Deposit for bridging loan

What Deposit is Required for a Bridging Loan?

If your bridging lender accepts your application for a bridging loan, it is very likely you’ll be requested to put down a deposit.

This is a cash amount that you’ll have to pay before receiving the amount of the loan itself.

How much you’ll need for your deposit will depend on individual bridging lenders. It hinges on your loan application amount, the value of the property you’re buying, and the loan-to-value (LTV) calculation.

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What Percentage Will I Need to Pay as a Deposit?

Your deposit percentage will be at least 20%, as the unregulated LTV required for a bridging loan is usually at least 75%, and 70% for a regulated LTV. This LTV includes the retained interest amount calculated on the loan amount and is the same for overseas and UK bridging finance alike.

The bridging loan deposit amount will be allocated as the portion of the property you already own. The LTV represents the portion of the property you’ll pay off via the loan.

Most bridging lenders may consider existing equity or property to lower the deposit percentage.

Loan-to-Value

On a deal deemed as low risk with a secure exit strategy in place, the LTV percentage is normally the same for commercial and residential property.

For deals categorised as higher risk, the loan-to-value percentage may drop as low as 50%.

Different bridging loan lenders have varying opinions on what is a high risk. Some might enforce LTV caps on bridging loans for some types of commercial properties like retail stores or fuel stations.

Regulated and Unregulated Bridging Loan LTV: What’s the Difference?

As things stand, the whole of the bridging loan sector is not regulated, although the Financial Conduct Authority (FCA) regulates a part. Bridging finance for the commercial sector is unregulated.

The FCA regulates financial services for most residential loans in the UK, which maintains the integrity of financial services and protects consumer rights.

A regulated loan falls under the FCA’s mandate, with these bridging loan options offering borrowers more peace of mind and safety. As mentioned, commercial bridging finance does not fall under the watch of the FCA, so it remains unregulated.

If you want a loan for a buy-to-let or a commercial or investment property, your maximum LTV will be 75%. This is the same for auction finance bridging loans if you are looking for fast cash for auction purchases.

Can I Get Approved Without a Deposit?

Bridge loan lenders might consider an application with a 100% LTV ratio. Invariably this will mean making additional assets or properties available as security. Many bridging lenders will be willing to accept existing property and more than one property as security, but you could face several repossessions if you can’t settle at the loan term’s conclusion.

Remember, specialist lenders will likely charge fees to value each property put up as security.

Can I Use My Bridging Loan as a Deposit on a Property?

Using bridging loans as deposits on properties is a common reason for them. A bridging loan is a great option if you’re waiting for your current property to sell and urgently want to secure a new home without risking losing it.

You can use the loan to put down a deposit on the new house and repay it when the sale of your current property goes through.

These loans offer excellent temporary solutions when borrowers are in these predicaments. Mortgage lenders are well-versed in short-term loan scenarios. Thus borrowing for a new property with a bridging loan is common.

Repaying it after the existing property sale is a well-respected exit strategy.

Bridging Loan Calculations

Perhaps you’re considering applying for a loan to cover the deposit on a new property. You must understand what amount you’ll be able to borrow and what you’ll need to pay back. If you gather this information before you apply, you’ll likely improve your chances of approval.

When calculating the maximum loan amount, a lender looks at what you want to borrow, any outstanding mortgage, and the property’s value.

The mortgage lender will also consider what deposit amount you can afford and the period you’re looking at borrowing.

Loan lenders will invariably use additional factors in your calculations. These will likely include your exit strategy, fees, and credit history.

Other factors to consider are what interest rate they’ll charge you and what fees will form part of your application.

Interest rate

Bridging loans generally carry higher interest rates than other loan interests due to the short-term loan status of bridging finance.

Another reason for the higher interest is bridging finance doesn’t take long to approve compared with other loan types. Prepare yourself for more interest.

Legal fees

Bridging lenders charge bridging loans fees, and if you’re working through a broker, you’ll need to build in broker fees too. Other fees to consider include fees based on your exit strategy, arrangement fees, and valuation fees.

Bridging loan calculator

Loan Corp’s bridging loan calculator will give you an idea of your costs on the maximum loan amount you enter and what you can expect to repay for your loan. Each loan application will be different, with every borrower having their own circumstances.

You should treat our calculator’s results as an indication only.

Once you’ve done the calculation and know the amount you’re looking at, contact Loan Corp. One of our professional, friendly experts will further assess your application amounts and chances. You’ll receive a reply within two hours!

FAQs

Are bridging loans easy to get?

These loans are much quicker to get approved than mortgages, but they can still take several weeks. As a secured loan, possibly using your property as security, valuation and credit checks are usually required.. It will likely take no time at all, though, as these loans are typically urgently needed.

Do I need a deposit to get a bridging loan approved?

You will likely need up to a 40% deposit based on LTV, but there are cases when you won’t need a deposit. Speak to an expert to get the best advice.

Can property developers use bridging finance?

This kind of finance is short-term and flexible. It can help with an urgent property development project as the loan is usually quick and easy to arrange.

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