Bridging loans are a shorter term funding option secured on property taken out for a period of 1 month to 24 months pending a property sale or pending longer term financing or re-financing. They are used to bridge a situation where a person wants to buy their new property before they have sold their existing property. They can also be used to buy a property in a poor condition, generally un-mortgageable and a bridging loan is used to buy the property, carry out the necessary refurbishments and then a long term re-mortgage can be obtained to repay the bridging loan.
Bridging loans can also be used at auctions with a limited period of days to complete a bridging loan would be used to complete the purchase and then the bridging loan would be repaid by a long term re-mortgage or sale.
Bridging loans can be taken out for a period as short as 1 month and as long as 24 months but 6 to 12 months is the norm.
Lets look at January 2018 and see the types of bridging loan applications that we are processing – we have an application from an independent College which had a short term cash flow problem due to many of its overseas students having visa issues causing revenue to plummet. We are arranging a bridging loan the visa problems have been resolved and the income stream is building up again but the bridging loan is needed to deal with cashflow issues pending the College being sold. This is a facility of in excess of £1M.
We are also processing an application for a funding facility of £100,000 secured on agricultural land in Scotland. The applicant has the option to apply for planning on some of the land currently in charge to another lender, he asked that lender to release a portion of the land but the lender refused. We are therefore arranging a bridging loan to redeem the existing borrower taking a charge on the remaining land excluding the plots which the applicant can then sell off independently.
The largest bridging loan that we have ever processed was for £15.5M on a Hotel complex in London and the smallest bridging loan arranged was for £26,000 – we have no maximum and a minimum of £26,000.
The Directors have over 25+ years experience in arranging bridging loans and hold CeMAP and CeRER qualificiations.
Question – What is the interest rate on a bridging loan? – This depends upon the amount of the loan, the relationship between the loan and the value of the security, whether the security is residential or commercial and also the term of the bridging loan but currently the lowest interest rate Lerwick Financial Group Ltd can offer is 0.44% per month.
Our client required £400,000 to exit a bridging loan from another lender.
Property worth £700,000 let to 5 separate tenants. The client will require an HMO licence in early 2016 but granted a grace period.
Lerwick succeeded in arranging a new bridging loan with a 5 day completion to repay an existing bridging lender to give the client more time to find low cost longer term finance linked to the obtaining of an HMO licence.
The clients discounted rate with the existing lender had come to an end and they weren’t in a position to redeem the loan because of the HMO situation.
The property comprises a South London, mid terrace property worth £700,000, let to 5 separate tenants on individual assured shorthold agreements thereby coming under the impending HMO licence requirement.
The new bridging loan was at a lower rate of interest than the bridge from the current lender and lending completion fees were reduced in order to see that the client was in a better place than would otherwise have been the case.
Lerwick Financial Group helped to deliver the right solution to the delight of the client.
If any Intermediary has any clients who are in an existing bridge there are opportunities to re-bridge as long as it is to the the benefit of the borrower in terms of overall costs.