This information should not be interpreted as financial, tax or legal advice. Mortgage and loan rates are subject to change.
This guide is for landlords or property investors who are looking for fast bridging loans. Bridging loans are suited to situations where short-term funding is needed, typically for property transactions but sometimes to cover bills; which will pay-out more quickly than a mortgage.
This guide will give you details around specific uses for bridging loans, just how quickly you might expect to receive funds and what you can do to help speed up the process.
Bridging loans are typically used to bridge the gap between the sale of one property and the purchase of another. They are secured against a property, which means that the lender has the right to take possession of the property if the borrower is unable to repay the loan.
Bridging loans are typically repaid within 6-12 months, although some lenders may offer longer loan terms of up to 18 months. The interest rates are generally higher than traditional loans, as the lender is taking on a higher level of risk.
When should you consider a bridging loan?
There are several situations in which a bridging loan may be suitable:
Property purchase: If you're looking to purchase a property but need to move quickly, a bridging loan can be arranged faster than a mortgage.
Property renovations: If you need to make renovations to a property that you own, a bridging loan can provide the necessary funds to complete the project.
Buying land to develop it: You can invest in land with or without existing planning permission to build a property on it, using a bridging loan. The bridging loan can pay for the costs of building works as well as the cost of the land.
Business cash-flow: If you're a business owner and need quick access to cash to meet an urgent need, such as paying a supplier or making payroll, a bridging loan can help you pay a bill where there is a gap before business income is due to be received.
Like any financial product, bridging loans have their pros and cons. Here are some of the advantages and disadvantages:
- Speed: bridging loans pay out funds more quickly than mortgages, and in the right circumstances in just a few days.
- Flexible payments: you can opt to repay monthly or at the end of the term.
- Uninhabitable properties accepted: Bridging loans do not require a property to be ready to live in, as a mortgage does. So if you need to renovate, a bridging loan is well suited to this type of project.
- Higher interest rates: Bridging loans typically have higher interest rates than mortgages, as the lender is taking on a higher level of risk.
- Short-term loan: Bridging loans are designed to be repaid within a short period, usually within 6-12 months.
- Risk of property being repossessed: If you can’t keep up with your loan payments, ultimately a lender may repossess your property to recoup your debt, although this is true of any secured borrowing.
Find a lender: Lenders service levels will affect whether they can offer you a bridging loan quickly. Look for a lender with a good reputation and a history of successful and fast transactions.
Check the terms: Before accepting any loan offer, it's important to read the terms and conditions carefully. Look for fees or charges and make sure you understand the repayment terms.
Have a clear exit strategy: Bridging loans typically have short repayment terms, so it's important to have a clear exit strategy. This may involve refinancing the loan or selling the property.
A good credit score will help: A good credit score can increase the number of lenders who will offer you a bridging loan. Whilst there are lenders who offer bad credit bridging loans, there is less risk lending to applicants who have a proven track record in repaying debts. The more lenders you have to choose from, the more chance you have to work with one who can process your application quickly.
Provide adequate security: Lenders will require security for the loan, in the form of a deposit. Make sure you have adequate security (from at least 20%-25% of the property value) to offer, before applying.
Work with a broker: Working with a reputable broker, like the team at Commercial Trust, can help you immensely. Not only do brokers have access to multiple lenders and can help you navigate the application process, but they will know which lenders have the fastest processing times.
The application process starts with you providing the lender with information about the property you're using as security, including its value and any outstanding mortgages or other debts. You'll also need to provide proof of income and undergo a credit check. The lender will want to know what you are using the money for, and how you intend to pay back the money.
When you work with a broker, they will take all this information from you and fast-track the process of finding you a lender and product.
A process called ‘underwriting the loan’ is the next step. This involves the lender checking that all the details about the property and you, as the borrower, are as they should be, to qualify for the loan.
Legal work also has to be done to 1) place the lender charge on the property 2) arrange any searches the lender requires and, if you are buying a property 3) transfer ownership of the property into your name.
Once the lender has approved your loan application, the funds will be transferred to your account within a few days.
5 top tips for a fast bridging loan completion
Whether you go direct to a lender, or work with a broker, use the following tips for a fast bridging loan completion:
- Make clear you want to move quickly, tell everyone involved that you want to move quickly. Whilst no-one can commit to a given date, due to all the factors and third parties involved, you can ensure everyone is clear on your intention to get the deal through as quickly as possible.
- Be open, honest and accurate with the information you give. Your application will fail if you give inaccurate information to your broker/lender. This can either slow down your application with a lender, or cause you or your broker to have to start again with another lender.
- Your choice of solicitor is critical, the law is a huge subject, and even within property there is variety in the level of experience solicitors have. Choose a solicitor that is familiar with bridging loans and who will work with you as quickly as possible. The legal work is one of the most critical factors in getting your bridging loan paid out, fast. Some lenders will have a panel of solicitors you can choose from, or you can research and select your own, but most bridging loan lenders will require your solicitor to be registered with the Law Society and have a minimum of two SRA approved managers. The Law Society has a search facility to help you find a suitable solicitor.
- Provide information and documents quickly, when you are asked to get a piece of information to your broker/lender, do it as soon as you can – straightaway, or the same day if possible.
- Instruct the valuation quickly, early valuation appointments may cost you a little more, but the quicker you get it booked the faster your loan can complete, choosing the cheaper option may be a false economy.
Bridging loans can be arranged far more quickly than a mortgage. At Commercial Trust, we have arranged bridging loans in as little as 5 working days.
Where a fast outcome is important to you, we can approach lenders who offer ‘desktop valuations’. This is where the lender’s valuer uses online information to establish what your property is worth, rather than sending a valuer to the property itself, which takes more time.
Bear in mind though that lenders will always reserve the right to conduct an in-person valuation, so it may be that this cannot be avoided.
As a specialist broker we will use all the tools available to us to meet your deadline. Working with you closely and following the five tips above to achieve a fast bridging loan completion will be central to success.
Fast bridging loans: final thoughts
Bridging loans can be a great tool for property investors who need quick access to funds. Whether you're looking to purchase a property at auction, complete a renovation project, or take advantage of a time-sensitive investment opportunity, a fast bridging loan may be the solution you need.
When considering a bridging loan, it's important to do your research, read the terms and conditions carefully, have a clear exit strategy, maintain a good credit score, and provide adequate security. As a first step, get an idea of the cost of a bridging loan, using our bridging loan calculator.
With the right approach, a bridging loan can help you achieve your property investment goals and take advantage of time-sensitive opportunities.
As a specialist broker, Commercial Trust can help you get bridging loan in place quickly, contact us today to discuss your borrowing needs.