Bridging loans can be a powerful way of allowing you to do property deals that you wouldn’t otherwise be able to do.
In this guide we take a look at how to get a bridging loan and what you need to consider when taking our bridging finance.
What are the costs of a bridging loan?
Bridging loans can come with varying fees – every lender is different.
What fees are charged vary between lenders but you may need to consider:
- Valuation Fees
- An Arrangement Fee
- Legal Fees
- An Exit Fee
- A Broker Fee
Some lenders charge other fees too. Make sure you are aware of all these before planning your exit strategy.
Lenders will charge different fees, call them different things and also structure the deal differently with interest paid in differing ways.
A good broker can be invaluable to help you navigate through this maze – and their fees can be worth their weight in gold.
Bridging Finance isn’t cheap – but it can help you do property deals you wouldn’t otherwise be able to do.
The cost of bridging finance will also be massively effected by your circumstances.
The less picky lenders tend to cost more while the ones offering higher LTV and quicker finance tend to be more expensive too.
If you aren’t in a rush, have a good track record and don’t want to borrow more than 50% of the property’s value you can shop around and get a good rate.
Can you benefit from bridging finance to offset the costs?
Once you have worked out all your costs, it is important that you will still come out with profit from using a bridging loan.
When taking out a bridging loan to buy a property you intend to hold make sure the discount you are getting on the property by using the bridging loan to get in quick offsets the costs of the bridging finance compared to a traditional mortgage.
Do you have a good exit strategy?
Getting stuck in a bridging loan is dangerous. The high costs can quickly eat into your profit if the term is extended.
Lenders can often increases the rate or add charges if you run over the original terms of the loan.
It is paramount that you have a good and achievable exit strategy when taking out bridging finance.
Make sure the term of the loan allows for things to take longer than planned – as they nearly always do.
It is nearly always cheaper to take out a longer term loan than extend an original one.
And make sure you have a worst case scenario exit strategy.
If things go wrong, such as the property not selling, can you sell it at a price where you can still breakeven?
Consider and have a plan for all eventualities.
Should you look for the best bridging finance terms or the best rates?
This will depend on what you are looking for.
If you want to get the best rates you are going to have to accept that the cheapest bridging finance lenders won’t lend you as much relative to the property’s value, may depend you have more experience and will also take longer to get the finance accepted.
If speed, the amount you want to borrow are important factors – or you don’t have a track record – then you will have to pay higher rates.
How to get a bridging loan
Getting a bridging loan is pretty similar to getting a mortgage – only faster.
The lender will ask your solicitor to send the required documents, raise any queries and then approve and release the funds.
Because lenders need to look as less if information than with a traditional mortgage, it’s technically possible to complete a bridging transaction in under a week.
A few weeks is usually more realistic though.
How long it takes can vary a lot depending on the circumstances such as:
- How long it takes for a valuer to send in his report
- Whether it is a first or second charge loan
- How quickly the solicitors work
- How quickly the lender works
- What information the lender requires
If you need your bridging finance sorting sooner make sure everyone is aware of your deadline and keep in touch to ensure they act quickly.
It’s not unusual to have to pay higher rates for lenders that act faster so bear this in mind if speed is important to you.
Using a good broker can help you with all the above – and they will know which lenders work faster than others.
As you can see Bridging Loans – when used for the right circumstances – are a very useful way to fund property developments.
You need to have a legitimate reason for using bridging finance together with a clear exit strategy and work with the right lenders.
Having a good broker on board can be invaluable in helping you with your plan and with finding the right lenders.
If you are considering using bridging loan be sure to drop us a line and we can help you with every element of your bridging finance. Get in touch for an informal chat on 0161 913 2780 or email us here