- Challenger banks such as Shawbrook and Masthaven
- Specific short-term finance lenders such as Together and Precise
- Funds such as Ortus and Castle Trust
- Smaller private lenders
- The emergence of peer to peer (P2P) lending – the biggest player being the Funding Circle.
Who are bridging loans suited to?
Property developers: bridging finance enables them to forward finance on to other projects quickly. A developer needs to be constantly building to generate income, so the ability to buy a site in advance using bridging finance means they can quickly move from one project to another.
Landlords: a landlord with a bridging loan is classed as a cash buyer, which is always preferable. If you want to move quickly to buy a flat with a view to renovate and hold it, before getting a buy to let (BTL) mortgage.
Self-builds: people might have the land and need the development finance to build it up, or need the funds to buy the land.
Equity release for the asset rich and cash poor: people with little liquidity can extract cash quicker than they could by remortgaging.
Auction finance: buyers at auction need to put down a deposit and need the rest within a quick time.
People with large tax bills: bridging loans can be used to cover these bills.
Downsizers: bridging is an ideal option for people wishing to move out of the family home, downsizing once the family has moved out, enabling them to move on before completing on the sale of their current property.
Pitfalls of bridging finance?
Although bridging finance has become increasingly popular and more mainstream, there are a number of things to be aware of:
Paying the lender's fees; these fees typically involve covering the lenders legal costs as well as the client's own, a valuation fee, and an admin fee. Paying these fees can be unexpected – particularly the requirement to pay the lender’s legal fees.
A typical set up fee is 2 per cent, but this varies from lender to lender and is always added to the loan. In terms of interest, it is either serviced or, most commonly, added to the loan. So, clients need to be aware of their gross and net loan amounts:
Case study: Exit charges on LTV loans
A client wishes to buy a property worth £600,000 and they wish to borrow £300,000. The interest is 1 per cent per month for 12 months – £36,000 – plus a 2 per cent arrangement fee – £6,000 – so, for a 12-month loan, the overall loan will be £342,000. Against the property value of £600,000, the loan to value (LTV) is 57 per cent.
