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Rated 4.97 out of 5 from 2,400+ reviews
1 – Income – when assessing the affordability of a standard mortgage, lenders look at the aspiring borrower’s income and use this information to determine whether the individual can afford the mortgage. Most lenders cap the size of the mortgage they are willing to offer at between 4 and 5 times the borrower’s income. In contrast, lenders rarely limit the size of a bridging loan based on income – provided, that is, that some other acceptable means of repaying the loan is specified. That being said, if a borrower can demonstrate the ability to service the interest payments of the loan using income alone, certain lenders may be willing to offer them a considerably discounted rate approaching and occasionally equalling the rates offered on their standard mortgages. In such situations, a good broker will know which lenders to approach according to the reliability of your exit strategy and the affordability of the loan.
2 – Repayment strategies – whereas residential loans can be repaid either on a capital-repayment basis or an interest-only basis, the only option available on bridging loans is interest-only. This being said, there is still some variety with regards to when a borrower makes their interest payments: they can either opt for a rolled-up interest repayment strategy, whereby they repay the entirety of the loan plus all of the accrued monthly interest at the end of the loan term; or else they can opt for a serviced interest repayment strategy, whereby they pay interest on the loan each month and then simply pay off the principle at the end of the term. A number of factors affect the suitability of each repayment strategy so it is advisable that borrowers seek the expertise of a qualified mortgage consultant, who will then be able to provide them with an informed recommendation based on their goals and circumstances, as well as the range of products currently available on the market.
3 – Rates – while bridging loans are still, as a general rule, more expensive than standard mortgages, rates these days are far more competitive than they were in the past, starting at as low as 0.5% per month in some cases.
4 – Property – lenders are far less selective about which properties they are willing to offer bridging loans on compared to those on which they’re willing to offer standard mortgages. This property of bridging finance makes it particularly useful to certain kinds of borrower.
5 – Speed – it’s often possible to arrange bridging loans far more quickly than standard mortgages; mortgages often take months to complete, whereas bridging loans can sometimes be arranged within 24 hours, though the average time between application and completion is between 7 and 28 days (a good broker should be able to push the loan through to completion more quickly).
6 – Length of term – there are two broad types of bridging loan, closed and open. Closed bridging loans have a set end date on which they are due to be repaid; open bridging loans can be repaid at any point in the loan’s term. No matter which type of bridging loan you opt for, however, the length of the term will in almost all cases be 12 months or less.
Bridging finance can be used to save the sale of a property in a broken chain. One of our clients, for example, had agreed a price with a buyer for their main residence and had exchanged contracts with a seller on their onward purchase. In the last minute, however, their buyer pulled out of the deal and they were then left with no funds with which to complete the purchase. We were ultimately able to arrange a 12-month bridging loan, and they were able to purchase their new home. They then repaid the bridging loan in its entirety once they had sold their original property (see full case study here).
To learn more about your mortgage options, you can reach our team on 0800 652 0971 or email info@privatefinance.co.uk.
This article is based on information available on the date of issue, 30th March 2021.
Please remember that your home could be repossessed if you do not keep up with repayments on your mortgage.
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