Bridging Loans for Prime Central London Purchases

What is a Property Bridging Loan? 

A property bridging loan is a common form of real estate finance used across the UK for property purchases, sales and refurbishments. While some bridging loans can last for a few years, they are generally considered short-term finance, lasting from a few months to 2 years. Property bridging loans are secured against a real estate asset, making them easier to arrange than other types of bridging finance. Furthermore, given the popularity of property bridging loans in the UK, there are hundreds, if not thousands of lenders offering bridging products, from challenger banks to specialist bridging finance lenders. As a result of the sheer number of lenders, navigating the industry can be complex and time consuming, especially for first time borrowers. With this in mind the services of a skilled bridging finance broker can be invaluable. Bridging finance brokers have the knowledge and experience required in order to source the right product at the right price. While your bringing finance broker can explain the bridging process in more detail, there are a few key concepts worth understanding before engaging with a broker. 

Important Considerations:

Application Process: 

Property bridging loans are considered quick and flexible to arrange. This is primarily due to the fact that they are secured against real estate, which is a strong security for lenders. The application process differs from lender to lender but will likely contain the same steps. Firstly, the lender will require a breakdown of the transaction, including a background on the borrower, details of the property and a description of the borrower’s exit strategy. After this has been received, by way of an application form, the lender will instruct a valuation (at the borrower expense), which will confirm the value and standard of the property. Upon receiving the valuation and full application pack, the lender will release an offer. Once the offer has been received the lender’s solicitor and the borrower’s solicitor will progress with the legals. A successful legal process will yield a facility agreement and loan offer which will be signed by the borrower and lender and result in the facility’s drawdown. The application process is relatively simple, but it is important to be fully transparent with the lender from day one.  

Term: Property bridging loans generally have shorter terms, with the most common loan term being 12 months. While some bridging loans can be extended to 24 or 36 months, this should be done cautiously, given the higher interest rates associated with property bridging loans. 

Interest Rate: 

As a result of the increased risk profile of a bridging loan (from a lenders perspective), they usually carry higher interest rates than traditional mortgages. Where traditional mortgages may be only slightly above the Bank of England base rate, property bridging loans can be double, or even triple that! It is important to understand the total cost of a property bridging loan before proceeding with a facility as there can be hidden costs. 

Fees and Charges: 

As with any loan facility, there are a number of associated fees and charges to understand. While each loan facility differs, their most common charges include:

• Application fee – Charged upon submission of the application. A nominal fee levied to cover the lenders time and effort during the application process. 
• Arrangement fee – Added to the loan amount, generally sits between 1.00% and 3.00% and is deducted from the gross loan amount.
• Interest Charges – Designed to compensate the lender for the use of their funds, made up of monthly interest payments retained at drawdown (sometimes serviced). 
• Exit Fees – Sometimes charged by the lender on repayment of the facility. 
• Early Repayment Charges – When a facility is repaid before the end of its minimum term, the lender may levy an early repayment charge, which will force the borrower to meet their minimum interest charge.

Bridging Loans for Prime Central London:

The property market in Prime Central London is often fast moving and complex to navigate, with some properties listing and selling in a matter of days. Traditional mortgages are not well suited to the PCL market, given that they take several months to arrange, and could result in buyers losing out. With this in mind, property bridging loans are well suited to the market, providing borrowers fast access to finance in order to take advantage of limited time opportunities on the market. Borrowers are able to find a property, apply for a bridging loan and purchase the property in a matter of weeks (days in some cases). Furthermore, given the historical resilience of the PCL market, lenders are confident in the strength of PCL assets as security for their loans. 

The Prime Central London property market can be complex to navigate, often requiring speed and decisiveness from buyers, and bridging loans provide just that. By taking advantage of property bridging loans, PCL buyers can ensure that they do not miss out on any time sensitive opportunities and get the best out of the market.