What fees are involved with bridging loans?

What fees are involved with bridging loans?

When you’re considering a bridging loan, it’s crucial to understand all the costs you might face. Bridging loans, often used to cover short-term financial gaps in property transactions, come with various fees that can impact the total cost of the loan. This article will explore the common fees associated with bridging loans to help you make informed decisions.

Arrangement Fees

Arrangement fees are charged by lenders for setting up the loan. These fees usually range from 1% to 2% of the loan amount. For example, on a £100,000 loan, you could expect to pay between £1,000 and £2,000 in arrangement fees alone. On a standard bridging loan these fees are normally only paid if your loan application is successfully paid out.

Brokers generally receive a commission from the lender. On larger transactions the commission may be sufficient so they don’t need to charge a broker fee. Some brokers charge an application or assessment fee. Once your broker has assessed your application they can tell you if any fees are applicable.

Promise Money doesn’t ordinarily charge any assessment or application fees. If a fee is applicable it is usually paid when your loan successfully completes.

Exit Fees

Exit fees may apply when you repay your bridging loan. Most lenders do not charge exit fees on standard bridging. Exit fees are more likely to apply on more complicated scenarios such as property conversions and development finance. If an exit fee is charged, it’s typically around 1% of the loan amount. This means if you borrow £100,000, the exit fee could be about £1,000. It’s important to check if your loan agreement includes an exit fee as it affects the total cost of borrowing.

Some lenders charge an exit fee if the loan is settled within the first three months. Very few bridging loans are settled within this period of time. However, it’s worth checking your agreement or asking your broker.

Legal Fees

Legal fees cover the cost of the legal work involved in your loan. You pay these fees to solicitors, and they can vary widely depending on the loan’s complexity and the solicitor’s rates. You may be required to cover both your own and the lender’s legal fees, so budget accordingly anywhere from £2000 upwards.

There are some lenders which complete without solicitors, Their fees are consequently far lower. It’s a matter of weighing up all the costs / fees and rates offered by lenders likely to support your application.

Valuation Fees

Before approving a bridging loan, lenders will require a valuation of the property involved. The valuation fee, paid to a surveyor, depends on the property’s value and complexity. This fee ensures the lender that the property is worth the loan amount. Valuation fees can range from a few hundred to several thousand pounds.

In some cases, the lenders are able to use database valuations or desktop valuations from a valuer who knows the area. These can sometimes be free or very much cheaper.
This type of valuation is more likely to be an option on standard residential properties where there are plenty of comparable properties sold in the area

Administration Fees

Some lenders charge administration fees for the additional handling required to manage a bridging loan. These fees can cover everything from processing payments to funding disbursements and generally vary by lender. It’s essential to ask about any administration fees that could apply to your loan.

Something more important than Fees and Charges

When your broker presents you with an indicative quotation you’ll get an understanding of the fees and charges.

However, the nature of bridging is that you need it quickly and want to rely on the lender not to move the goalposts unnecessarily. It’s likely that you are using bridging finance because there is a significant upside for you. Potentially there is a monetary benefit.

Remember, the cheapest bridging loan is of no use to you if it doesn’t deliver what you require.
Your broker will be able to share experience of the lenders, they’re solicitors, their process and how picky they’re underwriters might be.

In summary, it might be worth paying a little more for a lender and service which can deliver what you require.

People Also Asked

Can I avoid paying exit fees on a bridging loan?

Yes, some lenders do not charge exit fees. It’s important to shop around and ask about their fee structure before agreeing to a loan.

Are valuation fees refundable if my loan application is denied?

No, valuation fees are generally non-refundable as they cover the cost of the property assessment, which occurs regardless of the loan’s approval.

What happens if I repay my bridging loan early?

Repaying a bridging loan early can sometimes reduce the overall interest charged, but it’s crucial to check if there are any penalties or fees for early repayment.

Do all bridging loans have arrangement fees?

Most bridging loans involve arrangement fees, but the exact amount can vary. Some lenders might offer a loan without these fees as part of a promotion or special deal. However, we have yet to see that happen.

How can I minimize the fees on a bridging loan?

To minimize fees, compare different lenders’ fee structures and negotiate terms. Also, be clear about your loan needs to avoid overborrowing, as higher loan amounts can lead to higher fees.