What factors do bridging loan lenders consider when approving a loan?
If you are considering making a bridging loan application, (typically because you are looking for funds to help bridge the gap between selling and the completion of an existing property that you have, and having the money in order to facilitate the brand new home) then it is worth making sure you are completely clued up as to the lending criteria bridging loan lenders will be assessing you on when deciding to approve or decline your application.
As one of the leading bridge finance brokers in the country, we have decided to put together a clear, concise guide to this criteria, in order for you to make the best application possible and therefore improve your chances of being accepted for this type of line.
Do you have an exit strategy?
When you make an application for a bridging loan, you will have to provide the loan provider with an exit strategy, which will be assessed. What we mean by exit strategy is when and how you will be able to make prompt repayments on the loan that may potentially be granted to you, this will also be dependent on the type of bridging loan that you have applied for too. For example, if you are looking to get access to an open bridging loan, then it will not be a requirement for you to provide an exact repayment date to the lender, however, do keep in mind that you will need to repay this loan back usually within a three year time period, and you must assure the lender that it is financially viable for you to do so. On the other hand, if you apply for a closed bridging loan, you will need to provide an exact repayment date for the lender, this will typically be when you have managed to sell your property and it has reached completion.
The type of property
Another factor that loan providers will be assessing when deciding to approve or decline you for a bridging loan is the kind of property you are intending to use the loan for. Whilst most property types (whether it be flats, houses, shops, office, parking spaces, hotels, guesthouses, bars) can all be taken into consideration for a bridging loan, you may find that it is the case that the interest rate and charges are better for those which are secured against residential property. The type of information that the lender will also require on a building you are intending to buy, or if you are using the loan for refinancing purposes include:
- The tenure of the property – whether it is freehold or leasehold
- The purchase price of the property
- The value of the property
- The cost of works (if you are intending to buy and then refurbish the property in or to sell on as an investment)
- The estimated value of the house once these refurbishment works have been carried out
- The proposed works that are to be carried out
Age of the applicant
As is the case with almost every type of loan on the market, the age of the applicant will be taken into account, and this will be a minimum applicant age of 18 years old and could be higher than this dependent on the lender. In some cases, there can also be a maximum age limit for one to be able to apply for a bridging loan.
Another factor that will be considered by a bridging loan lender will be your employment status. Generally speaking, bridging loan applicants tend to be property developers, so a lender may be assessing their previous projects in order to determine how likely it is that they would be able to make prompt repayments at the end of the term for the bridging loan. If you aren’t a property developer and are applying for a bridging loan for the very first time, then the loan provider will be wanting to make sure that you have sufficient funds and a stable enough income in order to pay the loan back when the time comes. For example, if you are constantly applying for payday loans to maintain your finances, you are far less likely to receive an approval for your bridging loan application.
One of the main advantages of bridging loans is the fact that lenders do not necessarily always take into consideration your credit history (however, this is not necessarily the case with all bridging loan lenders, so you should definitely check with the lender in question prior to making an application if you feel that your credit score may be an issue).
This can be a huge plus when so many other types of loans available on the market tend to focus very heavily on whether or not your credit history is good or bad, and can often be the deciding factor as to if your loan application is approved or declined.
On the other hand, what most bridging loan lenders do require you to have is to have sufficient collateral in order to make sure that you will be able to make repayments at the end of the term. The collateral that you will have will be usually the property assets that you have, and these can be secured against different property types including commercial, residential and in certain cases land and building plots.