The bridging loan costs that you’ll encounter can be broken down into two main subcategories – the interest charged by the lender, and the additional fees.
Some fees are payable to the lender, while others are paid to other professionals involved in the process, for example solicitors and chartered surveyors.
To give a realistic guide, this must be broken down by the type of bridging loan that you’ll be taking.
Residential loan rates start at 0.43% per month, although this is only available to applications at 50% loan to value (LTV) or less. Rates of 0.43-0.75% per month are common for residential bridging loans.
Finally, bridging finance for land is usually priced at 0.95%-1.25%, depending on the strength of the application.
Commercial bridging loans tend to come with slightly higher interest rates, with rates of 0.65-0.95% being common.
The main fees you can expect when making a new application are the following:
This is simply down to the fact that bridging finance is designed to be in place for less than a year in most cases. As such, interest is expressed on a month by month basis, rather than year by year.
Although it can make it more difficult to compare the cost with other types of finance, it does make it easier to calculate your costs based on repaying the loan after a certain number of months.
Understanding how bridging loan interest is charged is an important step when considering taking out bridging finance.
The method of paying the interest doesn’t have a great impact on the cost of a loan, it does make some difference. Of course, it can have a great impact on your cash flow. The interest can be paid in three ways:
Your exit strategy is simply how you’ll repay the loan. Popular exit strategies are either the sale of the property, or refinance to a mortgage, or buy to let mortgage.
Although there are lots of bridging loans for people with bad credit, products with the best terms are often reserved for borrowers with strong payment records.
The reason for taking the loan can play a role in the terms offered. For example, bridging loans for property refurbishment, where the works are structural, or require planning permission may cost a little more than those where the works are lighter.
As mentioned above, loans secured against residential property tend to have the lowest rates, then commercial property, with loans secured against land being the most expensive.
If you’re undertaking work on the security property, your previous experience in taking on similar projects will be considered by the lender. Greater experience may result in you securing a cheaper product.
The amount of deposit you put down, or your equity in the property impact the loan to value (LTV) of your loan. Applications at a lower LTV will usually be cheaper than those at higher loan to values. The biggest difference is usually found in the interest rate charged.
If you fail to repay your bridging loan at the end of its term, you’re going to face additional costs in almost all circumstances. That’s why it’s so important that your exit strategy is robust and planned upfront, before the loan is taken out.
A bridging loan is a short-term loan which is secured against property or land. They’re designed to be set-up quickly, usually in 7-14 days.
They’re designed to fund a gap between 2 events taking place, for example funds being required and a property being sold.
They typically come with higher rates and fees than mortgages, so it’s important that you make the right choice when looking to take one out.
As mentioned above, they’re offered as short-term solutions, with the term taken usually being no more than 18 months, or 12 months for bridging loans secured against your own home.
The loan is usually repaid through either the sale or refinance of the property – this is known as your exit strategy. Your chosen exit strategy is crucial, as the lender will want to make sure they’re repaid on time at the end of the term.
