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Bad credit bridging loans

Find out how it’s possible to get a bridging loan even if you have bad credit on your file.

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By Pete Mugleston   Mortgage Advisor

Last updated: 23rd November 2018

Customers often ask us whether it’s possible to secure bridging finance with bad credit, and the answer is yes (with a few caveats).

Read on to find out more, or make an enquiry to speak with a bridging expert over the phone and get the right advice.

The following topics are covered below…

Are there bridge loans available for bad credit customers?

In a word, yes.

Bad credit is only really an issue for most bridging finance providers if it puts the exit strategy in jeopardy, although some lenders may turn you away altogether.

Bridging loans are always offered on a short term, interest only basis and the exit strategy (i.e. how you will repay the loan at the end of the term) is the most important eligibility factor. This will usually be a remortgage or the sale of a property.

If your exit is a remortgage, some bridging providers will refuse to offer you capital and underwriters may be concerned about further adverse credit issues building up during the term that can make the exit even harder.

But that doesn’t mean a deal is impossible - the advisors we work with have access to the entire market and may be able to connect you with a lender who caters for customers in your situation, and successfully handle these types of enquiry on a regular basis.

What type of credit issues will bridging lenders accept?

Most bridging finance lenders have the flexibility to overlook the following issues, as long as they won’t affect the exit strategy…

  • No credit history
  • Low credit score
  • Late payments
  • Missed mortgage payments
  • Defaults
  • CCJs
  • IVAs
  • Debt management Schemes
  • Repossessions
  • Bankruptcy
  • Payday Loans

If you have any of the above against your name, the biggest concern is whether they will prevent you from repaying the loan at the end of the term.

If your exit is to sell the property (or another) then this is less likely to have an impact, however, if your exit plan is a remortgage, you may need to find a lender who specialises in bad credit customers, and they do exist.

They often base their lending decision on the severity of the bad credit (a bankruptcy is a bigger deal than a missed phone bill payment, for instance) and how long it has been on your file (the older, the better), as well as other eligibility factors such as the loan to value ratio.

Using a bad credit specialist broker

The whole-of-market brokers we work with can provide you with expert bad credit advice and connect you with the right bridging and remortgage providers who specialise in adverse credit. They’ll help to ensure you get accepted first time as well as helping to ensure you get the best deal available for your circumstances.

Can I get a bridging loan with no credit check?

No. Like with most loans, bridging finance involves a credit check during the application process. Most bridging lenders don’t run a “credit score” like most traditional mortgage lenders, and applicants are more likely to be manually assessed based on the account conduct and other info in the credit file, than a “computer says no” approach.

Applicants with clean credit are generally more attractive to lenders and often end up with the most favourable rates, but good credit is not the only thing providers look for, and as mentioned it’s possible to get approved with credit issues.

What else impacts eligibility for bridging finance?

If you’re after a bridging loan and have bad credit history, your chances of approval will improve if you have the following…

  • A viable exit strategy
  • A strong property to secure the loan against
  • A solid business plan (if the loan is for commercial purposes)
  • Experience in property development (if the loan is for development)
  • A healthy deposit

Why exit strategy is important for bad credit bridging finance

Having a strong exit strategy ranks high on most bridging finance provider’s eligibility checklist. As these loans are handed out on an interest only basis, how you plan to settle up at the end of term is crucial, and where property is concerned, most borrowers do this through remortgaging or the sale of the asset in question.

If you have bad credit and your exit strategy is a remortgage, your choice of lenders will be fewer as many are reluctant to offer bridging under these circumstances and underwriters will scrutinise you to assess the possibility of further adverse during the loan term.

However, if you can demonstrate that the property you have your eye on will be a lucrative investment, there may be specialist lenders willing to offer you a bridging loan, regardless of your credit situation, and the advisors work with can identify them for you.

Non-standard exit strategies

There are bridging lenders who will accept ‘non-standard’ exit strategies, such as using investments, endowments or inheritance that is due to enter the borrower’s account within a certain time-frame to settle the debt. In certain cases, this could provide a lifeline if adverse credit is preventing you from remortgaging to repay the loan.

However, in these instances, some providers will charge daily interest rather than monthly.

A strong security property

Bridging loans can either be secured against a property you’re buying or one you already own (as well as assets). If you can evidence that your property is guaranteed to raise the necessary amount through sale or remortgage, this will likely offset some of the risk the adverse credit on your file creates in the eyes of the lender.

Expect the provider to scrutinise how mortgageable/sellable your property will be, looking at factors such as its location and whether there are any factors that might put off prospective buyers, such as leaseholds and non-standard construction.

A business plan

This will only be requested by some lenders if there’s a commercial element to the property you’re buying. They will likely want to assess the viability of the investment.

Experience in property

Not all bridging finance lenders will insist that the borrower needs experience in property, but it’s usually a bonus and can help minimise the risk involved in bad credit deals.

Some lenders will even insist on experience if it’s a complex development undertaking, and may ask to see evidence of your previous projects. If you can provide them with that, they’ll be more confident that you’re capable of achieving your plans.

A healthy deposit

You’ll usually need a deposit of at least 30-35% when buying property with bridging finance, but if you can stretch to more, it could help lessen the risk. As is the case with mortgages, the best rates tend to kick in when a borrower puts down a deposit of 40%, and if you have adverse on your file, this could boost your chances of approval.

Can I get a second charge bridging loan with bad credit?

Your choice of lenders will be far slimmer if you’re after a second charge bridging loan with bad credit, as some providers won’t even grant these to borrowers with clean credit.

There are specialist firms who offer second charge bridging loans, but the interest tends to be higher, so your chances of finding one with favourable rates are slender if you have adverse. That said, having access to the whole of the market might help you find a lender willing to offer second charge bridging loans to bad credit customers. The advisors we work with have exactly that, so make and enquiry and they will help you find the best deals.

Can I get a third charge bridging loan with bad credit?

Third charge bridging loans are even harder to come by than second charge, so landing one with adverse on your file can be tricky. However, there may be a niche lender willing to take a chance on you under exceptional circumstances, such as your business plan or investment opportunity promising to be hugely lucrative and the exit strategy being water-tight.

Again, you’ll need access to the entire market to find a provider willing to lend under such specific circumstances, so get in touch and the advisors we work with will connect you with the lender most likely to offer you a favourable deal.

Bridging loans for businesses with bad credit

There are many reasons why a business might have bad credit. Perhaps they have a track record of late invoice payments or have been taken to small claims court.

Many business owners are convinced they’d be turned down for a bridging loan due to their firm’s adverse credit, but that isn’t necessarily true. As is the case with individuals, there are lenders who may be willing to offer capital to businesses with adverse credit, under the right circumstances. It will help if the firm has assets to secure against the loan, for instance.

If your business has been turned down for bridging finance in the past, or you’re concerned that it might be, get in touch and the advisors we work with will help you find viable deals.

Is property type a factor?

Bridging loans can be used for almost any legal purpose, but their most common use if for buying property. Bridge finance can be used to purchase residential, commercial, mixed use and even ‘unmortgageable’ properties, and you’d choose it over a mortgage or other form of borrowing when timing is of the essence. For example, if you were buying at auction or need to close a deal before a rival buyer has the chance to beat you to the punch.

With bad credit on your file, you might find it more difficult to secure a loan for a commercial or ‘unmortgageable’ property as some lenders consider these higher risk and cap LTV even for borrowers with no adverse against their name.

Properties such as restaurants and petrol stations are considered risky by some providers, as are complex renovation projects - but as bridge finance is always assessed on a case-by-case basis, you may be able to find the right deal with whole-of-market advice.

Can I get a bridge to let agreement with bad credit?

If you’re using a bridging loan to purchase a buy to let property, there are lenders out there who can provide both the loan and the BTL mortgage you’ll need afterwards. This is known as a bridge to let agreement, and they usually involved getting an agreement in principle for the mortgage when the loan funds are due to be released.

There’s no reason why you can’t get a bridge to let with bad credit, as long as the adverse doesn’t stop you meeting the lender’s standard eligibility criteria for a BTL mortgage. See our guide for more info on BTL mortgages with bad credit.

Are there bad credit bridging loans for Limited companies?

There are bridging loans for Limited Company borrowers and the rates they come with are no different to other straightforward bridging loans. The borrower is likely to treat these applications similarly to Ltd Company buy to let applications. It’s not uncommon for them to request personal guarantees from the company directors.

If you have bad credit on your file, it may boost your chances of approval if your Ltd Company is a Special Purpose Vehicle (SPV) as this will increase the number of approachable lenders, but finding a deal is by no means impossible if you’re an non-SPV borrower.

Non-status bridging loans

You may have heard the term ‘non-status bridging loan’ bandied about and might be wondering if you can get one. Let’s start with the definition, and simply put, and non-status bridging loan is bridging finance secured against an asset, usually at a high interest rate. Where the lender will focus entirely on the application of the loan itself.

