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Our Lending Criteria for Bridging Loans

In the UK mortgage market, there are many lenders, from large lenders to small private lenders and each have their own lending criteria.

Some lenders will only lend where the risks are low, while other lenders will specialise in lending on the riskier propositions.

We have laid out a guide for the usual lending criteria to make things easier for you.

Loan Sizes

£100,000 to £1 billion

Term

A bridging loan is defined as a short-term facility ranging from 1 day to 12 months.

Most bridging finance lenders offer loan terms up to 12 months (for FCA regulated bridging loans) or 18 months (unregulated). Certain lenders will also offer short term loans for up to 36 months (3 years).

Some lenders provide short term loan facilities up to 36 months.

Secuiruty

When you decide to take out a bridging loan, lenders will want collateral against which they will be lending. Usually a property (or several properties) is used as collateral and this is known as the security property.

The lenders will place a legal charge on the security property (or properties), which will also be registered at the land registry as a first, second or third charge.

A first charge is when the security property has no existing mortgages on it. This kind of property is known as an ‘unencumbered’ property.

Second and third charges are placed on a property by the lender when that property already has an existing first charge on it.

Type of Property

Bridging lenders lend on the following types of porerty:

  • Houses
  • Bungalows
  • Flats
  • Semi commercial properties (shops or restaurants with flat or flats above)
  • Shops
  • Offices
  • Industrial units
  • Care homes
  • Hotels
  • Health clubs
  • Restaurants
  • Pubs
  • B & Bs
  • Farmland
  • Development land (with or without planning)
  • Parking spaces
  • Holiday homes

Out of all of these property types, residential properties attract the best interest rates because they are deemed by the lenders to be the most secure to lend against.

Other Types of Security

Property is not the only security that bridging loan providers will lend against. Certain specialist lenders will give you a loan if the security items are valuable, like jewellery, cars, antiques, precious metals like gold or platinum, art gems etc.

Condition of the Security Property

Unlike high street lenders, bridging loan providers do lend on properties that are in poor condition. This is why bridging finance is a good option to refurbish or rebuild this type of property. 

Location

Location of the security property is a big factor in bridging finance. Some bridging lenders will lend only in or around London, while other may lend all over the UK, but the interest rates would be higher in these cases.

Age & Availability

Bridging lenders are able to arrange bridging finance for both individuals and businesses (limited companies, partnerships and offshore companies).

In the case of individual bridging loan applicants, the applicant must be at least 18 years old.

Credit History

Bridging lenders will lend to candidates with poor credit histories and also the following:

  • County Court Judgements
  • Defaults
  • Payment Arrears
  • IVAs
  • Bankruptcy – if the loan is being used to discharge the bankruptcy
  • Repossessions
  • Statutory Demands
  • Winding up orders

Evidence of Income

Most bridging loan providers will not need proof of income when assessing candidates for a bridging loan.

Purpose of the Loan use

When you apply for a bridging loan, the lender will want to know the reason you are borrowing. The following are the reasons a bridging loan can be used for:

  • Buying a property before the candidate’s current property has been sold, ie. to maintains one’s place in the property chain.
  • Buying an auction property
  • Buying a property in a poor state of repair
  • Consolidating debts
  • Getting a bankruptcy annulment
  • Funding renovation or other building work on a property
  • Business cash injection
  • Buying a business

Payment of Interest

Bridging loan interest can be payment monthly, or they can be ‘rolled up’. This means that the interest is repaid when the loan is redeemed. This is also known as deferred or retained interest. Most people choose this option over the monthly payments, as in case of monthly payments, proof of income is required.

Exit Strategy

Exit strategy means the plan a borrower has in place to repay the loan at the end of term. There are several exit strategies:

  • Selling the property (the commonest exit strategy)
  • Refinance, ie. remortgaging the property
  • Policy reaching maturity
  • Inheritance