How much can I borrow with a bridging loan?

How much can I borrow with a bridging loan?

Understanding Bridging Borrowing Limits

Bridging loans are short-term financing solutions that help bridge financial gaps, often used when purchasing property. The amount you can borrow on bridging largely depends on several factors.

Bridging loans are designed to offer quick access to funds, primarily for property-related purposes like purchasing a home before selling your current one or for property development projects. But the question on every borrower’s mind is, “How much can I borrow with a bridging loan?” The answer isn’t fixed, as borrowing limits vary based on a range of conditions. Typically, bridging loans are more flexible than standard mortgages, but still require a thorough review of your financial circumstances and goal to calculate how much you can borrow.

Main factors affecting how much you can borrow with your Bridging Loan

Your eligibility for a bridging loan and the maximum amount you can borrow depends on multiple factors, including:

1. Property Value (Loan to Value – LTV)

One of the main factors that affect how much you can borrow is the value of the property you are buying or refinancing. Most bridging lenders offer loans up to a certain percentage of the property’s value, known as Loan to Value (LTV). The typical LTV ratio for bridging loans is around 65%-75%. If your property is valued at £1 million, you could borrow up to £750,000, which includes any set-up costs. When borrowing for the refurbishment or conversion of an investment property, lenders will consider a higher LTV as they are considering the value once the works are complete.

2. Type of Property

The type of property involved in the bridging loan can also impact borrowing limits. Residential properties tend to have higher LTVs, whereas commercial properties might have lower ones. Additionally, some lenders might view properties that are easier to sell or refinance as lower risk, allowing you to borrow more.  Lenders may view properties needing extensive improvements as higher risk, often reducing the LTV and loan amount offered. However, if you have the relevant planning consent and intend to improve the property with the loan proceeds, they may lend you more

3. Exit Strategy

A crucial part of any bridging loan application is the exit strategy, which is how you intend to repay the loan. A strong, clear exit strategy can influence the amount you can borrow. If you plan to repay the loan by selling the property or securing long-term financing, lenders will assess the feasibility of this plan before approving the loan.

4. Credit History

Though bridging loans are often more flexible when it comes to credit requirements compared to traditional mortgages, your credit history will still play a role. While adverse credit won’t necessarily prevent you from borrowing, it could affect the amount you can borrow or result in higher interest rates.

5. Income and Affordability

Lenders will also consider your income and overall affordability. Though bridging loans focus more on the property’s value and the exit strategy, proving you have a stable income could increase your borrowing potential if you are able to service the loan repayments. Find out about serviced, retained or rolled up bridging interest.

Bridging Loan Terms and Conditions

Most bridging loans come with short terms, typically between 6 and 24 months. The loan duration directly impacts how much you can borrow.  Lenders generally add the monthly interest charged to the loan, which can impact the amount you are able to borrow.

Regulated vs Non-Regulated Bridging Loans

The loan amount might also depend on whether you’re applying for a regulated or non-regulated bridging loan. Regulated loans link to residential property that the borrower or their family will occupy. Lenders often set stricter borrowing limits because of regulatory oversight.

Non-regulated loans, often used for commercial properties or investment purposes, tend to have more flexible borrowing limits, though they might come with higher interest rates and more risk​.

Types of Bridging Loan Interest and Their Impact on Borrowing

Bridging loans offer different ways to structure interest payments, which could affect how much you borrow overall.

1. Retained Interest

In this case, you don’t pay interest monthly. Instead, lenders subtract the total interest for the term from the initial loan amount, giving you less cash upfront. At the end of the term, you must repay the full loan amount originally applied for.

2. Rolled-Up Interest

Rolled-up interest on a bridging loan adds to the balance owed each month. For a 12-month loan, lenders calculate the rolled-up interest at the start of each month. Sometimes called capitalised interest, it reduces the loan amount upfront, meaning you receive less cash in hand.

3. Monthly Interest Payments

If you make monthly interest payments, the entire loan amount goes towards the principal, which may allow you to borrow more upfront. However, you’ll need to prove you can afford the monthly interest costs.

What Are the Common Borrowing Limits for Bridging Loans?

The specific limits will depend on the lender, but here are some general guidelines:

• Minimum Loan Amount: Most lenders set a minimum loan amount, which typically starts at around £25,000 some lenders will offer lower loan sizes, however, you should be aware alternative types of finance may provide a more suitable solution.
• Maximum Loan Amount: Some lenders may offer up to £10 million, though the majority of bridging loans fall between £50,000 and £2 million.  Specialist lenders may consider even larger loan sizes.  If you wish to borrow a larger loan amount you should strongly consider discussing this with a financial advisor.

The exact amount will depend on your circumstances, the value of the property, and the lender’s specific criteria​​.

Conclusion: Borrowing Flexibility with Bridging Loans

A Bridging loan provides a high degree of flexibility in terms of borrowing amounts, with loan limits varying based on property value, loan type, exit strategy, method of paying interest and other key factors. If you have a solid exit plan, clear affordability, and are securing the loan against a high-value property, you can borrow substantial sums.

Always consult with your financial advisor or a bridging loan specialist to understand how much you can borrow based on your specific situation and to ensure that you’re making a well-informed financial decision.

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