Bridging finance has been an excellent tool for property developers in recent years. This form of finance has granted property developers a series of invaluable benefits, from unparalleled flexibility to outstanding speed. In an industry as competitive as property development, these advantages are not taken lightly.
However, despite the excellent advantages offered by bridging finance, purchasing property, regardless of reason, remains very expensive. If a budding property developer can’t afford the cost of entry, then these advantages aren’t all that useful. For this reason, some property developers have been asking a very pertinent question – can you get 100% bridging finance?
In this article, we will answer this question, provide a greater overview of bridging finance, and detail how it can help you in your next project. Let’s get started.
What is bridging finance?
Bridging finance is a short-term form of finance, one that is part of the secured finance category. This means that bridge loans require physical assets to be used as collateral, contrary to unsecured loans. While this might be off-putting to some, this requirement is precisely where bridging loans get their coveted advantages from. As security is required in order to take out bridging finance, lenders are not exposed to as much risk as with unsecured finance.
Due to this reduction in risk, lenders can greatly expedite certain processes during a bridging loan application, making for a much quicker turnaround. While unsecured loan lenders would place a large emphasis on your income and credit rating, with checks on this information taking some time, bridging loan lenders aren’t as interested. Instead, these lenders will want to see the value of your collateral assets. If you have a professional valuer assess your assets prior to your application, this can be far quicker than checks as part of an unsecured loan application. In addition to this, the value of your bridging loan is linked to the value of your collateral assets. This means that you can take out as large a loan as you like, provided you have the assets to back it up.
How does bridging finance work?
Bridging finance is a somewhat niche form of finance, one that works a little differently from traditional loans. This means that they aren’t as readily available from banks as a mortgage, though plenty of banks do offer them as an unmarketed service. While you might find one at a bank, private bridging loan hubs are where the bulk of bridging loans are offered. There, borrowers and lenders will be put in touch according to their needs. Once you’ve found a bridging loan that fits the bill, you can begin applying.
As we mentioned, the main part of a bridging loan application is the value of collateral assets. While your lender will likely show some interest in other factors, such as income and past loan experience, asset value is the main factor. Provided you have assets of sufficient value, you can get a loan within a certain range. This range is known as Loan-To-Value (LTV), and is essentially the difference between how much you’ll front as a deposit, and how much you need your lender to cover.
For example, say you’re looking to purchase a property for £300,000, and you can put forward a deposit of £60,000. Your LTV will be 80%, which is about as high as most bridging loan lenders will go. At this point, your bridging loan application will either be approved or rejected, and you can go on to purchase your new property, or look for an alternative. Assuming you end up purchasing the property, you will need to focus on repayment. In most cases, bridging loans will be repaid by the sale of an existing asset, or the refinancing of the bridging loan.
What is 100% bridging finance?
Occasionally, property developers will come across a project that is a real diamond in the rough, though they cannot afford to finance the project for one reason or another. Such projects can be rich with potential, but mortgages and other such forms of finance simply aren’t available. In many of these instances, property developers simply have to move on. However, it is possible to finance these kinds of projects with a bridging loan, despite not having any money to put forward. This can be achieved by using 100% bridging finance.
100% bridging finance works exactly as any other form of bridging finance; the application process is the same, assets will be used as collateral, and a loan will be approved or rejected. There is one key difference, however; 100% bridging finance will completely fund the purchase, requiring no deposit from the borrower.
How can you get 100% bridging finance?
Obtaining 100% bridging finance is not easy to do. It poses a much larger risk to borrowers and lenders than standard bridging finance, so it is typically only offered sparingly, and in very particular circumstances. Despite the difficulty, it is entirely possible to obtain 100% bridging finance.
If you are looking for 100% bridging finance, you aren’t likely to find it in a bank, or most regulated bridging loan hubs. Instead, you’ll have the best chance of finding 100% bridging finance at an unregulated bridging loan hub. This can be risky, as the FCA does not cover unregulated bridging loans. As a tradeoff for this risk, the terms of unregulated bridging loans are much more flexible, making a 100% bridging loan a very distinct possibility.
The downsides to 100% bridging finance
While the advantages of using 100% bridging finance are clear, there are a couple of key disadvantages you must be aware of before taking out such a loan. As we mentioned, one of these disadvantages is risk. You’ll likely have to check unregulated bridging loan lenders for such a loan, meaning you won’t be protected by the FCA. If you choose to take out an unregulated bridging loan, it is vital that you do a thorough background check of your prospective lender. While most unregulated bridging loan lenders are perfectly above board, you can’t rely on external authorities to help you if you encounter any issues.
If you manage to find a regulated bridging lender willing to provide a 100% bridging loan, you have another key downside to consider – cost. Bridging finance isn’t the cheapest option on the market to begin with, and 100% bridging finance is even more expensive. This is to offset the risk assumed by lenders, but it will likely mean eating into the profits of your project. Lastly, you will likely have to provide assets of higher value than normal for use as collateral. While this isn’t necessarily a downside, failing to keep up with repayments can allow your lender to repossess said assets. If you are in a difficult financial position and aren’t sure if you can keep up with repayments, 100% bridging finance may not be the best option.
Wrapping up
All things considered, 100% bridging finance can be a useful tool for property developers, if used very carefully. It poses a much larger risk than standard bridging finance, and is much more costly. This combination can be incredibly detrimental for borrowers struggling with their finances, and 100% bridging finance is not likely a good option. However, if you can afford it, and you have no other methods of funding a project, 100% bridging finance can be a good option in a pinch. That said, it is always a good idea to consult a financial professional for advice on what is best for your situation.