Any individual or limited company or trust can apply for a bridging loan. They can be used for just about any reason, as long as the reason is approved first and the borrower is 18 or over. The loan requires a property (including residential property, commercial property, flats, houses and investment property) or an asset, such as land, as security. Different lenders are able to accept varying types of security.
Bridging loans are secured a loan, which means that the lender takes first or second charge over the property, land or asset being financed. If the borrower is a company, the lender may require further business guarantees. The idea is that providing security for the lender ensures that the loan can be repaid. Without the ownership of these assets, a bridging loan cannot go ahead. The main concern for bridging loan lenders is always how and when they will get repaid. Any lender will want to be certain that if they lend money, it will be repaid as promised by the borrower.
The security will then be used to work out the loan to value (LTV) ratio of a bridging loan, which works in a similar way to a traditional residential or commercial mortgage. It shows the size of the loan in comparison with the property value. This therefore means that the total loan must fit within the loan to value.
Below are some examples of maximum loan to value percentages with lenders:
United Trust Bank
1ST Charge: 70%
2nd Charge: 65%
Maximum LTV: 65%
Maximum LTV: 50%
1ST Charge: 65%
2nd Charge: 60%
While some bridging finance companies will still make thorough checks into credit history, some are non-status based and more flexible bridging lenders, like MT Finance who do not use credit scoring to assess applications, do not require proof of income and have no upper age limit. Not many banks provide bridging loans, but the ones that do will ask lots of questions and want supporting information.
To qualify for a property bridge loan, the borrower must have a contract to sell their existing house.
As the interest on bridging finance is higher than the rates on other loans, bridging loans should only be used where short term finance is required. It is also important when taking out a bridging loan not to simply look at the interest rate being charged but at the overall cost including all fees, to see what best suits you.