Key Takeaways
- A 100% loan-to-value (LTV) bridging loan is not typically available, as most lenders cap LTV at around 80%.
- However you can obtain a bridging loan to cover 100% of the property you’re buying, but the value of your loan must not exceed 80% of the total value of your properties (this can include the property you’re buying and the one you currently own, minus any mortgage debt).
- Using a bridging finance calculator is the easiest way to check your loan eligibility, see how much you can borrow, and understand the associated costs.
What is a 100% Bridging Loan?
A 100% bridging loan is a term that might sound ideal if you’re looking to finance the full purchase of a property.
However, in reality, most lenders will not offer a loan with a 100% loan-to-value (LTV) ratio. Instead, the common maximum LTV for bridging loans is typically around 80%. This means that you would usually need a 20% deposit or equity in another property to cover the balance.
That being said, if you own other properties, such as a buy-to-let (BTL) investment, you may be able to secure a loan against them too, which allows you to lower your LTV below the 80% threshold.
How Can You Obtain a 100% Bridging Loan?
The loan will need to be under 80% of the total value of all the properties you are offering as security. For example, if you’re purchasing a new property and own additional real estate, you could use these properties as collateral, which would allow your loan to sit below the 80% LTV threshold, even though you’re borrowing 100% of the value of the property you’re buying.
Why Do Lenders Limit LTV to 80%?
Lenders typically restrict LTV to around 80% for bridging loans due to the associated risks.
Bridging finance is a short-term loan solution, typically repaid within 12 months or less. If you borrow a high percentage of the property’s value, the lender is taking on more risk, especially since bridging loans are not assessed with the same detailed credit checks and income verification as traditional mortgages.
This risk management strategy helps ensure that, in the worst-case scenario, the lender can sell the property to recover their loan amount if you’re unable to repay. For this reason, exceeding an 80% LTV is usually seen as too risky for the lender, although, as mentioned, additional security through other properties can mitigate this risk.
How Does a Bridging Loan Work?
A bridging loan is a short-term financing solution designed to help property buyers bridge the gap between purchasing a new property and selling an existing one. It can also be used in various other situations, such as financing auction purchases, buying unmortgageable properties, or supporting property investments.
Here’s a quick breakdown of how it works:
- Application: You apply for a bridging loan, usually through a broker. The amount you can borrow will depend on the LTV ratio, which is determined by the combined value of all the properties you can use as security.
- Property Valuation: The lender will require a property valuation to determine its market value, which plays a key role in assessing the LTV.
- Approval: Once the loan is approved, you’ll receive the funds, often within 72 hours, depending on the specifics of the loan and lender.
- Repayment: Repayment is typically made when your existing property sells or when you secure long-term financing, such as a mortgage.
Loan-to-Value and Bridging Loans
As we’ve discussed, LTV is a crucial factor in determining how much you can borrow. The higher your LTV, the more risk the lender takes on, which may lead to higher interest rates.
To help calculate your loan eligibility, you can use our bridging finance calculator above. This tool allows you to input the values of your property and assets, helping you understand how much you can borrow and the potential costs involved.
Costs Associated with Bridging Loans
Bridging loans can be more expensive than traditional loans due to their short-term nature. The primary costs you will incur include:
- Interest Rates: Bridging loan interest rates typically range from 0.68% to 1% per month, depending on the lender and LTV.
- Facility Fee: Lenders charge a fee, usually between 1.5% and 2% of the loan value, for the use of their bridging loan service.
- Valuation Fees: Lenders often require a property valuation, with fees typically around £950, although some lenders may offer free valuations or desk-based assessments for certain properties.
- Legal Fees: Both the lender and you will need to cover legal fees, which can vary depending on the property value but are typically around £1,000 for a property valued at £250,000.
- Broker Fees: Some brokers charge for their services, but at Bridging Finance, we offer advice without additional fees. We work on a commission basis with lenders, which means you don’t have to pay extra for our support.
How to Check Your Loan Eligibility
The easiest way to check your eligibility for a bridging loan is by using a bridging finance calculator. This tool allows you to input the value of the property you are buying and any additional properties you can use as collateral. It will show you the maximum amount you can borrow, based on the LTV ratio.
If you’re considering using a bridging loan to secure 100% of the property purchase, using the calculator will give you a clear understanding of whether it’s possible based on your situation and the properties involved.
Why Work with a Bridging Finance Broker?
Navigating the world of bridging finance can be complex, especially when dealing with high-value properties or multiple security assets. A bridging finance broker can help guide you through the process, ensuring that you understand your options and choose the right lender.
At Bridging Finance, we offer expert advice and support throughout your bridging loan journey. Whether you’re looking to secure the funds for a property purchase or need guidance on managing your loan’s LTV, our team is here to assist. We work with a range of lenders to offer competitive rates and ensure the best deal for your needs.