Bridging loans costs will vary between lenders and depend on your individual needs and circumstances. This article looks at typical rates, costs, and fees you can expect to pay when taking out a bridging loan so you can determine whether bridging finance is the right solution for you.
What Is A Bridging Loan?
A bridging loan is a type of short-term finance that is used to bridge a gap in your finances. They are a fast and flexible solution used to provide the funds you need until long-term financing can be put in place or alternative funds are received.
Because they are taken out for a short period of time, bridging loans are more expensive than typical mortgages, with higher interest rates than standard loans. You can expect interest rates from between 0.5% – 2.0% per month, but this differs depending on the lender you choose and your circumstances.
Bridging Loan Interest Rates
Standard LTV-based residential bridging loan interest rates are as follows:
- up to 50% LTV – starting from 0.43% per month
- 50%-65% LTV – starting from 0.59% per month
- 65%-70% LTV – starting from 0.69% per month
- 70%-75% LTV – starting from 0.75% per month
Commercial property has higher interest rates than residential as it is viewed as a higher risk to the lender. The typical rates you can expect to pay are as follows:
- 55% LTV – 0.65% per month
- 65% LTV – 0.75% per month
- 70% LTV – 0.85% per month
How Is Interest Charged?
The interest rate can be either serviced or retained and added to the loan.
With bridging loans, there is no amount paid at the end of the term. The interest and fees are either added to the loan or deducted from the loan, depending on the lender.
If you choose a retained product, the interest is calculated for the months the loan is being taken for and added to the loan.
Bridging loans are usually quoted on a monthly basis rather than an annual basis. This is because most bridging loans are taken out for a short period from between 12-36 months.
Your bridging adviser can explain and talk through which interest payment method would be most suited to your needs based on your requirements.
Factors That Impact Bridging Loan Costs
There are several elements that can affect the cost of your bridging loan. The cost of your loan will depend on a range of factors, including:
- Loan to Value (LTV)
- Loan size
- Type of security property
- Condition and location of security property
- Term of loan
- Purpose of loan
- First or second charge
- Credit history
- Exit strategy, i.e. how the bridging loan is going to be repaid
Key Factors Determining Bridging Loan Rates
The cost of a bridging loan will vary depending on the lender and your circumstances, so it is important to speak to an adviser who can review the different lender criteria for you and recommend the most suitable product.
Key factors that lenders look at when accessing a bridging loan application are:
- Exit Strategy – a viable exit route that clearly sets out how the loan will be repaid is essential in getting accepted for the best rates. Most borrowers pay back the loan through selling or refinancing the property.
- Security Property – having a strong property to secure the loan against will help you get the best rates. Property type and location will impact its ability to sell or remortgage for a profit.
- Credit History – a clean credit history will improve your chances of achieving the best deal. Whilst lenders are flexible towards credit score, you are less likely to get the best rates with bad credit as you may be seen as too high risk.
- Deposit – most lenders expect a deposit of at least 25-30% of the property’s value. You may be able to achieve better rates if you can put down a larger deposit of 40% or more.
- Experience in property – if you want to use the loan for property development, having proven experience in this area could help you achieve greater rates as it makes you less of a risk to the lender.
Bridging Loans – Extra Fees and Costs
In addition to interest rates, there are several extra fees and costs to consider when applying for a bridging loan. Please note that, depending on the lender and the loan requirements, the costs can be slightly higher or lower than the examples given below.
1. Lender Arrangement Fee
The lender arrangement fee typically ranges from 1.5% – 2% of the loan amount and is added to the loan. This fee is paid to the lender for arranging the loan.
2. Broker Fees
This is a fee paid to the broker/adviser for arranging the bridging loan for you. However, Crystal Bridging Loans does not charge a broker fee.
3. Valuation / Survey Fee
The valuation fee is paid upon application and pays for the lender to value your property and ensure that it is suitable security. Lenders usually have a panel and the cost depends on location, availability of surveyors, and how urgent the transaction is.
