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Bridging Loan Rates Explained

What are bridging loan rates?

For those new to the term, bridging loans (also known as bridge loan financing) help you to literally ‘bridge the gap’ between times when finance isn’t readily available. Taking out a bridging loan can be a fantastic option for those who are, for example, looking to buy their dream home and can’t wait until their current home has sold. In many situations, bridging loans can be a lifesaver.

Interest rates are higher than standard loans and mortgages because they are a short-term loan instead of a long-term one. Fortunately for many, the rates at which bridging loans cost borrowers is lower than ever due to stiff competition among lenders.

How are bridging loan rates calculated?

Many factors affect the kind of bridge loan rates you could get from a lender. We’ve tried to include them all below. Lenders look at the loan compared to the value of the security you give (e.g. the value, condition and location of the house), your credit history, your income and the overall return they will receive.

The ‘loan to value’ (LTV) is especially important. If you want to take out a bridging loan for a house purchase, the loan will be calculated to the value of a property you currently own. Some lenders will not give a bridge loan for a property that is in a poor state of repair, those that will are likely to charge a higher premium for it. Some lenders are more likely to give security on a property that is closer to London or give more favourable rates based on the properties proximity to the capital city.

Lenders also assess a borrowers credit history and perceived ability to afford the monthly repayments of the bridge loan. A high reliable income and good credit history are naturally more attractive to lenders, and better borrowing rates are likely to reflect that.

Poor credit history or a lower-income will not necessarily exclude applicants from being granted a bridging loan. Some lenders offer the opportunity for interest to be paid when the loan is redeemed, which is helpful for bad credit bridging loans. This is an excellent option for people who need money to make improvements to a property, which will increase the sale value of the home.

When are bridging loans due to be paid back?

From the time you first seek to take out the loan, you should know when you are going to pay it back. If paying back your bridge loan depends on the sale of a property, then you must be aware of some factors. These include (but are not limited to) how long the marketing process will take, evidence of reasonable end value, the existence of potential buyers and how quickly the purchase process will take place.

Some bridging loans require the payment of interest monthly, with the remainder of the loan paid at the end. Other bridge loans add interest onto the final loan, with the initial loan plus the interest payable at the end.

Contact one of our financial experts today, we are happy to provide you with answers to all of your questions and suggest the best product to suit your situation.

Bridging loan case studies

Here you can find examples of how bridging loans have helped customers move into their dream home without having to reduce the value of their current property.

Bridging loan case Study 1

Mr & Mrs H were both over 60 & retired. Due to their age & pension incomes, a traditional purchase mortgage wouldn’t be available.

Their house was on the market for £900k (with no mortgage outstanding) & had been for a couple of months. They saw the perfect downsizing property on the market for £600k and had savings of £100k to put towards the purchase.  We at Friends Capital,  agreed to a bridging loan of £500k to secure the purchase, thus avoiding the need to reduce the price to enable a quick sale.


Bridging loan case Study 2

Mr N was due to move into a new-build property last week but his buyer`s chain fell through.

He was under pressure from the developers to complete the deal, as this was the second property chain-break and they had other interested buyers. With a new-build property price of £450k, his current house sale agreed at £300k (with a small balance left on his mortgage) and with savings to use we arranged a bridging loan quote for £200k within an hour & a decision in principle the same day, funds were released to complete the chain within 10 working days.


Contact us today to discover how our bridging loans can help you do the same.

Bridging Loan Application Form

Property Chains In A Nutshell

What Is A Property Chain?

You may have heard the term, but thought it sounded more complicated than it is. It is, quite simply, a sequence of linked houses. Each homeowner relies on the person buying their house to release funds for them to buy their next home. If their house sale does not go through, then they will be unable to purchase the next one. As you can see, this creates a chain where one break could cause many others not to be able to go forth with their purchase. So, someone could affect a property exchange of someone that isn’t even in the country. 

 

Why Do Property Sales Take So Long To Complete?

