Bridging Loans are no different to long term mortgages in that they are secured by a first charge or a second charge on your property. Because they are secured, the same steps of valuation and preparation of a legal charge deed have to be taken, and so the administration expenses involved are comparable with a normal mortgage. Bridging loans are normally for 6 -12 months duration.
The difference here is that bridging is intended to be quicker than regular mortgage finance, so bridging lenders typically employ a small panel of valuers who will respond more quickly than is normal and their valuation may be on a different basis than for a mortgage lender, since a bridging lender will be interested in what the property might be worth at auction or on a 90 or 180 day open market sale valuation. The value of your property to a bridging lender may be less than you expect for this reason.
Many bridging lenders have their own in-house solicitors to prepare deeds quickly and to advise on the legalities of the property involved. Bridging finance will normally take around 2 weeks to arrange, but in certain circumstances it has been done in as little as 2 days. It is especially useful for auction purchasers.
Bridging lenders will always lend against valuation rather than purchase price and in this important way they differ from banks and building societies who will only lend against the lower of valuation or purchase price. Bridging can be the only way that a transaction at under the market value can be financed. So, if you come across a bargain which may need some slight refurbishment it is the ideal form of finance. Once you have completed the refub. you either sell to realise your profit or remortgage at it's increased value.
If we can arrange exit finance in principle for a client where the intention is to keep a property purchased at under value, then this is less risky for the bridging lender, being known as a “closed bridge”, and the rates charged will be lower.
Rates may also be lower for clients who are not over-borrowed, because the lender will see that the client is “good for the loan”. To make assessments like this bridging lenders will ask just as many questions of potential clients as regular mortgage lenders, but they generally don't say no to a good deal even if the client has a poor history, simply because they will not quibble about taking the property put up as security if there is any problem.
Rates for bridging range between 1% - 1.5% per month, and interest can be paid monthly or added to the loan, with no monthly payments made for the duration of the loan. The maximum Loan to Valuation will vary between 50% - 70% depending on the property and risk involved, but the valuation referred to could be a 90 day valuation.
Arrangement fees will vary depending on the deal proposed but are typically between 1% and 2% plus valuation fees and legal fees. We will charge clients 0.5% fee for arranging bridging finance, where the lender does not pay a commission to us.