For example, a residential property valued at £300,000 could have a valuation fee of around £300-£550. Crystal Bridging Loans also has access to lenders and products which allow a desktop valuation, in which case there is no cost. This is predominantly determined by property type, property price, and the loan to value.
4. Lender Legal Fees
As speed of transaction is one of the essential factors in arranging a bridging loan, lenders usually have an approved panel of solicitors they use to work on their behalf. Some lenders allow the same solicitors to also act on your behalf. These legal fees are paid for by the applicant.
The cost of legal fees can vary between solicitors and lenders and is also driven by the loan amount. The minimum lender legal fee is around £600. So, for example, the legal fee for a £250,000 loan would be around £800-£1000. This is usually deducted from the loan and released upon completion so is therefore not interest-bearing.
5. Lender Application Fee
This depends entirely on the lender and product. Just like traditional mortgage products, some come with application fees and some without. The lender application fee is paid upon application or added to the loan, depending on the lender.
6. Telegraphic Fee
Also known as CHAPS (Clearing House Automated Payment System), the telegraphic fee pays for the bridging lender to transfer the money to your solicitor. This is added to the loan and is usually around £20-£35.
7. Exit Fee
Some lenders charge an exit fee, which is a charge to finish the loan if you want to pay back the loan early. The amount is usually equal to a month’s interest, or 1-2% of the loan.
8. Redemption Fee
This is a cost for removing a legal charge from the security property and is paid on the redemption of the loan.
Bridging Loans Costs – FAQs
How Much Deposit Do I Need?
How much deposit you need for a bridging loan depends on the amount you want to borrow, the value of the property you want to purchase, and the LTV. Most bridging loans are offered with a 75% LTV, so will require a 25% deposit.
Does a Regulated or Unregulated Mortgage Affect Cost?
The cost of a bridging loan is generally the same whether it is regulated or unregulated. Regulated loans are secured against residential property that will be occupied by the applicant and are regulated by the Financial Conduct Authority. An unregulated loan is used to purchase commercial property and is not regulated.
How Long Does Bridging Finance Take to Arrange?
A bridging loan is faster than a traditional mortgage to arrange. You can expect your application to be approved within 24 hours, with funds being released to your account in 2-4 weeks.
Am I Eligible for Bridging Finance?
To be eligible for bridging finance, you must meet the following criteria:
- Loans from £10,000 to no maximum
- Terms from 1 to 36 months
- Aged 18 and over
- UK resident
- Poor credit, CCJs, defaults, arrears considered
- Individuals, partnerships, limited companies
- Flexible condition of property
- The most important factors when considering your eligibility for a bridging loan are your security property and exit strategy.
How Much Can I Borrow?
We arrange loans from £10,000 with no maximum amount on how much you can borrow. The exact amount you can borrow depends on your individual circumstances and a range of factors including credit rating and the value of the property used as security.
What Can I Use The Bridging Loan For?
A bridging loan can be used for almost any legal purpose, including buying property at auction, paying for renovation works, buying land for development, purchasing uninhabitable property, property development, buy to let property, business ventures, and chain breaks.
Bridging Loan Calculator – Get Your Free Quote
Use our bridging loan calculator to find out how much a bridging loan would cost for you. Simply tell us how much you want to borrow, how long you need the loan for, and the loan to value.
Bridging Loan Calculator
Total Summary
This is an approximate guide to the costs associated with taking out a loan. The maximum loan, loan-to-value, term, and rate actually offered will depend on the product selected, the property, and your individual situation.
Speak to Our Experts
To learn more about rates, costs, and fees, get in touch today. We know that bridging loans can be complex to understand, so our expert advisers are happy to answer any questions you may have.
With whole-of-market access to lenders across the UK, we will secure the right loan for your needs and the best bridging loan deal for your circumstances. Call 0203 940 8544 for your free quote.
