Do I Need to Have a Property to Secure a Bridging Loan?
21st November 2024
By Simon Carr
Is it normal to use a Property to Secure a Bridging Loan?
But there may be an alternative.
Bridging loans are usually secured against property, but there are exceptions. Let’s explore property requirements and alternatives available.
Bridging loans provide short-term funding for various financial needs. Typically, borrowers secure these loans with residential or commercial property.
Not quite what you are looking for? Try these:
Why Lenders Require Property for Bridging Loans
Collateral helps lenders reduce risks
Property collateral ensures lenders can recover funds in case of non-payment. This reduces the overall risk they take on.
For this reason, most bridging loans are structured around secured assets. This makes them accessible to borrowers with limited credit history or difficulty proving affordability.
How property value impacts lending terms
Lenders use property value to determine loan amounts. Consequently, higher property valuations may result in more favourable terms for borrowers.
Loan-to-value ratios also affect how much you can borrow. Generally, lenders approve amounts based on a percentage of property value.
Qualifying Types of Property
Residential and investment properties
Primary homes and investment properties like buy-to-lets are common choices. Lenders prefer properties with stable or growing value which are easily saleable.
Commercial and mixed-use properties
Commercial buildings, shops, or offices are also accepted. Mixed-use properties, such as a shop with a flat, may also qualify.
Land and development projects
Land or properties under development are sometimes eligible. However, these types of assets usually attract stricter lending conditions.
Can You Get a Bridging Loan Without Property?
Are unsecured loans an option?
Unsecured bridging loans are rare. As a result, they often come with higher interest rates, small loan amounts and stricter qualification criteria.
Alternatives to property-based security
Some lenders accept business assets or other valuables. These options depend on individual lender policies and the asset’s stability and value.
Using a guarantor’s property
Guarantors can offer their property as collateral. This allows borrowers without direct property ownership to still secure a loan.
Benefits and Risks of Using Property for Bridging Loans
Advantages of property-backed loans
Securing a bridging loan with property offers higher loan amounts. It also typically results in more competitive interest rates.
Potential risks to borrowers
Failure to repay could result in repossession of your property. This risk highlights the need for a strong repayment plan.
Regulatory Guidelines for Bridging Loans
Regulated Bridging
Bridging loans secured on the borrowers home are normally regulated by the Financial Conduct Authority (FCA). The exception might be where the loan is for business purposes. The FCA aims to ensure that financial promotions are clear and fair, the loan terms are suitable and the borrowers fully understand potential risks, including their property being repossessed if they significantly breach the agreement. Therefore, the sale of a regulated loan must normally be done by a fully authorized mortgage advisor and the loan provided by an authorised lender.
Unregulated Bridging
This applies to most other bridging loans secured on investment property and land etc.
Anyone can set up an unregulated bridging lender and avoid the clear fair disclosures and fair treatment of customers as required by regulated lenders. However there are some benefits of unregulated bridging loans. They can be taken over longer periods as regulated loans are allowed for a maximum of 12 months. They can also potentially accommodate more complex scenarios.
Regulated and unregulated – the best of both
Occasions where you need an unregulated loan. To reduce the risk of ending up with a bad product or one you don’t understand, always use a regulated broker. Because they are regulated they have a duty of care to you to ensure the risks and benefits are fully understood. They may also have access to regulated lenders which offer unregulated loans. Even though the product is unregulated, arranging it through a regulated broker and lender gives you additional protection
People Also Asked:
What kind of properties can be used as security for bridging loans?
Can bridging loans be secured against multiple properties?
Is it possible to get a bridging loan to build a house?
Getting a bridging loan for a leasehold property?
What is a first-charge bridging loan?
Promise Money is a broker not a lender. Therefore we offer lenders representing the whole of market for mortgages, secured loans, bridging finance, commercial mortgages and development finance. These loans are secured on property and subject to the borrowers status. We may receive commissions that will vary depending on the lender, product, or other permissable factors. The nature of any commission will be confirmed to you before you proceed.
More than 50% of borrowers receive offers better than our representative examples
The %APR rate you will be offered is dependent on your personal circumstances.
Mortgages and Remortgages
Representative example
Borrow £270,000 over 300 months at 7.1% APRC representative at a fixed rate of 4.79% for 60 months at £1,539.39 per month and thereafter 240 instalments of £2050.55 at 8.49% or the lender’s current variable rate at the time. The total charge for credit is £317,807.66 which includes £2,500 advice / processing fees and £125 application fee. Total repayable £587,807.66
Secured / Second Charge Loans
Representative example
Borrow £62,000 over 180 months at 9.9% APRC representative at a fixed rate of 7.85% for 60 months at £622.09 per month and thereafter 120 instalments of £667.54 at 9.49% or the lender’s current variable rate at the time. The total charge for credit is £55,730.20 which includes £2,660 advice / processing fees and £125 application fee. Total repayable £117,730.20
Unsecured Loans
Representative example
Annual Interest Rate (fixed) is 49.7% p.a. with a Representative 49.7% APR, based on borrowing £5,000 and repaying this over 36 monthly repayments. Monthly repayment is £243.57 with a total amount repayable of £8,768.52 which includes the total interest repayable of £3,768.52.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Promise Money is a trading style of Promise Solutions Ltd – Company number 04822774Promise Solutions, Fullard House, Neachells Lane, Wolverhampton, WV11 3QG
Authorised and regulated by the Financial Conduct Authority – Number 681423The Financial Conduct Authority does not regulate some forms of commercial / buy-to-let mortgages
Website www.promisemoney.co.uk