The bridging loan market in the UK is complex and difficult to navigate, especially for first time borrowers. While lenders offer bridging loans for as little as £10,000, they are especially flexible for borrowers borrowing over £2,000,000. While it is important to understand why and how these loans are evaluated, the first step is understanding how bridging loans work.
Understanding Property Bridging Finance:
Property bridging finance is becoming increasingly important in the UK for both property purchasers and property sellers, providing them with quick access to capital in order to take advantage of time sensitive opportunities. Bridging loans enable borrowers short term access to finance based upon a long term expected income. This may be due to a property sale, refinance, or other expected cash flow. While bridging loans provide flexibility and liquidity to property investors, they also come at a higher cost than traditional mortgages. 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 a 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 – Property Bridging Finance:
Exit Strategy:
Perhaps one of the most important factors to be considered by a bridging loan lender is the borrower’s planned exit strategy. The exit strategy is essentially how the borrower intends to repay the loan and is important due to the fact that it dictates how and when the lender will be repaid. It is vital that the borrower has a concrete exit strategy in place prior to applying for the loan, as this will be heavily scrutinized by the lender and their team of underwriters. Borrowers with a weak or uncertain exit strategy will likely see their application declined. Some common exit strategies include repayment of the loan through the sale of a property or repayment through refinancing.
Interest, Fees and Charges:
Bridging loans can be expensive, especially once you have added the interest, fees and early repayment charges to the loan. Where traditional mortgages are likely to have lower interest rates and capped charges, bridging loans have interest rates that are double, if not triple those of traditional mortgages. It is vital to understand the costs associated with your bridging loan prior to application.
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.
Property Bridging Loans for HNWI
In the UK, the Financial Conduct Authority regulates the lending environment, ensuring firms and individuals adhere to a strict set of rules and regulations. While these rules and regulations are crucial to the industry, they also add additional red tape and can delay the borrower’s access to funds. Rules for High Net Worth Individuals are slightly relaxed, allowing them to access finance faster and with more flexibility. It is important to understand how these rules and regulations affect you and your property bridging loan application – something your broker will be able to explain.
Property bridging loans in the UK are becoming increasingly important to the industry, enabling borrowers to access funds quickly in order to take advantage of time sensitive opportunities. Bridging loans are especially important to HNWI, who often have their capital tied up in illiquid or long term financial products. In order to fully understand how a bridging loan might help you with your property purchase, it is important to discuss your situation with a skilled bridging loan broker.
