All right: so you’ve made the decision to go in for a bridging loan. You’re probably planning to buy a new home, build a new home, refurbish your current one, or buy a promising piece of property all while you’re waiting on the sale of your current home or another property you own.
That’s all well and good, but how do you know if you’re getting the best possible rates for your loan?
The key thing to remember before you go and secure a bridging loan is having what’s referred to as whole-of-market access. Also, you have to be able to meet the eligibility criteria of as many lenders as possible. Once you’ve reached out to multiple lenders, it’s best to compare your options as to which option would work best for you and cost you less in the long run. You could do this easily by using a bridge loan calculator.
That said, you need to keep in mind that the average cost of most bridging loan options is always dependent on the lender and just how high a risk you are as a borrower. Factors in Choosing the Best Bridging Loan Rates Lenders’ rates will all be dependent on several factors which we’ll go into detail about below.
Who Provides Bridging Loans?
Banks, building societies, credit unions and the government are among the biggest providers of bridging loans in the UK. Although they have similar features, each lender can charge different rates for their products. There’s no guarantee that you’ll get the cheapest bridging loan for your needs if you apply to multiple lenders.
Approaching Multiple Lenders
Bridge loan rates vary from lender to lender that’s why it is essential to shop around to ensure that you’re getting the best rates. Make sure to consider the financial responsibility of each provider and ask the following questions:
- Does interest accrue daily or monthly?
- Is there an arrangement fee? If so, how much is it and what does it cover?
- Can I pay off my loan early without penalty and fees?
It is also worth noting that your remortgage advisor may be able to help you get a better deal – so don’t hesitate to consult one if possible.
Standard Lenders’ Criteria for Eligibility
Keep in mind that many lenders will offer the best rates for potential borrowers who can meet the standards for the following:
A Sensible Exit Strategy
Given how bridging finance is offered on a short-term basis at high interest rates, having a practical exit strategy is a critical factor that determines whether or not a lender will approve your application. For the most part, exit strategies usually involve remortgages or the sale of one’s property.
In which case, lenders may offer rates that are dependent on the value of the property you put up as security, how sellable it is, or even how much you can remortgage it for. Remember that sound investments are the most likely to generate enough capital to facilitate your exit from the loan. They are also an excellent way to get the rates you want.
You may also ask lending companies if they are willing to accept unconventional exit measures such as the use of endowments or bequests to pay off the loan.
A Good Credit Score
Having a good credit score means you’re less of a risk and lenders are bound to approve your application. For most lenders, potential borrowers with less than desirable credit scores are too much of a risk, especially if they’ve opted for a remortgage as their exit strategy. Having a good credit score will also make you more eligible for second-charge bridging loans.
Offering a Good Property as Security
Having a strong property of considerable value as security against your loan also works for you as a borrower, particularly if you can give your lender or bridging provider proof that you’ll be able to offload or sell it quickly for a good amount.
Note, of course, that this will be dependent on the property type and location. But if you have solid proof of the property’s sellability, there’s no reason why lenders shouldn’t offer you good rates.
Putting in a Reasonable Deposit
In the case of bridging loans, many lenders and providers expect you to pay 30 to 35 percent of the property value as a deposit. But here’s a tip: put down more than that, and you can persuade them to offer the best possible rates. Note that the go-to figure is usually 40 per cent or higher.
When In Doubt, Consult Expert Brokers
When in doubt about the criteria, sit down with your lender or bridging provider for clarification. Knowing exactly what your lender needs in your application will help secure the best possible rates for your loan.