Can I get a bridging loan with a high LTV?

Can I get a bridging loan with a high LTV?

Are you looking to secure a bridging loan but worried about the impacts of a high loan-to-value (LTV) ratio? Understanding how LTV affects your ability to secure a bridging loan is crucial. In this article, we’ll explore the possibilities and considerations for obtaining a bridging loan with a high LTV, ensuring you have all the information you need to make informed decisions.

Understanding Bridging Loans and LTV Ratios

Bridging loans are short-term funding options, typically used to ‘bridge’ the gap between debts coming due and the main line of credit becoming available. They are often used in property purchases or during property auctions. The LTV ratio is a measure of how much you are borrowing against the value of the property you are using as security. In the UK, most lenders offer bridging loans up to a maximum of 75% LTV, but some may go higher under certain conditions.

Where property investors are taking out bridging loans to carry out improvements, lenders are more inclined to offer a higher LTV. This is because they will base their overall assessment on the value of the property after the improvements are completed.

Benefits of High LTV Bridging Loans

Bridging loan can offer several advantages, especially for those who need quick access to funds but may not have enough funds upfront. Firstly, it allows investors to make significant property purchases without tying up all their available capital. This can be particularly useful in competitive markets where speed is essential.

Additionally, it provides flexibility for investors looking to renovate or flip properties. By borrowing more against the property, they can preserve cash for construction or renovation costs, potentially increasing the property’s value for a future sale.

How to Secure a Bridging Loan with High LTV

Securing a high LTV bridging loan requires careful planning and a solid application. Start by enhancing your proposal’s strength; include detailed plans for the property and a clear exit strategy. Lenders are more likely to approve higher LTV loans if they see a well-thought-out plan that minimizes their risk.

It’s also important to shop around. Different lenders have different appetites for risk, and some specialize in high LTV loans. Use a reputable broker experienced in bridging finance to find the best rates and terms suited to your needs.

Common scenarios

Refurbishment bridging.

This could be a simple refurbishment of a standard house, conversion to an HMO or even converting commercial property to flats. Either way, where there is a significant increase in the value of the property lenders will consider lending more cash at day one or making stage release payments to fund the works. It is a complex area and the valuer will be asked to estimate the cost of the intended works and the final value of the property. Talk to your broker

Below market value purchases

For lenders to consider below market value purchases, they are looking for a genuine reason why the property is being sold at below the market value. Saying you got a good deal simply isn’t good enough. Typical scenarios could be:

• Buying a property out of probate.
• Buying from family at a reduced price.
• Buying as a sitting tenant
• Buying a stressed scenario
• Buying a property at an agreed price but then carrying out work yourself prior to the completion date

The acid test is whether or not the valuer will agree that the property is being purchased below market value. Talk to your broker about the scenario and try to provide evidence why the property is worth so much more than the purchase price

Risks and Considerations

While there are benefits, the risks associated with high LTV bridging loans cannot be overlooked. Higher LTV ratios often attract higher interest rates, reflecting the increased risk taken by the lender. This means higher monthly charges, which could strain your finances if not properly managed.

Furthermore, there is the risk of negative equity if property values fall. This scenario can make it difficult to refinance or sell the property without incurring losses. It’s crucial to assess the market conditions and your financial stability before opting for a high LTV loan.

Alternatives to High LTV Bridging Loans

If a high LTV bridging loan seems too risky or isn’t feasible, consider alternatives.

One option is to offer additional security. For example the lender could take a charge over other property you own which has a lower LTV. Alternatively, seek additional investors to reduce the LTV ratio by increasing the deposit.

Also consider, bridging finances often used to roll up the interest so there are no repayments. In this scenario, the interest is deducted from the loan amount which results in less cash in hand for the borrower. Are you able to evidence to the lender that you can service the loan and therefore raise more cash at day one?

Another is to opt for a longer-term financing solution with a lower LTV, which might offer more favorable repayment terms.

Equity release products or refinancing existing assets to free up cash can also be viable alternatives, providing the funds needed without the high costs associated with high LTV bridging loans.

People Also Asked

What is a bridging loan?

A bridging loan is a short-term financing solution often used in real estate to cover an interval between two transactions, typically buying one property before selling another.

How does LTV affect bridging loan approval?

The LTV ratio is crucial in bridging loan approval as it indicates the risk level to the lender. A higher LTV ratio generally makes it harder to get approved due to the increased risk.

Can I get a bridging loan with 100% LTV?

Getting a bridging loan with 100% LTV is highly unlikely without additional security, such as another property or asset to serve as collateral.

What are the typical interest rates for high LTV bridging loans?

Interest rates for high LTV bridging loans are usually higher than those for lower LTV loans, reflecting the greater risk to the lender. Rates can vary widely based on the lender and the borrower’s financial situation.

What is an exit strategy in bridging finance?

An exit strategy in bridging finance is a borrower’s planned method of repaying the loan, often through selling the property or securing long-term financing.