First Charge & Second Charge Bridging Loans
If there is already a mortgage on the property, then unless extra funds are borrowed via the bridging loan to repay this mortgage, then it is possible to have a second charge bridging loan that sits behind the first charge loan. This means that if you defaulted on the loan and the property had to be sold to repay the debts, your first mortgage would be repaid first. Typically, a second charge bridging loan is slightly more expensive than a first charge bridging loan given the extra risk involved to the lender.
How Expensive are Bridging Loans?
Historically, bridging loans have had a reputation for been an expensive form of finance. The realty is that this is now a very competitive market. However, given the riskier nature of the loans, rates are generally more expensive than a mortgage. As with mainstream mortgages the more equity that there is in the property the lower the interest rate.
Rolled-up Interest
In the main, monthly repayments are not required for a bridging loan. Instead, the monthly interest repayments are rolled up and are repaid at the end of the agree term along with the capital. For unregulated bridging loans you have the option to service the monthly interest payments as opposed to having the interest rolled-up.
How much can you borrow?
Anywhere between £10,000 to £25,000,000 depending on the level of equity in the property or properties. You can usually borrow up to a maximum of 75% of the property’s value. Additional properties can be used that would potentially allow you to borrow up to 100% of your borrowing requirement. If the interest is rolled-up, then this needs to be included into the loan along with associated fees that may not have been paid up-front.
Exiting a Bridging Loan
A bridging lender will want to see evidence of a clear repayment strategy, such as sale of the property or another property or refinancing onto a longer-term mortgage.
