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A guide to the costs and fees associated with bridging finance

What fees, costs, charges and interest rates can I expect to pay on a bridging loan?

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 19th July 2019 *

We’re asked all the time about the cost of bridging finance, and to most people we explain that bridging loans typically come with high interest rates, so it’s important to work out the overall cost before signing on the dotted line.

This guide to bridging finance costs and fees will help you establish how affordable these loans are to somebody in your circumstances.

The following topics are covered below…

Bridging finance costs and fees - How much is a bridging loan going to set me back?

In order to work out the overall cost of a bridging loan, it’s important to be aware of the fees you’ll face in addition to the interest charges. They are as follows…

Bridging finance arrangement/broker fees

Bridging loan costs typically include arrangement fees and they usually amount to a percentage of the loan. Around 2% is standard, but some lenders may drop to 1% if you take out a particularly large sum, and others may waive this fee entirely.

Some providers will also charge admin fees if you decide to take out the loan.

Take note: You should avoid brokers who charge heavy upfront fees that are not refundable, as brokers should only be paid on success. The advisors we work with only charge if they secure a deal and will refund any upfront charges if this isn’t the case, so make an enquiry to be connected with them.

Bridging loan valuation fees

To set up a bridging loan, a valuation on the property or properties the borrower has put up as security must be carried out. This is payable to the surveyor or lender and the cost will vary depending on the asset’s value, location and the type of valuation required.

There will be times when a desktop valuation - i.e. one that is carried out remotely via the internet - will suffice, and this will add less to your overall bridging finance costs than a drive-by valuation (conducted outside the property) or a full on-site valuation.

Take note: If you’re putting up more than one property/asset as security, you may have to pay extra valuation fees, as a separate valuation will be needed for each of them.

Bridging loan exit fees

Another thing to factor in when tallying up a bridging loan’s cost is possible exit fees. Some (but not all) lenders charge a redemption fee for removing their charge from a security property. Around 1% is standard and this is added to the loan when it is redeemed.

Bridging loan solicitor fees

Both the redemption fee and any solicitor fees fall under the ‘legal costs’ banner when calculating how much a bridging loan would cost. The lender will use a solicitor to carry out the legal due diligence and may expect you to foot the bill. This will be in addition to your own legal costs and the amount you’ll end up liable for can vary across the board.

If you’re looking for cheap bridging loans with the best rates on the market, get in touch and the whole-of-market advisors we work with will connect you to the right lender for someone in your circumstances.

How interest is charged on bridging loans

The overall cost of bridging loans also comes down to how much interest you will pay, and how the lender will charge it. There are three ways bridging providers charge interest…

  • Monthly:
    This works in much the same way as an interest only mortgage. You pay the interest off each month and it is not added to the loan.
  • Deferred or rolled up:
    The interest is added to the loan amount each month and the cumulative total is payable at the end of term. For instance, with a £100,000 loan, £1,000 interest might be added at the end of the first month, taking the total owed to £101,000. In month two, £1,100 in interest will be added, taking the total to £102.1,000, and so on.
  • Retained:
    You borrow the interest for a set period and the full amount is payable when it’s time to settle up. The total interest is calculated at the beginning of the term based on how long you’re borrowing the funds for, and you will be given a settlement figure at the end.
    For example, if you have a £100,000 loan at 1% interest on a 12-month term, the total amount requested at the end would be £112,000 (loan amount + £12,000 interest). Settle the same loan after six months and the amount due would drop to £106,000.

If you’re unsure whether to request bridging finance with retained, deferred or monthly interest repayments, get in touch and the experts we work with will offer their insight and connect you with the provider offering the cheapest bridging loans, as well as the best rates, for somebody in your circumstances.

How to get the best bridging finance rates

Customer often ask us about the average cost of a bridging loan, and in truth, it can vary dramatically depending on the lender and how high risk the borrower is. The important thing to keep in mind here is that the key to finding the cheapest bridging loan is having whole-of-market access and meeting the eligibility criteria at as many lenders as possible.

Although what’s acceptable at one lender might be frowned upon at another, bridging providers tend to reserve their most favourable rates for borrowers with the following…

  • A viable exit strategy
  • Good security
  • Clean credit
  • Experience in property

Follow this link for more information on securing the best bridging loan rates.

How much deposit do I need for bridging finance?

To fully answer the question “how much do bridging loans cost?” and work out the amount you can borrow, we must also factor in how much deposit you’ll have to contribute.

Most bridging finance is offered with a loan to value (LTV) ratio of 70-75% of the gross loan amount, so at many UK lenders you will need a deposit of at least 30-35%.

100% LTV bridging loans

It is possible to secure a bridging loan with higher LTV - up to 100% in specific cases - but lenders usually only offer these deals when you put up extra security, i.e. safeguard the loan against another property or properties. Certain lenders may also allow you to put up other assets besides property as additional security, making a deposit unnecessary.

For more information on 100% LTV bridging deals click here.

Are the costs and fees any different for unregulated bridge loans?

The cost of bridging loans is generally the same whether they’re regulated or unregulated.

Regulated bridge loans are secured against a property that is, or is due to be, occupied by the applicant. They are regulated by the Financial Conduct Authority (FCA), which means the borrower is protected against poor advice and miss-selling from lenders/brokers.

Unregulated bridging loans, meanwhile, are used to purchase investment or commercial property, including buy to lets. They are not regulated because commercial borrowers need more flexibility and agreements that are tailored to their needs.

Take note: For regulated bridging loans, most lenders will want the borrower to have some form of provable income. This isn’t always a necessity for non-regulated, as the lending decision can be based on the viability of the investment.

Are there extra fees if I can’t settle up at the end of term?

Extra fees are indeed a possibility if you’re unable to settle a bridging loan at the end of term. Some lenders will consider extending the agreement slightly if you cannot pay up, but you will usually be hit with extra charges in this scenario.

One option is to refinance the bridge loan (LTV and affordability permitting) but you can expect to find your new exit plan under extra scrutiny from the lender, since your previous one didn’t pan out. Some providers may allow this, depending on the perceived risk.

Ultimately, whether the bridging loan term is extended is at the lender’s discretion, and some will simply activate repossession proceedings if there’s no exit in sight.

If you’re still wondering about the potential cost of a bridging loan and whether you’d be able to afford one, get in touch in the expert advisors we work with will discuss your application and connect you to the lender offering the best rates.

Open vs. closed bridging finance

One distinction we need to make is the difference between open and closed bridging finance, as the costs can differ between these product types.

Can I pay off a bridging loan early?

Yes! And it’s usually in your best interest to do so, especially if you took out an open loan.

Speak to a bridging loans expert

If you’re still wondering “how much does bridging finance cost?” or would like to know more, call Online Mortgage Advisor today on 0808 189 2301 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: 19th July 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info 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. Some types of buy to let mortgages are not regulated by the FCA. 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. Equity released from your home will also be secured against it.

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