan requirements, we have access to over 200 of the UK’s top leading bridging loan providers.
How Do Banks Stack Up When it Comes to Bridging Loans?
We previously stated that banks, for all that they have an extensive range of financial tools and instruments, are not exactly well-equipped to handle bridging finance transactions. However, some of them do offer bridge loan packages (albeit on a more limited scale). They also offer loan products specifically for real estate and property purchases.
Halifax has quite a reputation for bridging finance. It actually offers highly competitive rates and caters to both individual and commercial clients. One can borrow between £10,000 and £250 million, and there’s the additional advantage of being able to arrange both your loan and exit at the same time.
However, Halifax can be limited in terms of its instruments. Hence, it’s best to weigh your options before signing off on any loan arrangements with them.
Santander offers a broad spectrum of loan products and services. It offers both regulated and unregulated bridging finance loans that can be used for property purchases, asset finance, development loans, even travel insurance and car insurance. However, given how stringent Santander’s lending criteria can be, it would be a better option for those looking for more traditional loans rather than bridging finance.
One of the country’s foremost financial institutions, Barclays offers a surprisingly extensive range of bridging finance products: both open bridging loans and closed bridging loans, even short-term loans for a variety of purposes that include auction purchases and development loans, aside from standard property purchases. However, Barclays charges the highest monthly interest of any conventional bank when it comes to bridging loans.
As a leading commercial bank, Nationwide offers numerous loan products, including bridge loans for a variety of uses. However, the issue that many customers have with Nationwide is a limited number of options.
As one of the oldest banks in the world, the RBS’ clientele knows it specifically for a broad spectrum of financial products and services – unfortunately, bridge loans are not one of them. The RBS is better known for more conventional mortgages and specialises in long-term loans as opposed to those you can avail of for a shorter period of time, which are not usually the best for auction finance loans.
Why You Should Work with The Bridging Loan Company
With access to over 200 of the UK’s best lending companies and independents, we offer you a world of options thanks to our expansive network of brokers and loan specialists.
Our experts can easily guide you through the bridge loan application process, explaining the pros and cons of each loan type; show you the difference between a first charge loan and one with a second charge; set you up with a lender accredited under the Financial Conduct Authority; discuss the loan amount, LTV, monthly interest rate, and exit strategy; and get the best possible APR.
Ready to take the next step? Send us an enquiry via our online form here with your email and contact number, and we will be in touch as soon as possible or use our bridging loan calculator to get indicative rates.