Large Bridging Loans Guide
Bridging loans provide you with the funds needed to continue a purchase while you’re busy freeing up money. These short-term loans are beneficial, which is why they’re still often used today.
This article will cover bridging loans but particularly large bridging loans. We’ll be looking at how they work, who they’re for, and what eligibility criteria they have.
Next, we’ll be looking at the costs associated with these loans, and we’ll be exploring their pros and cons.
Finally, we’ll deal with some frequently asked questions about getting a large bridging loan amount. Let’s get started:
How Do Large Bridging Loans Work
Bridging loans help borrowers cover any shortfall of funds they may have. Essentially, they offer you support until your larger income source becomes available. Large bridging loans are often used when buying a new property or refurbishing an existing one.
These bridging loans typically require that you sell your existing property to pay off your loan for the new one or sell your refurbished home once it’s completed. They give borrowers a way to carry on with their plans or purchase without waiting.
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What Are Large Bridging Loans Borrowed Against?
Bridging loans are commonly borrowed against your existing residential home, but you can borrow them against the following:
- Office blocks,
- Land,
- Apartments,
- Care homes,
- Housing and hotel developments,
- And industrial units.
Types of Bridging Finance
When getting a bridging loan advice, you may realise that there are different types. In the following paragraphs, we’re going to discuss the kinds of available bridging finance today.
Closed Large Bridging Loan
A closed bridging loan is when the lender knows how and when you will pay back your loan. In essence, this loan requires that you have an exit strategy. These loans typically have lower bridging loan rates than open bridging loans.
Failure to pay back this loan within the allotted time will often incur penalty fees.
Open Large Bridging Loan
If you don’t have an exit strategy, an open bridging loan may be right for you. These loans don’t have a fixed repayment date and are more flexible.
Many lenders may consider these to be riskier and thus will likely charge you a higher interest rate than they would if you were taking out a closed bridging loan.
Fixed vs Variable Rate Loans
Bridging loans also come in different options. You can opt for either variable or fixed rates. Variable rates are less reliable and are subject to fluctuation. So while you may get a good deal initially, this may change.
On the other hand, fixed rates keep your repayments consistent throughout the loan period.
How is Your Interest Rate Determined?
Your interest rate is tied to the Bank of England base rates. Although ultimately, it’ll vary depending on the lender you use. It’ll also depend on various eligibility criteria, which we’ll cover in detail soon. Finally, it’ll vary depending on the state of the bridging loan criteria and general bridging market.
Loan-to-value (or LTV for short) is the ratio of loan you need to borrow based on the value of your property. The lower the amount you want to borrow related to your property price, the less risk you present for your lender.
So, the lower your loan-to-value, the lower your interest rate will be. Typically, obtaining an LTV of higher than 75% will be extremely difficult. However, LTVs between 70% and 75% are very common.
Who Is a Large Bridging Loan For?
Bridging loans are for anyone who needs finance quickly and has an exit strategy. Exit strategies are planned ways to pay off your loan. For example, a strategy might be to have an offer from a buyer for your home.
Large bridging loans are useful in the following circumstances:
- You’re looking to buy an auction property: bridging loans are great for in-the-moment purchases, such as during an auction. Auction finance can help you pay the initial fees and not lose out on a great deal.
- You’re going to renovate a property: these bridging loans can be helpful when renovating a property that may, at the moment, be considered uninhabitable. Your plan for property development should make it suitable for living.
- You’re moving houses: a large bridging loan can provide the finance needed to make a property purchase while you wait for your current property to be sold.
Eligibility Criteria
In this next section, we’re going to look at the eligibility criteria for large bridging loans. But first, who can borrow these types of loans?
Currently, bridging loans are available for UK and non-UK-based residents, offshore and limited companies, partnerships, and pension funds.
To determine eligibility, lenders will look at the following criteria:
- The borrower’s age: borrowers must be at least 18 years or older. However, specific lenders may even have a higher minimum age than this.
- Whether the borrower has a form of security: because large bridging loans are secured onto assets, borrowers will have to have a form of security. This will typically be in the form of a property.
- Whether the borrower has an exit strategy: lenders typically require that borrowers have a well-defined exit route for paying off their large bridging loan. This could be anything from refinancing to selling your old property.
- The homeowner’s credit history: a borrower with a poor credit score is much less likely to get a bridging loan. This doesn’t mean it’s impossible, but the criteria for people with bad credit will be stricter.