They will scrutinise the asset in question and the borrower’s plans for the loan, but will not base their lending decision on personal factors such as income.

With this in mind, non-status bridging loans are ideal for borrowers who are asset rich but have limited income, or somebody with a lucrative property on their hands and adverse credit. The main downside for these demographics is the higher interest rates, and as a result these loans are usually only considered as a last resort.

If you think a non-status bridging loan might be a viable option for you, get in touch and the advisors we work with will search the whole of the market for the best deals.

Is bridging finance available for ‘blacklisted’ customers?

Firstly, there is not really any such a thing as a credit “blacklist”. Some people think lenders have a shared diary with a list of names they all agree not to lend to, and it doesn’t exist.

There are certain credit events that can cause a “mark” against your credit file, as in, if the standard account conduct lenders provide to reference agencies report a late payment, this can be interpreted as negative. More late payments, or defaults, or CCJs, or other credit events, add up to more negatives.

Every lender then, has their own policy on what they will and won’t accept, in terms of what issue is registered, and when. So just because you may have been declined by one, doesn’t mean you won’t be approved by another. And remember, credit issues are usually only a deal-breaker for bridging lenders if they put the exit strategy in jeopardy.

If you’re a borrower in this situation, get in touch and the advisors we work with will discuss every available option and help you determine the best course of action, and give you the right advice.

Bridging loans FAQ

Here you will find additional information about bridging finance based on the most frequently asked questions we heard about this product.

What is a bridging loan?

Bridging finance is a form of short-term borrowing that is usually much quicker to arrange than a mortgage. Bridge loans are typically more flexible than the alternatives too, but their main drawback is that the interest rates can be higher than mortgages.

Why take out a bridging loan?

They are most commonly used for land and property transactions when timing is of the essence. They can ‘bridge’ the gap between a debt and mainline credit being available.

Perhaps you’ve bought at auction or need to move quickly to close a deal before a rival buyer can beat you to the home of your dreams. In these scenarios, other forms of borrowing may not be an option because of the amount of red tape involved.

How does a bridging loan work?

They are offered on an interest only basis and paid off at the end of the term via an exit strategy which must be evidenced in advanced. With land and property transactions, the exit strategy is usually the sale of a property or a remortgage.

How much can I borrow

Deals worth tens of millions and even higher are not unheard of as most bridging lenders don’t have a strict cap on what they willing to hand out. As long as your exit strategy is viable, there’s a realistic chance the provider will consider a loan of almost any sum.

At the other end of the scale, some bridging finance lenders do have minimum loan amounts. Some will turn you away if it’s less than £50,000, others £30,000 and a minority £10,000, but given how flexible bridging is, you may be able to get a loan that is even smaller than that with whole-of-market advice on your side.

Are bridging loans regulated?

Bridging loans for properties the borrower already lives in or is planning to live in need to be regulated, but those used for commercial purposes have to be unregulated.

Regulated bridge loans are overseen by the Financial Conduct Authority (FCA), giving the borrower extra protection against mis-selling and bad advice, among other things.

Meanwhile, unregulated bridging loans are bespoke and tailored to the needs of the borrower. For example, an unregulated bridging loan for a buy to let property could be handed out based on rental potential, rather than the borrower’s income.

What is the difference between open and closed bridging finance?

Closed bridging loans have a more defined repayment date, while open must be paid back within a certain timeframe (within 12 months or less is standard). Closed are typically offered with lower interest rates but are harder to come by.

How is interest charged on a bridging loan?

Interest on bridging loans is charged one of three ways - monthly, rolled up or retained.

  • Monthly: Similar to an interest only mortgage, you pay off the interest each month and the full loan amount is settled at the end of the term.
  • Rolled up: Instead of monthly payments, the interest is compounded and builds up over the course of the loan. It is added to the loan amount and everything is payable at the end of the term through the exit strategy.
  • Retained: You ‘borrow’ the interest as well as the loan amount. The total amount payable is calculated at the beginning of the term, based on how long the term is and everything is payable at the end, when exit strategy has paid out.

How long are bridging loan terms?

These loans are usually very short term and typically need to be paid off within 12 months or less. Some lenders stretch to 18-24 months if the deal calls for it, and the longest you’re likely to find even with whole-of-market access is 36 months.

Speak to a bad credit bridging loans expert

If you want to make an application, get the right advice, or if you’d like to know more, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the bridging finance lender with the right expertise for your personal circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 23rd November 2018
OnlineMortgageAdvisor 2018 ©

FCA disclaimer

The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage.

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