How To Apply for a Bridging Loan in the UK
Applying for loans can be confusing. One of the most misunderstood loans available is a bridging loan.
This comprehensive guide will walk you through everything you need to know about these short-term loans, including what exactly these loans are and the best way to apply for one to maximise your chances of your bridging loan application being accepted.
Bridging Loans: A Guide before you apply
You’ll likely have heard of the term ‘bridging the gap.’ A bridging loan does just that.
Being approved for a bridging loan is ideal for many that need to borrow money in the short term.
For example, if you want to buy a new home prior to selling your old one, this loan will bridge the gap between the two instances.
These loans are also particularly useful if you purchase a new home or property at an auction. In most cases, you will be expected to pay the outstanding balance straight away. But, if you haven’t sold your current home or property, you may not have the funds to complete the transaction.
This is where a bridging loan can come in as an effective stop-gap for you and your finances.
Applying For Bridging Loans – Process, Criteria & Eligibility
In simple terms, when time is short and you need money quickly to pay for something, a bridging gap can be the perfect solution. Unlike many other forms of loan, such as a mortgage or a secured loan, a bridging loan can often be organised much faster.
However, the interest rates are typically higher than for these other loans.
In order to be successfully approved for a bridging loan, you will be required to prove that you have a strong exit strategy and can pay within a particular timeframe. Failure to do this will mean your application will be rejected.
Next, let’s discuss, in more detail, how bridging loans work.
You need to know how bridging loans work before you apply for one:
There are two types of bridging loans available: ‘open’ and ‘closed’.
An open bridging loan
If you opt for an open loan, there isn’t a fixed date to repay the bridge loan, although you’ll usually pay it off within a year.
A closed bridging loan
Unlike open bridging loans, closed bridging loans come with a fixed repayment date. This form of a bridge loan is usually given out if the person borrowing has signed contracts on a property and is simply waiting for the sale of a property to go through.
Requirements Of A Bridging Loan
Regardless of which of the bridge loans you decide to apply for, you must make it clear to the bridging lender that you have a clear and coherent strategy to repay the debt borrowed. For example, they will want to know precisely how you intend to manage your repayment. Do you plan to take out a mortgage or use equity from the sale of a house?
They will also ask for proof of income, your credit history and the price you plan to pay for any new property. You should also ensure that your lender is aware of your backup plan that you should have in place if, for whatever reason, your repayment strategy does not go to plan.
If you don’t have this clear evidence, you will be very unlikely to secure bridging finance. And, in certain instances, a lender will carry out a valuation report, which they will use as security.
How Much Can You Borrow With A Bridging Loan?
Many lenders can offer a loan amount of upward of £10,000. In some instances, the minimum figure can be as high as £25,000 for both commercial properties and residential properties. The maximum amount can be anything up to £1 billion.
However, it’s important to understand that the amount you’ll be able to borrow is usually a maximum of 75% of the property purchase price. This is known as a Loan-to-Value ratio or LTV.
Applying For A Bridging Loan
Below are the steps required to get a bridging loan application up and running without a hitch:
1. Know your exit strategy
This usually consists of the sale of a property or, in certain cases, a remortgage. If you have an agreement in principle, have the paperwork as proof. Having this on hand to provide to a lender will help to get a bridging loan as it will strengthen your overall application.
2. Get a finance broker
As the market is vast and packed with a wide range of bridging loans, it can be incredibly confusing and stressful to know where to look. Without professional advice, you open yourself up to a world of confusion and potentially bad decisions.
Having an expert bridging finance broker in your corner that can seamlessly guide you through the application process and pair you with a lender who can offer you the best deal is a great idea. They’ll explain the duration of the loan term, as well as the minimum credit score you will likely need to apply.
3. Prepare and submit your application
Your bridging loan broker will help you through each and every step of the application process, as well as the paperwork. Once your application is done and dusted, their bespoke services mean that you’ll be matched with a top-notch lender.
The criteria for applying for most bridging loans will depend on the lender. However, most bridging lenders are flexible with applications being considered on a case-by-case basis.
Many of the best loans are reserved for those who excel in the following criteria:
A coherent and provable exit strategy
If you don’t have a good exit strategy, many bridging lenders will automatically refuse your application without looking at any other factors before dismissing it. That’s why it’s so vital to have a robust exit plan in place that details a sale or remortgage.
An exit strategy must consist of goals that are achievable. If a lender thinks you’re being overambitious, you’ll not be accepted.
A security property
In the event of a sale, a lender will be favourable towards those with a security property, with which the building is signed off to change hands for the final amount.
Finance lenders may look into the location of the property and what type of build it is in an attempt to uncover if some buyers may be deterred from committing to purchase.
While bad credit doesn’t equal instant rejection when it comes to being accepted for bridging finance, having a good credit history can help you to get the very best rates and lower interest on a loan.
Where Can I Get A Bridging Loan?
Many assume that approaching a bridging finance lender directly is the best way forward for any form of a loan. However, this is seldom the case.
The reason behind this is, you won’t always find the best and cheapest deal for you, as well as a loan that will tick all the boxes you require checking off.
It’s also not a good idea to take such a big financial leap without clear-cut and unbiased expert advice and opinion.
The best way to approach securing a loan and avoid the potential pitfalls is to speak to a mortgage advisor that has access to the whole of the market and, therefore, is more likely to bring you the best deals.
Speak To Loan Corp Today
Think a bridge loan is the right course of action for you? Why not speak to the experts at Loan Corp today, who can help advise you on the best way forward?
Whether it’s a residential property or a building for commercial use, our seasoned team of professionals have the knowledge and experience to help you find the very best bridging loan for you and your circumstances.
Let us take the hard work out of finding the ideal loan, and speak to a member of our friendly team today.
Are bridging loans a good idea?
Depending on your circumstances, bridging finance can be an invaluable lifeline for residential and commercial property investments. Ideal for those people who require a loan quickly, bridging loan applications must be backed up by hard evidence, proving you can pay the full amount back. Be prepared for higher interest rates than for a secured loan, for example, from bridging lenders.
Can I apply for bridging loans with zero deposits?
In some cases, it may be possible to apply for a high LTV bridging loan (up to 100%). However, this will mean you may have to put up more assets against the loan as collateral to get a higher loan amount.
How long do bridging loans take?
If your case is straightforward, you could be accepted within a matter of days. However, this will be a conditional offer, with final acceptance subject to the valuation. In terms of repayment, a loan term may be attached to your contract.
What are the alternatives to a bridging loan?
If you wish to move to a new residential property, but cannot sell, mortgage lenders could accept you remortgaging your current property on a buy-to-let mortgage and using the released capital to purchase a new property.
Bridging loans can be an effective way to bridge the gap between your finances. If you are waiting for the money from a house sale, for example, these loans provide the perfect stop-gap so your finances don’t run dry.
However, be prepared to have strong evidence to back up the application, otherwise, it’s highly doubtful your request will be accepted. Also, ensure that you can comfortably pay the money back. And, if the worst was to happen, where you find you cannot afford to pay the loan back after acceptance, it’s important to seek advice from a professional financial advisor.
Finding the right bridging loan is not always easy. But, with the right people paving the way with expert advice, detailed knowledge of the market and the enthusiasm to help you succeed in your application, the stress and anxiety of the process can be mitigated.
That’s why we always recommend reaching out to us at Loan Corp, so you can find the best bridging loan deal for you.
We can get you approved for a bridging loan in just 24 hours, start online below: