Bridging loans are typically loans which are given for a short period of time and are secured against property or land. Short term bridging loans can be used for virtually any purpose. These can business ventures, property purchase, property development, tax payments etc. They can be on an interest only basis or the interest can be rolled up into the loan, so there are no payments.
It is important that you have a plan to pay the loan off as lenders expect the loan to last generally, no more than 18 months. Often the loans are taken for only 2 or 3 months. If your loan is regulated by the FCA the term should not last longer than 12 months. Typically the loan is paid off by property sale, a re-mortgage, inheritance or a business venture completing.
Variations of Bridging Loans
Bridging loans tend to be for personal use or for business purposes. Broadly there are different regulations which will apply to each regulatory arena. You can find out more in regulatory protection for bridging borrowers.
Once you get in to the details of a particular bridging loan the main product variations are as follows:
Interest rate – the rate you will pay on the amount borrowed during the agreed term
Default rate – the rate you will pay if you exceed the agreed term
Lender fee – a charge which may be made by a lender when your loan completes
Exit fee – a charge which may apply when you loan ends or you pay it off early
Roll up calculation – If you choose not to make payments on the loan, they will be added to the loan and included in the gross amount you borrow. Different lenders have different methods of apply interest to this amount
Part payments – each lender has it’s own policy on how you can make additional payments during the term.
Your broker will provide you with this information relating to any lenders offer and explain it to you.
If you can prove your income and can afford the additional payments you may also want to consider a secured second charge loan or a re-mortgage even if the loan is for business purposes.
You may also have commercial property or a limited company. There may also be more cost effective options available with commercial or business loans.
If speed is of the essence, you should expect the more mainstream lenders to ask more questions and require you to jump through more hoops. This could mean a slower process which ultimately could result in you missing out on the purchase or outcome you were hoping for. There are many factors which need to be considered and discussed with a bridging expert to help you decide.
2 out of 3 borrowers get a lower rate than our representative example of a regulated secured loan below:
Mortgages and Remortgages
£80,000 over 240 months at an APRC OF 4.3% and a discounted variable annual interest rate for two years of 2.12% at £408.99 per month followed by 36 payments of £475.59 and 180 payments of £509.44. The total charge for credit is £39,873 which includes a £995 broker / processing fee and £125 application fee. Total repayable £119,873.
Secured / Second Charge Loans
£63,000 over 228 months at an APRC OF 6.1% and an annual interest rate of 5.39% (Fixed for five years – variable thereafter) would be £463.09 per month, total charge for credit is £42,584.52 which includes a £2,690 broker / processing fee. Total repayable £105,584.52.
£4,000 over 36 months at an APR OF 49.9% (fixed) and an annual interest rate of 49.9% would be £216.21, total charge for credit is £3,783.56. Total repayable £7,783.56.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
If you have been introduced to Promise Money by a third party / affiliate, Promise may pay them a share of any fees or commission it earns. Written terms available on request. Loans are subject to affordability status and available to UK residents aged 18 or over. Promise Money is a trading style of Promise Solutions Ltd. Promise Solutions is a broker offering products which represent the whole of the specialist second mortgage market and is authorised and regulated by the Financial Conduct Authority – Number 681423.
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