With so many moving parts and so many people needing to take action, it is easy to see why the chain model can create a lot of delay and confusion. Apart from the paperwork, people can also change their minds or struggle to make a final decision at all. Potential problems can arise, such as structural issues brought up by the property survey, which can lead to buyers pulling out and breaking the whole chain. The lack of transparency between different parties in the chain also makes it difficult for the others involved to know what is going on.

Naturally, chain free properties are much more accessible, and the exchange is usually much faster. 

 

Why Do So Many Property Chains Break?

Chains can fail for many reasons. Some include people losing their jobs, not being given the right mortgage or even changing their mind. If you consider all the various steps that are required to go right to complete on a house purchase, it is easy to see why 1 in 3 property purchases fail. 

First, the mortgage must be agreed in principle. Then, an offer needs to made and accepted where the property is sold subject to contract. Solicitors must be arranged both sides to mediate the purchase and surveyors will conduct various evaluations. The mortgage must then be finalised, contracts exchanged, and finally, the property is completed. 

Any hiccup along this long and tenuous process, requiring agreement from different professionals agree from both sides, puts the completion of a property in jeopardy. 

 

Can A Bridging Loan Be The Solution?

Bridging loans, are a type of loan, typically large in value, that can prevent the failure of a property purchase. Bridge loans are a great option if the buyer of your property pulls out of the deal, a bridging loan can cover the cost of your desired property. They are ideal for those who have equity in a property, but no income so are less eligible for a mortgage. The money is available in 1-2 weeks and prevents the seller from losing money by reducing the housing price in return for a quick sale. 

Bridge loans are usually paid back in 12 months. The lender receives the interest from the loan, and the buyer gets the house that they had their heart set on. The interest from the bridging loan repayments are not due until the sale of your property has gone through. The loans acts as an emergency bandage on the lost buyer, helping everybody in the chain carry on as usual.  

Contact us today and discover how a bridging loan can help you.

 


Case Study 1

Mr & Mrs H were both over 60 & retired. Due to their age & pension incomes, a traditional purchase mortgage wouldn’t be available.

Their house was on the market for £900k (with no mortgage outstanding) & had been for a couple of months. They saw the perfect downsizing property on the market for £600k and had savings of £100k to put towards the purchase.  We at Friends Capital,  agreed to a bridging loan of £500k to secure the purchase, thus avoiding the need to reduce the price to enable a quick sale.

See more case studies here…


Bridging Loan Application Form

How the Coronavirus Covid-19 pandemic is affecting the mortgage market

These are strange and worrying times for everyone, from where we were a year ago to today it isn’t easy to contemplate just how much our lives have changed.

No-one has escaped the change to our lifestyles and general day to day activity. This includes the financial services world and specifically our business of arranging mortgages for house purchases or raising capital for home improvements and even debt consolidation.

The mortgage demand

Now that we are fully back in our Covid secure office, we are seeing a pent-up demand for mortgages, including first-time buyers, Buy to let and bridging loans, which help clients keep hold of their dream home even when the property chain begins to breakdown.

Restricted lending

However, whilst the demand for mortgages remains high, the whole of market lending panel (including banks, building societies and specialist lenders) are struggling under workloads as their staff still work from home, and some are still on furlough. They have also tightened their lending criteria and are limiting lending to applicants with more deposit than pre-covid. Questions are also being asked with regards to furlough working, and how income has been affected for potential customers.

How we help you get a mortgage

The good news is that here at Friends Capital, we have a team of specialist mortgage advisers that are continually kept up to date with developments in the Mortgage world. While, we guarantee that we will be honest about the timescales and chances of a mortgage approval, given current circumstances, it is possible that a greater deposit may be required (15%+) in order to get a decision in principle.  In these situations, we will often advise you to re-apply once you are back on full pay with your employer or for those with a low credit rating, we would recommend waiting, as credit scores often increase with time. For those who may be struggling with payments and a bad credit rating, we are happy to provide a few tips on how you can manage finances and increase your credit score. 

We are an independent mortgage broker in Sheffield that operates nationwide and can accept confidential enquiries via phone, email or our secure customer portal.

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