Bridging Loan Eligibility Criteria
Property developers are increasingly recognising the advantages of bridging finance for funding development projects. This fast and flexible solution is particularly useful when buying, selling, or refinancing properties.
Bridging loans are short-term financial tools, typically lasting between 1 to 12 months, and often come with higher interest rates than traditional mortgage loans. They require a clear exit strategy and are secured against the property or properties involved. Borrowers may also need to provide a personal guarantee as additional security.
As with any financial product, bridging loans have their pros and cons. It’s essential for borrowers to thoroughly understand the terms of any agreement before proceeding. Utilising platforms like Brickflow can be beneficial, as they help identify the best bridging finance deals and provide insights into all associated costs across over 100 UK bridging lenders.
This article delves into who can obtain a bridging loan, the general eligibility criteria, the application process, and the various uses of bridging loans to determine if they align with your financial needs.
Who Can Obtain a Bridging Loan?
Bridging loans are generally available to individuals or companies requiring short-term finance to bridge the gap between purchasing a new property and selling an existing one. Typical applicants include:
Property Developers/Investors: Those looking to quickly acquire a site or property, especially if it doesn’t qualify for traditional financing due to its condition or lack of planning permission.
Homeowners/Property Buyers: Individuals needing immediate funds to secure a new home without having sold their current property.
Businesses: Companies seeking funds for new equipment or machinery to scale operations.
Bridging Loan Eligibility Criteria
While specific requirements vary among lenders, common criteria include:
Age: Applicants must be at least 18 years old; some lenders may have an upper age limit.
Residency Status: Typically, UK residents or UK nationals residing abroad are eligible. Non-UK nationals may have limited options for unregulated bridging loans.
Employment Status: Employed, self-employed, or retired individuals can apply.
Legal Entity: Applications can be made as individuals, Limited Companies, LLPs, or partnerships.
Experience: Prior experience with similar projects can strengthen the application, especially if value-added work is involved, though it’s not mandatory.
Loan Term: Bridging loans usually have a maximum term of 24 months, with many lenders offering terms of 12 or 18 months. For projects requiring extensive building work that can’t be completed within 24 months, development finance may be more suitable.
Financial Requirements
Solid Exit Strategy: Lenders need a definitive plan for repaying the loan, whether through selling or refinancing.
Security: Borrowers must provide high-value assets, typically property or land, as collateral.
Minimum Lending Requirement: Most lenders prefer loans of £100,000 or above.
Creditworthiness: Lenders assess the borrower’s credit history to gauge repayment capability. While less critical than with residential mortgages, a clean credit record can help secure better rates.
Additional Factors
Healthy Deposit: Most lenders offer 70-75% gross Loan-to-Value (LTV), but better rates may start with a 40% deposit.
Proof of Income: While not a primary requirement, demonstrating income can bolster an application.
It’s also worth noting that even with bad credit, securing a bridging loan is possible. For more information, refer to our guide on obtaining bridging loans with bad credit.
Uses of Bridging Loans
Bridging loans are versatile and can be utilised for various purposes:
Meeting Transaction Deadlines: They can be arranged quickly, often within a few days, giving buyers an advantage in securing prime properties.
Chain Break Finance: Prevents the collapse of a property chain.
Property Auctions: Enables buyers to meet the 28-day completion requirement when purchasing at auction.
Property Refurbishment: Facilitates quick renovations for resale within the loan term.
Uninhabitable Properties: Suitable for properties that don’t qualify for traditional finance.
Landlords Expanding Portfolios: Ideal for acquiring additional buy-to-let properties or renovating uninhabitable ones.
Development Exit: Assists developers in repaying existing debt or releasing equity from a project.
Application Process
To secure a bridging loan:
Apply for a Bridging Loan: Submit a professional application detailing the property or site and your plans.
Provide Documentation: Include ID, proof of address, and detailed costings of the proposed works.
Lender Evaluation: The lender will conduct a property valuation and may appoint an Independent Monitoring Surveyor (IMS) at your expense.
Receive the Loan Offer: If approved, the lender will provide an official loan offer with terms and conditions.
Complete Legal Work: Both parties need separate legal representation. Once all are satisfied, the loan contract is signed, and funds are released.
The main criteria for a bridging loan are having an exit strategy and security for the loan. Specifics depend on whether you’re seeking a regulated or non-regulated bridging loan.