- The homeowner’s financial status: this is one of the main factors that lenders will consider. It includes evaluating your money and whether you’re self-employed, retired, or employed by a company.
- The location of your property: if your property is located in a rural area, lenders may be concerned about you using the sale of it as a strategy for exiting the loan, as it’ll be challenging to sell. Lenders may also be worried about the property value in this area and may require a revaluation of your property.
Cost of a Large Bridging Loan
Getting yourself a large bridging loan is usually a last resort because they’re costly. And this is not only because of the high-interest rates we mentioned earlier. There are several different fees that you’ll have to pay, including but not limited to the following:
- Valuation fees: bridging finance lenders typically want to inspect the property to ensure it’s worth the amount of money you wish to borrow. Essentially, they’ll want to assess the property value. And although these fees will vary, you can expect to pay between £300 and £900.
- Admin fees: lenders typically charge you this fee to access your loan. And while it may vary, it’s usually around $500.
- Transfer fees: along with other administrative fees, the transfer fees (usually about £25) are the bank charges associated with transferring funds from the lender to you.
- Broker fees: these fees are only applicable if you work through a broker. While they can be a flat fee, they typically range from 0.5% to 2%.
- Product fees: lenders will generally charge a product fee for organising a loan. This is typically between 1.5% to 3%. Your bridging lender may waive this fee, depending on how much you can borrow.
This is by no means a comprehensive list of everything lenders may charge. Be sure to discuss the issue of costs with our mortgage professionals. We’ll ensure to get the best deals at the lowest prices on your bridging loan application.
Upsides and Downsides of Large Bridging Loans
Large bridging loans tend to come with both benefits and drawbacks; we’re going to explore this in more detail in the following sections:
Pros of Large Bridging Loans
There are several upsides to taking out a sizeable bridging loan amount; this includes but is not limited to the following:
- Fast finance: you can acquire a sizeable bridging loan amount within three days, but it may take up to two weeks. These loans are very efficient and provide a way for borrowers to get funds quickly.
- Stress-relief: because homeowners can get large bridging loans quickly, much of the financial stress associated with moving homes is relieved.
- Allows for opportunistic buys: commercial buyers will find that bridging loans allow them to purchase a home at a good deal even without having the funding to buy it. By purchasing this great deal, they can subsequently resell it at a profit and pay off their loan.
Cons of Large Bridging Loans
While bridging loans are a handy tool in any borrower’s toolkit, they have some downsides; this includes the following:
- Costly: unfortunately, because large bridging loans are easy to acquire, they also come with high rates.
- Risk losing your property: if you find yourself unable to pay off your bridging loan, you may end up putting your property at risk as bridging loans are secured against assets.
- Have to be paid off quickly: unlike other forms of loans, bridging loans have to be paid off relatively quickly. While some loans may give you many years to pay them off, you’ll likely have to pay off your bridging loan within a year.
Loan Penalties
Like in a traditional mortgage, breaching the conditions of your loan contract could lead to you having to pay penalty charges on top of your regular fees. Failure to make payments can even result in the termination of your arrangement.
Finally, it may even put the property on which you secured the loan at risk.
FAQs
Do banks still offer bridging loans?
While banks may not directly offer bridging loans, they may provide funding loans for lenders of these loans. However, it’s challenging to track as a bridging borrower typically has several funding lines and won’t state who they’re borrowing from.
What is the longest term for a large bridging loan?
Bridging loans are short-term finance, generally between a single day and twelve months. But, the majority of bridging borrowers will offer up to 18-month terms.
Why is bridging finance so expensive?
A large bridging loan amount will usually have a high monthly interest rate. This makes it more expensive than other short-term debt relief options. This is the case because they’re a high risk for the lender and because of how quickly you can get one.
How much bridging loan can I get?
Usually, you can get up to a 75% LTV on your bridging loan. However, the overall amount you can lend depends on your financial circumstances and the value of your home.
Why is a large bridging loan risky?
Bridging loans are risky because borrowers will have to pay back significant returns in a short amount of time. Without a plan, this could cause someone to default on their loan commitments.
What is an excellent alternative to a bridging loan?
An alternative to getting a bridging loan is to remortgage. This is when you move your existing mortgage to a new borrower either to get a better deal or to release equity in your property.
What are the cons of a bridging loan?
One of the primary disadvantages of getting a bridging loan is its’ high interest rates. This is paired with the fact that most bridging loans are secured loans. They thus put your home at risk if you default on your payment.
Looking To Get a Large Bridging Loan?
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