Borrower Tips
We’ve been looking at bridging loans a lot recently because they’ve become such a key financial tool for savvy property investors. But can you get a bridging loan with bad credit?
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Bridging loans are short-term funding, typically 1 -12 months, that are mostly used to plug funding gaps between buying and selling property. They offer a vast borrowing scale, ranging from £10,000 to £10 million and can be arranged in as little as three days (comparatively, residential mortgages take months to complete). With such large scale borrowing and super-quick arrangement, can you really get a bridging loan with bad credit?
Yes, you can.
Although it can be harder to gain approval or you might have to pay higher rates. But generally, bridging loans are approved on the basis of a strong exit strategy, i.e. how you’ll repay the loan, so things like credit history, income or cashflow are less important.
If for example, a bridging loan is used to buy a house before selling but the borrower has a fixed date for completion, the lender knows when and how they will be repaid. If bridging is used to buy a property for renovation, the lender will approve the loan based on the project viability, considering demand for that type of property, the developer’s experience and ability to complete, and the accuracy of their projected sale figure.
However, if the plan is to keep the property and remortgage, this would be much higher risk for a lender because obtaining traditional mortgages with bad credit can be difficult. Therefore, in these circumstances, bridging loans for bad credit borrowers may not be approved. Also, not all bridging lenders will accept applicants with bad credit or some might stipulate a minimum credit score. Your best chance of securing a loan for poor credit scores is searching on Brickflow and using a specialist bridging advisor.
If bridging loan eligibility is mainly based on a strong exit strategy, do you need proof of income for a bridging loan?
Again, much like having good credit, it’s not an essential requirement.
Bridging loans are usually secured against the property which you plan to sell to repay the loan, or other assets. The value of the assets will be a factor in determining how much you can borrow. Logically, if your assets are worth £250,000, you won’t be able to secure a £500,000 bridging loan, regardless of whether you have a robust income or not.
Unlike traditional mortgages, where interest is paid back monthly, most bridging loans offer rolled-up or retained interest, meaning all interest charges are paid back when the property is refinanced or sold.
However, a more stable financial situation and a better credit rating make it easier to secure a bridging loan, and with more favourable rates. Bridging loan requirements and lending limits differ with every lender, but four key elements are considered:
A bridging advisor can help you find a lender to meet your specific bridging loan criteria.
If you successfully secure a bridging loan, it’s worth asking ‘could a bridging loan help my credit history?’
Yes (potentially)
If it’s paid off on time and in full, as paying off any debt would. Adversely, if you fail to repay the bridging loan on time it will further contribute to poor credit issues. Hence why you need a clear exit strategy, and why lender scrutiny of your property proposal is beneficial for both them and you.
The positive impact of a bridging loan on your credit score will depend on a couple of factors. For instance, how bad your credit history is and any action you’re taking to improve it. A County Court Judgement (CCJ) can negatively affect your ability to get credit for up to six years and bankruptcy can impact your score for up to ten years. Therefore, borrowing a bridging loan for 3 months will have negligible positive impact.
The primary purpose of your credit file is to give lenders an indication of your borrowing conduct, which can then determine the level of risk involved in lending to you. In other words, is there a chance they will not be repaid or should they mitigate risk by applying higher interest charges. All lenders will ask if you have borrowed from other lenders in similar circumstances, so whilst having a previous bridging loan may not massively move the needle with a credit reference agency, but it could endear you to a new lender. To find the best possible UK bridging loan available for your situation, you will have to use a specialist bridging loan broker.
Getting the best bridging loan for your credit rating starts with finding the right broker. Every lender will have different requirement to meet, but many bridging lenders accept these credit problems:
A bridging advisor knows lender criteria from across the breadth of the market and will find a bridging loan company to fit your situation. Though a strong exit plan is still key.
Ultimately, some lenders will be more flexible than others. Those that are backed by institutional funding lines are unlikely to have the same amount of flexibility as those that have non-institutional funding lines; like family offices and HNW’s. Every case is different, and lenders' views are subjective as well. The best course of action is to be completely transparent from the get-go. It’s impossible to hide anything like credit issues these days. Lenders will always find out and they are more likely to take a sympathetic view to a borrower that has been completely transparent with them and perhaps offered mitigating circumstances around the credit issues.
Bridging can be arranged through bank or non-bank lenders, but most high-street banks will only arrange bridging loans for existing customers. This means specialist bridging finance companies are pretty competitive with their interest rates since there’s a pool of borrowers unable to access bank bridging. Nonetheless, bridging finance still has higher interest rates than traditional mortgages, but within the market, getting a bridging loan at a good price is possible.
At Brickflow, you can search over 50 bridging loan lenders instantly, and when you’ve found your deal, we’ll connect you with a broker partner to help you secure the best bridging loan on the market. On top of that, we continuously update lender criteria, which can change several times throughout the year. Meaning we can instantly eliminate lenders that don’t fit your criteria.
If you want to apply for a bridging loan Tell your broker about Brickflow or contact us on 020 4525 6764 / info@brickflow.com to be connected to a loan manager.
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