Brean Horne
Tim Leonard
Understanding the bridging loan criteria lenders use to assess the eligibility of borrowers could help improve your chances of being accepted for bridging finance.
Here, we run through some of the most common bridging loan eligibility criteria lenders evaluate.
What are the criteria for a bridging loan?
The exact criteria you’ll need to meet to get a bridging loan will differ between lenders. This means it’s possible to have a bridging loan application rejected by one provider but accepted by another.
But while precise bridging loan requirements can vary, most lenders will look at the same overarching criteria. Typically, this will include:
Security for the loan
Bridging loans are a type of secured loan, which means that you’ll need to put down a physical asset when applying for finance. Lenders typically ask for one or several properties to be used as collateral when you apply for a bridging loan. If you are unable to repay the bridging loan, the lender has the right to repossess the property or properties put down as security.
» MORE: What is a bridging loan?
Your exit strategy
Your exit strategy is a key part of the bridging loan eligibility criteria because it shows lenders how you plan to pay off the loan. A strong exit strategy can often go a long way to helping you secure the bridging finance that you need and perhaps also the lowest interest rates.
There are several types of bridging loan exit strategies, including:
- Selling the property: Once the property is sold, the proceeds will be used to pay off the loan.
- Refinancing: Switching to a traditional mortgage or specialist property loan and using some of the cash to pay off your bridging loan.
- Cash redemption: Using future funds to pay off your bridging loan – for example, using money left as inheritance.
- Property flipping: When you intend to buy a property, renovate it and sell if for a profit.
- Development: When you purchase a large residential property development with the intention of selling or renting out each unit.
Loan size
Most lenders require a minimum loan size of £10,000 for a bridging loan, though some may ask for more. However, lenders don’t tend to have an upper limit on how much you can borrow for a bridging loan.
Loan term
Bridging loans are intended to be a short-term borrowing method. Residential bridging loans are regulated by the Financial Conduct Authority (FCA) and are limited to 12 months. However, some lenders offer bridging loan terms of up to 18 or even 36 months – though bear in mind that the FCA will not regulate loans with terms of more than 12 months.
It’s also worth noting that the FCA does not regulate buy-to-let and commercial bridging loans.
» MORE: How are bridging loans regulated?
Property type
Lenders usually consider a wide range of property types for a residential bridging loan. These include but are not limited to:
- land
- houses
- bungalows
- flats
- mixed-use of properties
- garages
- parking spaces
- holiday homes
On top of the above, commercial or buy-to-let bridging loans may also be used to finance:
- health clubs
- hotels
- guesthouses
- restaurants
- bars
Credit history
A good credit history could help improve your chances of being accepted for a bridging loan and of getting the lowest rates. However, with many bridging lenders the security you offer and the strength of your exit plan will be more important than your credit history.
This means that you may still qualify for a bridging loan if you have a bad credit score. Some lenders may still accept applications if you have:
- county court judgments (CCJs)
- defaults
- individual voluntary agreements (IVAs)
- repossessions
- declared bankruptcy
» MORE: Getting a bridging loan with bad credit
Deposit size
Many lenders require a minimum deposit of 25% to 30% for a bridging loan. Similarly with mortgages, you can unlock more favourable interest rates with a larger deposit. Typically, the lowest rates for a bridging loan can kick in with a deposit of around 40%.
Location
Bridging loans are generally reserved for residents and companies based in the UK. Most lenders cover the following locations:
- London (including within M25)
- England
- Scotland
- Wales
- Northern Ireland
Some lenders may also extend to locations in Europe and the USA.
Age
Applicants must be 18 years old to apply for a bridging loan. The maximum age limit for a bridging loan varies between lenders. While some may have a maximum age requirement, others have no limit and offer bridging loans for buyers aged 70 and over.
Proof of income
Unlike with mortgages, proof of income isn’t generally an important factor for lenders when assessing a bridging loan application. This is because you’ll need to have a good exit strategy to prove how you will pay off the loan.
What do you plan to use the bridging loan for?
Lenders will require a reason for why you need a bridging loan. You might apply for a bridging loan if you are:
- buying a property before the current one is sold
- successfully bidding for a property at auction
- buying a property in a poor condition that you plan to sell on or renovate
- financing renovation or other building work
Other factors
There are many other factors lenders may consider as part of their bridging loan eligibility criteria. These include but are not limited to:
- the condition of the purchase property
- your experience in property
- your employment status
- minimum turnover
What are the alternatives to bridging finance?
If you think you might struggle to meet the eligibility criteria for a bridging loan, or have already had an application rejected, remember that requirements can differ between lenders, and you might still be accepted elsewhere. That’s why it’s important to compare bridging loans across different lenders.
It can also be worthwhile exploring the other options available besides bridging loans. The range of alternatives you could consider will depend on whether you want a bridging loan for residential or commercial purposes but might include unsecured loans, other types of secured loan, or perhaps remortgaging or a commercial mortgage.
» MORE: Alternatives to bridging loans
WARNING: Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a loan or any other debt secured on it. Always check whether a bridging loan is regulated or not. To protect consumers, bridging loans on residential properties must be regulated by the Financial Conduct Authority. Bridging loans on buy-to-let, commercial and investment properties can be unregulated.
Image source: Getty Images
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