A bridge loan is a short-term finance option which can be made to an individual or company and secured against a residential or commercial property or plot of land.
Why take out a bridging loan?
Bridging finance is popular with landlords and property developers for funding short-term projects and is becoming increasingly popular with home movers, as it can help them buy a new property whilst waiting to sell an existing home.
There are many potential benefits for clients, including; quick arrangement time (which can be within 24 hours), daily interest rate and no early repayment charges (on some schemes) – great if you only need to have the loan for a short amount of time.
No credit checks are required for bridging loans. However, bridging loan lenders will require a completed application form, proof of address, a form of identification, and a copy of your building insurance schedule noting the lender’s interest, which we can arrange for you.
Bridging loans are often considered high risk due to the likelihood of the borrower losing their home, property, or land if they fail to repay the loan. This is why having a solid exit strategy is essential.
Open and closed bridging loans
A closed bridging loan has a set repayment date;for example, for borrowers who have a completion date on a new property and have finalised their new mortgage.
An open bridging loan has no set repayment date but will have an expected repayment period. This gives borrowers a little 'wiggle room' but is still time limited. Open bridging loans typically have a repayment period of one or two years and tend to be more expensive than closed options.
First and second-charge bridging loans
A 'charge' is a legal agreement dictating who gets paid first if the borrowers fail to meet the terms and the property is repossessed, having to be sold to cover the costs.
Usually, a first-charge bridging loan relates to properties with a mortgage. If the borrower fails to repay the loan, the mortgage lender would be paid off first and the bridging loan lender second.
A second-charge bridging loan is typically taken out against a property without a mortgage or where a mortgage is about to be repaid. In this instance, the bridging loan lender would be repaid before other costs.
Pros and cons of bridging loans
- Quick access to funds – often in a few days
- Flexible repayment options
- All kinds of loan amounts – loan amounts can start as low as £5k yet reach into the tens of millions for property developers
- High risk – putting your most valuable assets on the line means you could stand to lose them
- Bridging loans can be expensive – short terms options like bridging loans tend to come with high set-up charges and high interest rates
What are bridging loans used for?
Typical uses for bridging loans are:
- Paying for a residential property or buy-to-let investment
- Purchasing property at auction
- Funding necessary work prior to remortgaging
- Buying land for property development
- To fund new business ventures
- To pay for divorce settlements or tax bills
Bad credit bridging finance – no credit score or bad credit
Given that a high-value asset guarantees the loan's security, the borrower's repayment or exit strategy is more critical to bridging loan lenders than their credit score. Credit checks are still mandatory for most bridging loans, but lenders tend to be more concerned with fraud markers than how possible borrowers manage their money and repayment schedules.
Bridging loans are available for borrowers with:
- Low or no credit score
- Late or defaulted payments
- Mortgage arrears
- CCJs, IVAs, and DMPs
- Bankruptcies and repossessions
Bridging loan eligibility criteria
Unlike conventional mortgages and loans, bridging loan lenders won't be concerned with your income or affordability. The critical factor in this instance is how you plan to repay the loan:
- Exit strategy
- The type of asset to be used as security and its worth
- The viability of your plan
- Your deposit – LTVs typically range from 50% to 80%
- Your experience in a proposed new venture or the property development project you are borrowing for
For commercial bridging loans, bridging lenders will expect to see a thorough and viable business plan.
Experts in bridging finance and bad credit bridging loans
CLS matches property developers, business owners, and home movers with the ideal match bridging loan lenders. As a result, bridging finance can be an excellent way to navigate tricky periods where capital can be a problem.
For those with adverse credit or a poor credit score, a bad credit bridging loan is often the best bet to help finance a troublesome situation and a great alternative to risky payday loans. If you'd like to explore standard or bad credit bridging loans, our expert mortgage advisors are ready to help. We'll help you organise an exit strategy, find a lender with terms that suit your situation, and help you complete your bridging loan application. We'll be with you through every step of your journey.