Bridging Loans Explained

What is a bridging loan calculator?

A bridging loan calculator gives you an idea of how much a bridging loan could cost, based on your circumstances such as how much you want to borrow, your property’s value and how long you want the loan for. The bridging loan calculator will also give indicative figures of any fees involved too, although when you apply for a bridging loan, these fees may vary.

What is a bridging loan?

Bridging loans are a way to borrow money in the short term and they can be used to ‘bridge the gap’ if you need to buy one property before selling another.

Bridging loans can be very fast to arrange compared to traditional mortgages. However, they are secured loans, this means you have to secure an asset against them, usually a property or properties. So think carefully before proceeding.

Why get a bridging loan with us?

We’ve partnered with Chartwell Funding because of their excellent customer service. Established in 2007, the FCA regulated company have an experienced team of experts to help guide you through the process whatever your needs. And we’re delighted to announce that Chartwell have offered to waive their fee (usually £500) as an exclusive deal for HomeOwners Alliance users. You can contact Chartwell today by completing an enquiry form or speaking to a specialist broker at Chartwell Funding now on 01454 809 300

What can I use a bridging loan for?

Bridging loans can be arranged for any legal purpose, some common examples are:

• you’re in a property chain that has collapsed and you don’t want to lose your dream home. Read more about this in our guide How do I break the housing chain?
• you’re buying an auction property and need to raise funds quickly
• or, you’re buying an unmortgageable property and you intend to make it habitable or lettable so a traditional mortgage can be arranged.

Bridging loan criteria – am I eligible?

So what bridging loan criteria will you need to meet to be approved? Firstly, you’ll need to be:

• Aged 21 or over
• UK resident
• Credit History: All situations are considered, however if your exit is refinancing you will need to prove you will be accepted
• No income proof is required: Unless the loan is to be repaid through refinancing or a property buy to let

Bridging loan criteria – property as security

And you’ll usually need to put up property as security. Examples of the types of security that can be used for a bridging loan include:

• Houses, flats, bungalows and houses in multiple occupation
• Commercial property can be used if it is going to be converted to 1 or more residential properties
• Multiple properties can be used as security
• Properties can be in a very poor state of repair
• Part completed projects
• Land

Bridging loan: How much can I borrow? 

Simply use our bridging loan calculator to find out. The amount of loan you’ll be able to get will depend on the value of your property and your personal finances. The maximum loan, including any retained or rolled up interest is normally limited to 75% loan to value (this can be over multiple properties).

What limits how much I can borrow?

Your loan size may be limited depending on the condition of the property, your credit history, any essential works required at the property or the level of finance available to refinance. 

How much does a bridging loan cost?

In terms of how much will a bridging loan cost you, firstly you’ll need to consider the bridging loan interest rate you’ll pay and you’ll also need to factor in bridging loan fees and costs.

Bridging loan interest rates

Bridging loan interest rates tend to be higher because bridging loans are a higher risk than a traditional mortgage and they’re designed to be short term. You can expect to pay anything from 0.52% per month, depending on your circumstances.

To get the best bridging loan interest rate you should always shop around and the easiest way to do this is by using a specialist bridging loan broker like Chartwell Funding. But there’s another important benefit of using a bridging loan broker; unlike standard mortgages, bridging loans interest rates can be negotiated – so by using a good bridging loan broker, you may get a better rate.

The bridging loan interest rate you’ll be able to access will depend on factors including your LTV, how you plan to repay the loan and the condition of the property. But for illustration, these are the typical starting point for bridging loan rates.

Loan to Value Monthly Rates:

How is bridging loan interest calculated?

The key difference between bridging loan interest compared to standard mortgage interest is that interest rates are displayed as monthly for bridging finance. This is because bridging loans are typically between 12 and 18 month terms, and you pay interest on your monthly balance. And you’ll usually only pay interest for the duration of your loan. So, if you exit your bridging loan within 6 months, you’ll only pay 6 months’ worth of interest even if your original term was 12 months. And most lenders won’t charge you a fee if you pay off your loan early. 

How is interest calculated and added to a bridging loan?

Unlike a traditional mortgage, there are three ways that the interest on a bridging loan is charged:

• Monthly: Similar to an interest-only mortgage, you pay the interest payments each month and they are not added to the loan. If you plan to pay the interest monthly, you must provide evidence of your income to ensure it’s affordable.
• Rolled up: Interest is charged monthly on the outstanding account balance. Interest payments aren’t made each month, instead the monthly interest charge is added to the account balance each month. As such, your outstanding balance will increase each month.
• Retained: You borrow the interest upfront for an agreed period and then when the loan is paid back, any unused interest is returned to you.

What bridging loan fees and costs are there?

The exact fees you’ll need to pay will depend on the lender and your circumstances but here is what you’ll typically have pay.

• Arrangement fees: This is a fee payable to the lender for setting up the loan, 2% of the loan value is a typical amount. And this can be added to the loan.
• Administration fee: You may be charged an administration fee by the lender when you take out a loan and this could be around £145.
• Valuation fees: The lender will usually want to have a valuation conducted of the property you wish to use as security. Valuation fees for this purpose vary, although they typically range from free to £2000+ depending on the lender and how fast you need the funds. But our bridging loan calculator will estimate this for you.
• Legal fees: When you take out a bridging loan, the lender will use a solicitor to manage the legal sides and you’ll be charged a fee to cover this. You’ll find an estimate of the legal fees in our bridging loan calculator. Legal fees will typically start at £750 plus disbursements.
• Redemption Administration Fee: Some lenders charge a fee when your bridging loan repayment period ends to cover administration fees like removing their name from the house deeds.
• Broker Fees: Broker fees vary and can cost thousands of pounds. However, our partners at Chartwell Funding offer their advice for free to HomeOwners Alliance customers.

Bridging loan example

Here is an example of how a bridging loan works. Let’s say you want to buy a house for £400,000 before you can sell your current property of £350,000 with a £50,000 mortgage secured against it. This means borrowing the full £400,000 and a 12-month bridging loan to give you enough time to sell. And, arranging a mortgage on your new property to cover the shortfall.

How to cut the cost of bridging loans

By using a bridging loan broker, they can negotiate with lenders on your behalf to get a better deal. Also, if you’re buying a property before selling an existing one, it may be possible to reduce the cost of finance by using more than one security property. By securing your bridge loan over both properties in the transaction, your overall loan cost may be lower. However, if you have an outstanding mortgage on a property you’re using as security, it will be factored into the overall loan to value calculation.

Get free advice on bridging loans from our specialist finance partners at Chartwell Funding. Click here or call them on 01454 809 300.

How do I get a bridging loan?

Submit an enquiry form or if you want to speak to a specialist broker immediately call Chartwell Funding on 01454 809 300. They are open Monday – Thursday 09:00 – 19:00 and Friday 09:00 – 17:30.

Do bridging loan brokers charge?

Ordinarily yes, charging from £500 to thousands of pounds. But, we’ve partnered with the experienced team of brokers at Chartwell Funding to bring you free advice when securing your bridging loan.

If I have a mortgage on a property, can I use it as security for my bridging loan?

Yes. Bridging loans can be secured as first or second charges, or even third charges, as long as there is still sufficient equity in the property.

Can I borrow 100% LTV with a bridging loan?

This will always depend on your individual circumstances but generally speaking, as long as the LTV is 75% or below, based on the combined value of properties being used as security, then 100% bridging is possible.