Interest Rates For Bridging Finance
How do interest rates work for bridging loans?
Interest rates are more expensive than traditional finance because of the short-term nature of borrowing.
A bridge loan is typically used to “bridge a gap” in a short timeframe – for example, between buying and selling property. Therefore, the interest rate is calculated to reflect this and is paid monthly instead of annually.
What are the factors that affect interest rates?
- Your loan size and for how long the term is – bridging finance can be offered from £50,000 to £25m, and lower rates can be provided for a larger loan. Interest rates are also affected depending on the term time of the loan (3 – 36 months)
- What type of loan it will be – FCA regulated or unregulated loans will have different interest rates applied.
- The Loan-to-value ratio (LTV) - you can borrow based on the lender's LTV, which is calculated by dividing the loan amount by the securities value – the valuation of your security, typically a house, will impact the interest paid monthly.
- Your credit history – adverse credit history can affect the interest rate applied if you have outstanding debts that could affect repayment. However, the process is not as stringent as securing a mortgage, and lenders are unlikely to do checks against your income or credit score.
- The valuation of your property – a lender’s evaluation takes into account many factors, and what your property is valued at will affect the interest rate – location of a property can have an impact on valuation, for instance.
What is the average interest rate on a bridging loan?
Rates on bridging loans are often influenced by the Bank of England base rate, which typically ranges between 0.39% and 1.5% per month. However, your circumstances, and a lender's criteria, will likely influence what you can borrow and at what rate.
Rates can vary between lenders
Lenders will do their due diligence when determining the risk factor affecting the interest rate applied. Consequently, having access to the right lender is crucial when searching for the best bridging loan with favourable rates.
They will want to be assured with an exit strategy, typically the value of the property the loan is set against.
Beneficially, most bridging lenders will allow a “rolling-up” on interest to be paid at the end of the term as opposed to monthly payments.
This difference between bridging finance and mortgages allows for more flexibility when handling expensive interest rates.
What will a bridging loan cost overall?
You can use our free bridge loan calculator; it’ll indicate how much you can expect to pay with an indicative quote.
However, if you’re looking to go further, seeking the help of a specialist broker is beneficial here since initial quotes may not fully display the best bridging loan available.
Additionally, it is essential to consider your exit strategy carefully when calculating to negate problems that could hinder repayment.
Finally, keep in mind that interest rates are not the only consideration on cost – there are additional fees such as legal, broker and exit fees to think about, and the complexity of your case could also inflate costs.
How to qualify for a bridging loan
Bridging finance is available to any type of borrower:
- Limited companies
- Individuals (no upper age limit)
- Sole traders
And to qualify for bridging finance, you need only fulfil the standard criteria;
- Have a form of security – properties or valuable assets.
- Use the loan for residential, commercial and development property finance.
- Be a UK resident, or have a registered UK address (bridging finance can also be secured for expats)
- Most importantly, have a solid exit strategy in place
We can take your case to specialist lenders and find you favourable rates
Our team can aid you in comparing options to find you the most favourable rate for your circumstances.
We have access to specialist lenders in the short-term finance market who operate on a niche or more general criteria.
Don’t hesitate to contact us if you wish to proceed with securing bridging finance today or if you have additional questions about interest rates and bridging loans.
