A Complete Guide To Bridging loan Requirement

If you require immediate funds to address financial emergencies, you may consider obtaining bridging loans, widely available in the UK. Several registered bridging loan providers and peer-to-peer lending platforms offer such loans. While it is relatively straightforward to secure bridging finance, each lender has specific lending criteria. As a result, it is important to conduct thorough research and compare different lenders to find the one that best suits your requirements.

Bridging loans typically offer short-term financing options ranging from 3 to 12 months. They are widely favoured for their rapid arrangement and numerous benefits, including swift access to funds, absence of exit fees, and leniency towards credit ratings. However, to receive speedy approval, it is necessary to fulfil the lender's basic requirements. 

This article outlines the most frequently evaluated eligibility criteria that lenders typically assess.

What Are Requirements Of Bridging Loans? 

Bridging loans typically offer short-term financing options ranging from 3 to 12 months. They are widely favoured for their rapid arrangement and numerous benefits, including swift access to funds, absence of exit fees, and leniency towards credit ratings. However, to receive speedy approval, it is necessary to fulfil the lender's basic requirements. This article outlines the most frequently evaluated eligibility criteria that lenders typically assess.

Loan Security 

Bridging loans are secure loan that requires you to pledge one of your valuable assets, usually a property, as collateral against the loan. Lenders typically require you to provide one or more properties as security based on the loan amount you wish to obtain. If you cannot repay the loan, the lender reserves the right to take possession of your property and sell it to recover the loan amount.

Credit History 

Bridging loan UK providers differ from mortgage lenders in that they do not evaluate borrowers' credit history. It can be advantageous for individuals with poor credit scores as traditional banks and mortgage lenders may not extend loans to such borrowers. Bridging lenders primarily focus on the value of the security property and the borrower's exit strategy. Nevertheless, borrowers with good credit scores will likely receive lower interest rates and more favourable loan terms.

Exit Strategy 

The exit strategy is a critical element of bridging loan criteria as it outlines how the borrower intends to repay the loan amount. A robust exit strategy can increase the likelihood of securing a loan at favourable rates. Some common exit strategies include:

1. Sale of Property:

Repaying the loan amount through the sale of the pledged property.

2. Refinancing:

Switching to a traditional mortgage or specialized property loan and utilizing some funds to repay the bridging loan.

3. Property Flipping:

Renovating and selling a property for a profit as an exit strategy.

4. Development:

Buying a large residential property to rent or sell each unit.

5. Cash Redemption:

Utilizing future funds, such as an inheritance, to repay the bridging loan amount.

Loan Terms And Size 

Bridging loan providers typically extend loans with a maximum loan-to-value (LTV) ratio of 70%, although some may offer up to 80% LTV. The minimum loan size is generally set at £10,000. While a handful of lenders provide 100% LTV loans, borrowers must offer additional security to obtain such loans.

Loan durations typically range between 3 to 12 months, but it is becoming more common for bridging lenders to offer loans for longer periods, such as 36 months.

Type Of Property 

Bridging loan providers are generally willing to accept a wide range of properties, including uninhabitable or in poor condition.

Age Of Borrowers 

To be eligible for a bridging loan, borrowers must be at least 18. The maximum age of borrowers may vary depending on the lender, with some setting an upper age limit. In contrast, others may offer loans to individuals aged 70 and above without restrictions.

Proof Of Income 

Unlike mortgage loans, proof of income is not a significant factor for bridging lenders when evaluating loan applications. Instead, the focus is on demonstrating a viable exit strategy to prove the ability to repay the loan.

In addition to the exit strategy, bridging lenders consider other factors as their eligibility criteria. These may include the borrower's experience in the property market, employment status, the condition of the purchased property, and minimum turnover requirements. Not all lenders have the same criteria and requirements, so borrowers should always check with their chosen lenders regarding their eligibility criteria.

Purpose Of Bridging Loan 

Borrowers must disclose the reason for taking out a bridging loan to their lender. Some of the common reasons for applying for bridging finance include the following:

• Purchasing a property before selling an existing one.

• Buying a property at an auction.

• Purchasing a property in poor condition to renovate and sell it.

• Financing a property development project.

• Buying a deferred consideration.

• Addressing a chain break issue.

It's important to note that these are not the only reasons for taking out a bridging loan, and borrowers should always discuss their specific needs and circumstances with their lender.

Bridging Loan Alternatives 

If you find it challenging to meet the eligibility criteria for bridging finance or your application has already been rejected, alternative options are available depending on whether you require a loan for residential or commercial purposes. For residential purposes, you may consider unsecured loans or residential mortgages, whereas, for commercial purposes, commercial mortgages may be an option to meet your financial needs.

If one lender rejects your application for a bridging loan, you can explore other lenders in the market. Comparing lenders and their terms is crucial to find the best match for your needs.

Conclusion 

In conclusion, bridging loans are a viable option for individuals or businesses seeking immediate funds for a short-term period. While the eligibility criteria vary among lenders, borrowers must have a viable exit strategy and a valuable asset to pledge as collateral against the loan. Although credit history and proof of income are insignificant, borrowers with good credit scores will likely receive lower interest rates and better loan terms. It's important to consider alternative options if a bridging loan does not meet your needs and to compare lenders to find the best match for your requirements.