A short guide on bridging loan eligibility criteria, what they are used for and what you need to apply.
One of the key aspects of bridging loans is the speed with which they can be arranged, but there are a few factors which can delay your application. So we’re taking a look so you can avoid some common pitfalls.
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How long does it take to get a bridge loan?
One of the primary questions around bridging finance is how long does it take to get a bridging loan? As a type of short-term finance, bridging loans can meet very specific borrowing needs and resolve temporary financial shortfalls, so it’s no surprise that they often need to be arranged quickly. But how quickly?
There are some companies who suggest they can complete a bridging loan in twenty-four hours, but this is a rarity and pretty unrealistic. However, it’s fairly common to receive a decision in principle (DIP) within 24 hours, but it can take up to two weeks for the funds to be released.
Generally, the fastest that a bridging loan can be completed is 72 hours. However, to meet this kind of timescale, the fees will be higher for both the lender and your solicitor because both will have to prioritise your loan over other clients.
If you plan to get a bridging loan to buy a residential property for yourself then it will be a regulated transaction. This means there are more layers of legislation and bureaucracy to comply with to arrange the loan so completion time can range from 2 to 6 weeks. This is not un-similar to a standard mortgage which typically takes around six weeks.
When using a bridging loan for property development or refurbishment, completion times can be much quicker, as it can be unregulated.
What factors can delay a bridging loan application?
When funds are required fast, it helps to know what factors can delay a bridging loan application so you can mitigate accordingly.
The most common factors that will slow down an application are:
- Incomplete or inaccurate application information
- Property valuation: lenders typically require a property valuation to assess the security for the loan.
- Legal issues: if either the property or borrower has any complex legal issues, such as title disputes or bankruptcy proceedings
- Credit history: poor credit history means the lender may require additional documentation - being upfront about any credit issues will speed things up.
- Changes in the borrower's financial situation: If the borrower's financial situation changes during the application process, such as losing their job or taking on new debt, it can affect the lender's decision on a short-term bridge loan
- Property condition: If the property, or property being used as collateral, is in poor condition or requires extensive repairs, the lender will require additional information on the works to be undertaken and who will complete those works
- The lender you choose: some lenders may have a backlog of loans to approve, especially during peak loan periods, and lenders that are overseen by the FCA will have more rigorous checks and red tape than unregulated bridge loan lenders.
Brokers know the market nuances, which lenders have a backlog and which have the capacity to respond quickly to your circumstances and arrange a fast bridging loan. So when asking what factors can delay a bridging loan application, a specialist broker is the surest way to avoid delays and get approval quickly.
What factors make a difference in the speed of the loan?
Whilst some of the factors that can hold up an application are uncontrollable, there are things you can do to mitigate the delays and speed things up. So, what factors make a difference in the speed of the loan?
- forego better rates for faster borrowing: loans are priced according to risk, so a quicker turnaround means less checks, more risk and therefore higher rates
- forego the survey: most lenders will give a quick decision on the loan and a firm offer is made after the property is surveyed. Whilst a survey provides the lender with comfort via a third party that the property is good security, some lenders might work on a lender site visit and/or a desktop survey
- be upfront about credit issues: tell the lender about any CCJs, previous bankruptcy or other relevant information. Poor credit history shouldn’t prevent you from applying for a bridging loan but if a lender uncovers credit issues mid-way through the application, it won’t work in your favour
- prepare your documentation:
- ID, proof of address, financial information
- Details on how the loan will be used with building costs and timescales
- provide a viable exit strategy: demonstrate exactly how you will repay the loan, whether through renovating and selling, funds from another property sale or refinancing. Show accurate market research on sale prices
- using a specialist broker: there’s no shortcut to detailed market knowledge and a solid understanding of how bridging finance works. Brokers spend years fostering working relationships with bridge loan lenders
- choose the right lender: if you’re getting a bridging loan for property investment, then borrowing from a lender whose core business is bridging is likely to deliver a quicker loan
- choose the right solicitor: you’ll need a solicitor with expertise in bridging finance – it’s different from arranging a standard mortgage, so inexperience or uncertainty around procedure will cause delays. It’s also worth considering your solicitor’s current workload.
Is a bridging loan right for me?
You might now be wondering is a bridging loan right for me? That depends on what you plan to use it for, and if there are other options available. Weigh up the opportunities bridging loans offer, as well as the benefits and risks before deciding.
Bridging loans can offer solutions where regular finance can’t:
- uninhabitable housing (no working kitchen or bathroom)
- other ‘unmortgageable’ properties
- serious structural issues
- unusual or non-standard construction
- less than 80 years left on the lease
- less than £50,000
- auction properties
- land without planning
- brownfield sites
So are bridging loans a good idea – here are the top benefits of bridging:
- speed and efficiency (as mentioned, bridging loans can be processed as quickly as 72 hours)
- quick access to capital – buyers that can transact quickly tend to be favoured by agents and sellers when it comes to nabbing the best properties
- interest charges can be rolled up and paid at the end of the term, so no monthly costs
- no early repayment charges
- can be unregulated so less bureaucracy
- higher interest rates
- secured, usually against property or properties – the lender can take possession of these assets in the event of a default
- require a Personal Guarantee
- complex terms and conditions
Whether applying for a house purchase bridging loan or an investment property, to find the best possible bridging loan, register with Brickflow or tell your broker about us. We can search the breadth of the market in a matter of minutes, filtering out the lenders who don’t match your criteria.
If you’re a broker, sign up today to use our incredible tech that’s revolutionising the way we search for and secure development finance.