Taking out your first bridging loan can be a daunting experience, with unfamiliar jargon and terms. Here are 5 essential tips to help you navigate this process with confidence.
- Do Your Due Diligence on Your Lender
Choosing the right lender is your most important decision. Treat them like a business partner and look for trustworthy, experienced, and organised providers.
Key questions to ask:
- What are the backgrounds of the owners?
- Where do their funding lines come from? (International funding sources may be affected by global economic conditions)
- What is their typical processing speed for drawdowns?
- How flexible are they with individual circumstances and project changes?
Research any press coverage about the lender and verify their reputation in the market before committing; ask in the industry, and check out reputable reviews.
- Have a Clear Exit Strategy
Your exit strategy shows the lender exactly how you plan to repay the loan. This is a top priority when reviewing your application. Lenders want to be able to see the viability of the exit so that you do not go over term.
Common exit strategies include:
- Selling the property (flipping) – provide market research and realistic timelines
- Refinancing to a buy-to-let mortgage – show projected rental yields and mortgage availability
Coming to your lender with a well-defined exit strategy significantly strengthens your application and demonstrates professional preparation.
- Factor in All Costs
Bridging loans involve several fees beyond the interest rate. Budget for these additional costs from the start.
Arrangement Fees
Legal Fees
Broker Fees (If going through a broker)
Valuation Fees
Interest Rates
All rates will vary depending on your lender of choice. Get detailed cost breakdowns from multiple lenders to compare total borrowing costs and find the best deal for your situation.
- Understand Loan-to-Value (LTV) Limits
LTV is the percentage of the property value that a lender will finance. Most bridging lenders offer up to 65-75% LTV, meaning you’ll need to provide a minimum of 25-35% as a deposit. You can use investors for this; however, your lender will most likely require that you stake at least 10% of your own cash or equity.
Factors affecting your LTV:
- Your experience and track record
- Property type and location
- Project complexity
- Current market conditions
Higher LTV ratios typically come with higher interest rates. Decide how much you want to invest upfront and choose an LTV that suits your financial situation and risk tolerance.
- Present a Professional Project Package
Lenders scrutinise every detail of your application. Having all documentation ready and well-organised demonstrates preparation and increases your chances of approval.
Essential documents include:
- Personal financial statements and proof of income
- Property details, surveys, and valuations
- Planning permissions (for development projects)
- Professional team details (solicitors, surveyors, contractors)
- Detailed project timeline and costs
- Evidence supporting your exit strategy
Present all information clearly and ensure everything is current and accurate. This professional approach shows lenders you understand the project and are committed to its success.
By following these five essential tips, you’ll approach your first bridging loan with confidence and significantly improve your chances of securing the right financing for the best possible outcome. Remember, preparation and professionalism are your greatest assets when navigating the bridging loan market.
