Bridging loan rates and fees can vary widely depending on your situation. Several factors affect the cost of your loan, such as the type of security and the loan to value requested.
Read on to learn more about available rates and fees. To speak with an expert, contact us and we’ll give you a call back to see how we can help.
Bridging loan interest rates are expressed monthly. To give an accurate picture, bridge loan rates must be broken down by the type of security offered. Commercial bridging loan rates are higher than those secured against residential properties, loans against land tend to command the highest rates.
Regardless of the type of security offered, our team of specialist brokers are on hand to help you secure the best bridging loan deal.
Residential bridging finance rates can start from 0.39% per month, available up to a maximum of 50% Loan to value (LTV).
Due to the individual pricing of loans it is hard to quote an average monthly interest rate. In general, most loans will fall between 0.43% and 1.25% per month. Below, we break down the factors that affect all the costs, and how you can secure the best deal.
Commercial bridging loan lenders tend to price each loan on risk, they look at the type of property, location and you as the client. The best commercial bridging rates also usually start at around 0.39% per month.
As a guide, an interest rate of 0.85% per month is a good benchmark. While rates are very important, the overall cost and your gross loan amount (where interest is added) must be considered.
Finally, loans against land will usually be priced between 0.9%-1.25% per month. As each application is judged on its own merits, we do sometimes secure lower than standard rates if the risk is low for the lender.
The lowest rates are usually reserved for LTVs below 50%
Most lenders heavily base their interest rates on the required LTV. The more you’re looking to borrow as a percentage of the value of security offered, the higher the rate you’ll end up paying.
While rates climb steady as the LTV required increases, the lowest rates on bridging loans are usually offered on applications that sit at, or below 50% LTV.
By putting down a larger deposit, thereby reducing your net loan amount and LTV, you may well fall into a product tier with lower monthly interest payments.
But remember, it’s counterproductive to stretch yourself too much in an attempt to reduce your LTV, if it means you’re putting a great strain on yourself financially.
Another way to reduce your loan to value is to offer additional security to the lender by way of a charge over another property in addition to the main security property.
Securing a low interest rate tends to be the number one request by clients looking for bridging finance, but it is important to see the bigger picture.
The difference in fees charged by each lender can be vast. Many lenders charge additional fees on each bridging loan application for things such as fund management, redemption or administrative fees. Other fees to consider include valuation fees, lender’s legal fees, lender facility fee, redemption fee and admin fees.
If you’re determined to save money, a comparison of all the costs of a bridging loan product, not just the interest rate, is crucial.
As mentioned above, LTV is a big driver of bridge loan pricing. Reduced risk of financial loss for the lender should a borrower fail to repay the loan when agreed.
Residential properties usually receive the lowest rates, with semi-commercial, commercial and then land each becoming more expensive. This is due to the liquidity of these assets – the more liquid an asset, the better security it is considered to be by a lender.
Bridging finance can be arranged on a 1st, 2nd or even 3rd charge loan basis. 1st charge loans tend to pay the lowest interest rates.
A second charge loan can either be arranged as a legal charge or an equitable charge. Equitable charges aren’t favoured by lenders, so loans set up in this way will usually have higher interest charges.
Lenders issue loans with the idea that they will get their money back, plus profit by way of the fees and interest charged. When working with an applicant who has a strong credit rating, they can be confident that this will be the case and will accept lower interest charges as a result.
This factor comes down to the lender’s ability to exit the loan. Property in a sought after location, and an abundance of available lenders will generally get the best rates. These locations are considered to be most places in England and Wales, plus parts of Scotland.
Some lenders will offer low rates on loans in Northern Ireland too, but this is less common.
Where heavy refurbishment of a property is undertaken during the term of the bridging loan, the rate charged usually increases slightly.
Heavy refurbishment and development are generally considered to be structural work to the property. Cosmetic work is usually not an issue even on low rate products, but this can vary depending on the lender.
Bridging finance applications are usually subject to several different fees, which can become confusing. They can usually be broken down into the following:
This fee is payable to the lender for arranging your bridging loan. Often, this fee is added to the loan, meaning you don’t have to pay it out upfront. Lender arrangement fees are usually between 1-2% of the loan amount.
Broker fees are payable to your mortgage brokers for arranging your bridging loan. Most brokers charge a fee of 1% or more on completion of the loan. At Bridging Ventures Group we don’t usually charge broker fees for arranging bridging finance, as we underwrite loans in-house.
Brokers often charge an upfront fee for processing your bridging finance application. This can’t be added to the loan and must be paid upfront.
The valuation fee is payable for the undertaking of a basic survey of the security property. The report is quite basic, covers only the value of the property, some structural and demand issues. The report is a guide to whether the property is a suitable security for the loan.
The fee is usually payable early in the application process. We always ensure we are happy with the application before asking for the valuation fee to be paid. In some circumstances a desktop valuation is acceptable.
Lenders usually require separate legal representation, which is paid for by the applicant. Some lenders will accept dual representation (use of the same solicitor for both sides), which can save time and money.
Some lenders charge an exit fee, usually either equal to one month’s interest, or 1-2%. Exit fees are charged on repayment of the loan and are usually added to the loan balance.
If you are planning to acquire a bridging loan in the UK, one crucial aspect to consider is the cost. You may be wondering, “How much does a bridging loan cost?”. The answer can vary depending on several factors, including the bridging loan rates and the interest rates on bridging loans.
