Want to know how much bridging finance costs, typical rates and how to obtain a free no obligation bridging quote then this article is for you!
What’s the average cost of a bridging loan?
This is a difficult question to answer as the cost of bridging loans can vary greatly depending on the lender, the amount borrowed and the terms of the loan. However, using a bridging loan calculator can give borrowers an idea of approximate rates and fees, which can help them decide whether a bridge loan is the right option for them.
Bridging loans are useful for borrowers who need to bridge a short-term cash flow gap, such as when they are waiting for the sale of their current property to go through. They can also be used to finance the purchase of a new property before the sale of an existing one has completed.
Is a bridging loan expensive?
Bridging loans are priced monthly instead of annually due to its relatively short time frame in which it will be repaid which is no more than 2 years. Because bridge loans are short term they tend to be high cost in comparison to other longer term financing, such as traditional mortgages. The typical rates for a bridging loan range from 0.45% to 2% monthly, but this is completely dependent on your circumstances and the risk profile of the security that will be used.
What’s the average cost of a bridging loan?
What are the fees for bridging loans? Bridging loan costs generally include arrangement fees and are usually between 2% to 4%. Some lending institutions will drop to 1% if you take out very large sums, or some might even waive this fee completely on large loans in excess of £5m. Bridging loan calculators are available on many websites that van give you a good indication of the overall cost of a bridging loan. However, you should be aware that the information they provide is only indicative and shouldn’t be relied on or considered an agreement in principle.
Do you pay a bridging loan monthly?
No, its unusual to pay for a bridging loan monthly and its uncommon to service the debt monthly. Instead, bridging loan interest is generally rolled up into the gross loan amount.
This benefits most scenarios for the borrower because the borrower will most likely have taken a bridge loan due to the lack of cash they have available to complete a specific transaction.
Common examples of their use would be:
- Where the borrower is in a property chain, and their house sale has fallen through yet they still want to continue with their purchase of another home. In this instance, a bridge loan can bridge that gap in finances until their old house has sold. When sold they’ll use the funds to settle the loan facility.
- To assist in securing an investment property from auction. If a property is bought from an auction then the deposit must be paid immediately. All remaining payments must normally be completed within 1 month. A bridging loan is likely to be used for this purpose as traditional mortgages can take much longer than 4 weeks to complete.
These finance tools are useful in completing the transaction when the customer is cash poor but asset rich. Most exits of a bridge loan are through the refinancing onto a long-term solution via a mortgage or through the sale of the asset after an increase in the asset’s capital value.
Bridging loan benefits
Below are several of the key advantages or perks of using bridging loans:
- A rapid and fairly straightforward application procedure.
- Huge sums can be obtained; they provide flexibility in payback alternatives (interest costs can be ‘ripped up’ and payable on redemption of the loan, resulting in no interim expenses).
- There are a variety of loan conditions and terms available.
- Because the security is primarily asset-based, low, poor or no credit history doesn’t disqualify an applicant and this means its also not income-based either.
- They offer debtors the opportunity to sell a current property or obtain longer-term financing.
- They can boost your credit record if you make timely payments. They provide you with more spending power since you invest less of your cash.
- They provide an option whenever traditional loan-to-value (LTV) mortgages are not accessible.
Tell me the bridging loan rate?
Residential Bridge finance rates begin at 0.45% per month. The rates can be obtained at as high as 80% loan-to-value (LTV).
Other bridging costs
No one lender in the UK uses the exact same methodology of calculating the cost of a bridging loan. Cost figures in this article are provided only for indicative informational purposes, because costs and fees differ greatly depending on which loan provider you approach. For complete accurate data please contact a bridging loan broker directly. You can find a list of bridging loan brokers and lenders on bridgingloan.org.uk
The typical other costs and fees of a bridging loan include:
- An application fee, which is usually a fixed fee and are usually refunded when a loan completes.
- A valuation fee, to cover the cost of having an independent surveyor assess the value of the property being used as security for the bridging loan, though these can be significantly reduced where an alternative option is used such as a desktop valuation.
- An arrangement fee, which is usually a percentage of the gross loan amount.
- A broker fee where a broker has been used to organise the loan, this is usually a flat fee.
- An administration fee to cover the removal of the charge against the property when the loan redeems.
- Interest rates, which are typically higher than those on a traditional mortgage.
- Exit fees if the bridging loan is terminated before the end of the agreed term.
Bridging loans are a convenient way to obtain short-term funding.
The cost of interest is computed on a monthly basis, which can increase the total expenditure over the term. Bridging loans are often more costly than standard mortgages. Unless you’re adept at understanding the bridging loan space, working with a knowledgeable and professional broker is likely to help obtain a better deal than you could achieve by going directly to a lender.
When it comes to finding an average cost for a bridging loan, it’s not really possible as there are so many different factors that can affect the overall price so your best option would be to either use a bridging loan calculator to assess whether this type of loan is right for you or simply go direct to a broker and ask them for a personalised quote on your bridging loan.