Bridge loans can be used for many reasons, and one of the most common purposes of a bridging loan is to purchase a property whilst you’re waiting for funds to come through from elsewhere. A bridging loan can bridge the gap between making a purchase and receiving money from something else, such as a house sale or an inheritance. These loans can help you avoid missing out when there’s a property that you’re particularly interested in but don’t yet have the funds to purchase.
Bridging Loan Example Below
Here’s an example of how a bridge loan could be very convenient when you want to purchase a property but don’t have a mortgage in place or another way of covering the financial obligations.
Current property value: £750,000
Remaining borrowing on your current property: £100,000
Value of your new home: £450,000
Loan required: £350,000 (with £100,000 cash available)
If you were in a situation like this, we could help you get access to the funds you need to complete the purchase of your new home. The bridge loan you take out could be secured against both properties.
A low loan-to-value ratio can help you keep the interest rates down. Using multiple properties can also lower interest rates and means there is less risk involved for the lender.
Take a look at our handy bridging loan calculator and see an example of bridging loan costs and get an idea of how much your bridging loan could cost you.
How much might the bridging loan cost?
If you needed to borrow £350,000, you’d normally need to pay an arrangement fee of 1%, which would be £3,500. Interest may be charged at around 0.75%, though this can vary from one lender to another. Administration and legal fees tend to be in the region of £100, and you’d pay £31,500 over the year or £2,625 a month in interest if you took out the loan for 12 months at the above interest rate.
If you’re able to repay the loan quickly, you can keep costs down. If you raised the cash within three months, you would only have to pay three months of interest, which would be charged at the end of the agreement.
Once your old property sells, you can use the funds to repay the bridging loan and all the associated fees. These can include arrangement fees, legal fees and interest. You are likely to pay more interest if you’re only securing the loan against one property. You can’t normally exceed the usual 80% LTV ratio if only one property is being used.
How to get the best bridging loan interest rates?
You can get a better interest rate if you only need a 50% LTV loan. The higher the LTV ratio, the more you’re likely to pay.
The Loan-to-Value (LTV) ratio is used to determine the interest rate or set the maximum allowable net borrowing. It is calculated based on the gross loan amount. The gross loan amount is the cost of the loan itself plus all related fees and interest.
How long should my bridging loan be for?
It’s often best to sign a 12-month agreement as this can allow more time for delays, such as waiting longer than expected for your property to sell. However, you may be able to get better terms and borrow more if you’re in a position to take out a shorter-term loan. Just make sure you’re confident you can repay the loan on time. You won’t normally be penalised for paying your loan back early, but do take a close look at the terms and conditions to ensure this is definitely the case.
Who can help when I need access to a UK bridge loan?
At Bridge Loan Direct bridging options, we are here for you if you want to take out a bridge loan in the UK. We are an impartial service favouring no lender over any other. We’re passionate about bring you the best and most suitable deals possible and will take a very close look at your circumstances to ensure we’re matching you up with the most suitable products.
We can provide the help you need whether you need a bridging loan to buy a property, to refurbish one or to plug a gap in your business’ cash flow. As no single solution is ever perfect for everything, we offer a bespoke service designed to ensure your specific needs are met. The services that we provide can help you avoid missing out on the best investment opportunities.
We’re always on hand to provide you with the very best guidance on bridging loans whenever you need it. You can rest assured that our advisors are fully up to date with the latest news and legislation. This means the advice that they give you is always completely accurate and relevant.
