Closed Bridging Loans are a financial strategy that is most often used by residential investors or developers who are looking to fund the purchase or renovation of a property in order to refurbish and then sell.
Most often, financing for these projects come in the form of a short term loan that is secured against the property being renovated. For Closed Bridging Loans in particular, the exit strategy or the plan in which the borrower has to repay the loan must be guaranteed by the sale or remortgage of the property being used to secure the loan.
Here we will answer some of the most asked questions about Closed Bridging Loans – if you need additional information, a loan broker can be a great resource.
How Much Funding Can Be Borrowed Using a Closed Bridging Loan?
In most cases, the minimum borrowing amount for a Closed Bridging Loan is £26,000 and can extend to much larger amounts but some lender’s qualifications vary, so it is important to consult with a loan professional.
As far as security, most lenders will allow financing using the property being refurbished or purchased as long as the work is being done with the intention of selling the property through a licensed real estate agent. Closed Bridging Loans are not an option, however, if the property developer or residential investor plans to make the property his or her own permanent residence.
What Loan to Value Can is Seen on Closed Bridging Loans?
The Loan to Value, or LTV, of the loan will depend heavily on the value of the property that is being used as security. In general, 80 percent of the property’s purchase price will be reflected in the loan’s LTV or 70 percent of the OMV.
Depending on additional security that is available, the lender will grant either the higher or lower percentage for the loan. If you need more information on a property’s LTV rate in terms of a Closed Bridging Loan, it is always a best practice to contact a knowledgeable finance broker who is familiar with this type of funding for property resale projects.
Does the Property’s Geographical Area Come into Play?
In many cases, in order to qualify for a Closed Bridging Loan for a refurbishment project, the property must be located within a geographical area in which the lender covers. In general, areas such as Wales, England, and Scotland will be covered by most lenders.
Before applying for a Closed Bridging Loan, make sure that the property in question does indeed fall within the correct geographical area for the lender to help ensure there are no problems down the line. If you need help to identify whether or not the property is covered based in its location, contact a finance broker for assistance and more information.
Does a Borrower Need to Prove their Current Income to Qualify for a Closed Bridging Loan?
Since Closed Bridging Loans are accepted based on the value of the property being purchased or refurbished, the borrower’s current income does not come into play when the lender makes a final decision.
Lenders will, however, take a close look at the borrower’s Experian credit report and score in order to help them make an education evaluation about what type of borrower the applicant is. Even though the borrower’s income holds no weight in the decision making, it is important to know that the applicant’s borrowing history will be looked at and evaluated when the lender is finalizing the loan.
Will the Borrower Need to Supply Their Own Mortgage Broker or Solicitor?
As with any type of financing, it is always recommended that a potential borrower seek the assistance of a professional, independent mortgage broker and/or solicitor. These professional should specialize in the arena of property purchase for resale or whichever market the borrower is working in and should be consulted before signing any legal documents from a lender or financial institution.
Often times, having retained the help of a mortgage broker or solicitor can help to streamline and speed up the loan application and approval process, making them an asset for those working in property refurbishment.
What Repayment Terms can a Borrower Expect with a Closed Bridging Loan?
There is no benchmark for what the repayment terms for Closed Bridging Loans are. Since every borrowing situation is different, lenders will evaluate applications on a case by case basis and create repayment terms based on that particular borrower’s lending situation as well as the total amount of funding that is being borrowed.
Closed Bridging Loan repayment terms can vary from one day to up to twelve months, all depending on the situation. In most cases, it is best to contact a finance broker to discuss the project so they can give a better idea of what the terms of the loan will look like.
What Costs are Associated with Arranging Closed Bridging Loans and How Long Does the Process Take?
Again, there is no benchmark for the costs and fees associated with arranging a Closed Bridging Loan – each lender is different on how they evaluate the cost of their time and effort to put the loan agreement together.
Some of the common costs and fees associated with loan are arrangement fees, valuation fees, monthly interest, and exit fees as well as whatever fees the borrower’s mortgage broker or solicitor will charge for their services.
In general, Closed Bridging Loans can be arranged in as little as 72 hours provided all the needed information is available and the broker replies to the lender’s questions quickly.