Bridging finance for property development is a relatively quick way to get hold of cash to finance a development project.
But while it's less complicated than securing a traditional mortgage or remortgage, it's also shorter term and more expensive per month.
Bridging loans typically start from around £25,000 and there's no official upper limit to what you can borrow, as long as you have assets to secure the loan against.
But the terms are generally not much longer than two years.
Bridging loans can be used for a range of purposes.
For example, you might get a loan if:
You're looking to buy a property at auction
You see an investment opportunity and want to move quickly
You have some land to build on but not the cash to start a development
You need cash to complete a development
Loans can be used for residential properties as well as commercial and mixed use properties.
Property development loans tend to come with expensive fees on top of interest. So, check exactly what the costs are before you proceed.”
Usually, a bridging loan will be priced monthly rather than annually because most people take them out for short periods of time.
Generally, the loans are quite expensive, with monthly interest rates of between 0.4% and 2%.
On top of that, you’ll have to pay an arrangement fee when you take out the loan, which is usually charged at around 1-4%. 2% is is the most common fee in our comparison.
The equivalent annual percentage of a property development bridging loan is between 6-30%, much higher than you would usually pay for a residential mortgage.
Make sure you look at all the fees as well as the charges before taking out a loan.
Typical costs to consider include:
Arrangement fees - This is the cost of setting up your loan and is normally a percentage of the amount you borrow, but can also be a fixed cash fee. Most lenders charge between 1-2%, but some are even higher.
Broker fees - If you use a broker to find your bridging loan, you normally have to pay a fee. This could be hundreds or sometimes thousands of pounds but could be worthwhile if they can find you a cheaper provider.
Exit fees - This is the cost of paying back your loan early. Not all lenders charge exit fees, but those that do typically cost around 1% of your loan amount.
There may be other fees to pay, so always check the total cost before you proceed.
Yes, this is a common reason for a bridging loan. If you are waiting to sell a property but another is available, you could get a loan to avoid missing out.
Yes, if you have won an auction bid and need funds to complete the purchase, you could use a bridging loan.
This depends on how much your security is worth; most bridging lenders let you borrow up to 65-85% of your property value, but some may offer more.
Some lenders may give you a loan, even if the property is currently uninhabitable. But only if you plan to redevelop it.
Yes, you may be accepted if you apply, but a self-build mortgage is likely to be a better choice.
Yes, but some lenders don't cover Scotland, so you will need to check this before you apply for the loan.
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