Bridging Loans

Bridging loans explained in full

How does a bridging loan work?

There are many uses of a bridging loan but the main one is to finance property development. It could be used to purchase and renovate a property, or buy a property at auction.

There are two main types of bridging loan, open and closed.

Open bridging loan

Open bridging loans are more flexible and do not have a fixed exit date, but normally it is completed within 12 months.

Closed bridging loan

Closed bridging loans have a fixed exit date in place and are normally used if the sale of an existing property is near completion with fixed contracts in placed.

How much does a bridging loan cost?

Due to the short term nature of a bridging loan they tend to have a higher interest cost than your traditional buy to let or commercial mortgage product.

The cost of the monthly interest will either be deducted upfront or rolled up (added to the loan).

Ultimately, the deciding factor is the purchase price you pay for it and the loan amount required.

There will also be both an arrangement and exit fee of the loan, as well as admin costs.

How much can you borrow with a bridging loan?

Through Teal Finance, you have access to over 68 lenders so the maximum you can borrow depends on the security you have to back it up with and the feasibility of your exit strategy. The minimum our brokers can facilitate is a bridging loan size of £25,000.

Eligibility: How to qualify for a bridging loan?

The lender will normally want to be able to see your repayment strategy and it is advisable to have a back up plan in the event your exit plan falls through as they will want to be able to see you can still pay the loan back.

Qualifying for a bridging loan in the UK is straightforward and easy, applicable for:

• An individual, partnership or limited company.
• People who are employed, self-employed or retired.
• People over the age of 18 - some lenders will have an upper age limit.
• People who live in or have a registered address in the United Kingdom.
• People that have a form of security, such as one or two properties.
• Purchasing or refurbishing residential or commercial property.
• A clearly defined exit strategy from the bridging loan - such as selling the property, refinancing or money due within the duration of the term.
• A loan amount of at least £25,000.

The criteria of each lender varies which is why it can save you time and money to use an experienced bridging loan broker at Teal Finance, who can quickly structure a professional proposal for reaching out to and negotiating with the most suitable lenders on your behalf.

What is the difference between first and second charge bridging loans?

A 'charge' is a legal agreement that takes your property as a form of security and prioritises the order in which lenders will be repaid if you fail to repay your loans.

First charge bridging loans

If you own your property, or you're using a bridging loan to complete the repayments on your existing mortgage, your bridging loan will become the first reciptent to charges should you fail any repayments.

Second charge bridging loans

If you're bridging loan isn't being used to complete the repayments of your existing mortgage, the existing mortgage would be paid towards first if you fail to make repayments.

What is the difference between unregulated and regulated bridging loans?

The regulatory principle of a bridging loan depends on whether the borrower intends to secure the loan against a property they will be occupying or if it used commercially for business.

Unegulated bridging loans (Business)

When a bridging loan is secured against a commercial property for business purposes, the borrower is expected to assess and understand the contracts they are to sign. Therefore, a company authorised by the Financial Conduct Authority (FCA) isn't required to facilitate a bridging loan by regulating it.

Regulated bridging loans (Personal)

When a bridging loan is secured against the borrower's primary residence or where they plan to move, it becomes the responsibility of the broker or lender to ensure the borrower fully understands the contracts they are to sign and that their exit strategy is achievable. For regulated bridging loans, Teal Finance Ltd, which is authorised and regulated by the Financial Conduct Authority (FCA) (No. 923626), is required.