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What Deposit Do You Need For A Bridging Loan?
Generally, you'll need a deposit for a bridging loan or equity of at least 20-40%.
However, lenders can vary on requirements, and the specifics of your circumstances can change things. So, how exactly does it work, and what are the rules?
A lot can depend on the equity used to secure your bridge loan alongside a lender’s criteria. They will look at several factors, including your income, credit history, the LTV (Loan-to-Value) ratio of the loan you need and the overall size of the loan.
Bridge loans don’t have to be complex and confusing. They are an incredibly useful alternative to traditional borrowing and are accessible to most. Here’s our guide on what you’ll need to get a bridge loan and the likely amount needed for a deposit.
Written by: Sam O'Neill & Sam Hodgson
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What Are the Requirements for a Bridging Loan?
Can You Get a Bridging Loan for a Deposit?
How Much Equity Do You Need for a Bridging Loan?
How Much Can I Borrow as a Bridging Loan?
Can I Get a 100% LTV Bridging Loan?
Do You Pay a Bridging Loan Monthly?
Which UK Banks Offer Bridging Loans?
Is it Easy to Get a Bridging Loan?
Do You Need a Deposit for a Bridging Loan?
Yes, you'll typically need a deposit for a bridging loan. While deposit requirements can vary depending on the lender and individual circumstances, having some form of deposit or collateral is generally necessary to secure a bridging loan.
In general, lenders may require a deposit ranging from 20% to 40% of the property's value. However, it's essential to consult with potential lenders to understand their specific deposit requirements based on your unique circumstances and the loan terms offered.
Can You Use Collateral Instead of a Deposit?
You can often use collateral instead of a cash deposit when applying for a bridging loan. Collateral refers to assets such as property, vehicles, or valuable possessions you offer the lender as security against the loan. The value of the collateral will typically need to meet or exceed the loan amount being requested.
Yes, in many cases, you can use collateral instead of a cash deposit when applying for a bridging loan. Collateral refers to assets such as property, vehicles, or valuable possessions you offer the lender as security against the loan. The value of the collateral will typically need to meet or exceed the requested loan amount.
Using collateral instead of a cash deposit can be advantageous for borrowers who may not have sufficient cash on hand for a deposit but have valuable assets that they can leverage. However, it's essential to carefully consider the risks involved, as failure to repay the loan could result in the loss of your collateral.
What Are the Requirements for a Bridging Loan?
To elaborate on some of the requirements for a bridging loan, here’s a brief overview of some of the things lenders will look at and some of the things you’ll need to have in place to apply for a bridge loan successfully:
Security/assets
You will need suitable collateral to raise the loan against. Typically, this comes in the form of property or additional assets, but it could also be the property you're buying. This will affect the deposit you need, depending on the size and value of your property.
Credit history
Bridging loans come with risks to the lender, so naturally, most lenders will need reassurance. They may look at your credit history before determining whether to lend to you.
The LTV ratio
Put simply, this is the loan amount compared to the property's value expressed as a percentage. Typically, the highest LTVs offered by lenders range from 70 to 80%, so you’ll need to have a deposit to cover the remaining amount.
Exit strategy
Bridging loans are short-term, with terms of around 12-18 months. Before applying for a bridging loan, it's essential that you have a sufficient exit strategy in place to repay the loan. Usually, this is met through selling the property used as collateral, releasing equity, or refinancing with a longer-term loan.
One key advantage of using bridging finance is its flexibility. In many cases, bridging lenders offer tailored terms and even bespoke products based on your unique situation. However, this can become challenging to navigate without professional advice.
Because of this, it's recommended that you use a bridging loan broker. Most bridging lenders operate exclusively using brokers, and a whole-of-market broker can use their extensive network to get you the best rates available for your circumstances.
Can You Get a Bridging Loan for a Deposit?
Unfortunately, you can't use a bridging loan for a deposit on another property with a standard mortgage.
A mortgage provider simply won't accept a loan from another lender as their deposit.
How Much Equity Do You Need for a Bridging Loan?
Generally, lenders will need at least 25% to 40% equity in a property used as security – the higher the LTV, the higher the equity requirements are likely to be.
Additionally, if the property is considered a higher risk, the equity requirements can change accordingly depending on the lender.
However, if you're purchasing a new property with the aim to refinance onto a mortgage, you can secure the bridging loan against the property you're planning to buy, and you won't need any equity in that property.
Watch our bridging loan case study below for another bridging deposit example:
How Much Can I Borrow With a Bridging Loan?
With a bridging loan, you can generally borrow up to 80% of your property's value. The exact amount will depend on your circumstances, the properties in question, and the lender you use.
Again, the amount you can borrow is subject to several factors, most of which are set by the lender and depend on what you're using your loan for.
The funds you actually receive after a successful application will depend mostly on the LTV, which is based on the value of the property. You can receive a percentage of that value as an amount borrowed.
Your borrowing power hinges on the specifics of your loan – the size, your collateral, the plans you have in place for repayment, and the level of risk posed to the lender.
Can I Get a 100% LTV Bridging Loan?
Typically, you can get an LTV of up to 80%. But, it can be higher with additional securities alongside a primary property against which the loan is secured.
It is rare that lenders would offer a 100% LTV loan – this would be a high-risk loan and require more equity within the property used as security.
However, these types of loans can be considered depending on your circumstances and the particular details of your case – it may be possible to secure such a loan with additional securities if you use the right lender.
If you want to do this, book a free consultation with our advisers, and we'll tell you whether it's possible.
Do You Pay a Bridging Loan Monthly?
No, you'll typically repay your bridging loan as a lump sum at the end of the loan term. Bridging loans can have slightly higher interest rates than mortgages, so the primary advantage of this is that if you pay your bridging loan off early, you'll only pay interest on the months you had the loan for.
But there are cases where you can pay in monthly instalments or arrange 'retained interest'. Retained interest is similar to rolled-up interest, but the amount is deducted from the total loan amount from the beginning instead of at the end and repaid earlier.
Which UK Banks Offer Bridging Loans?
High street banks don't offer bridging loans directly to customers anymore. However, there are a variety of specialist lenders that do offer bridging finance.
Specialist lenders can be difficult to approach independently. The majority of bridging lenders can only be accessed using a broker, and because these lenders operate through third parties, it can be difficult to get a clear understanding of what options are available without the help of an expert.
A bridging broker can help you navigate lenders, narrow down your options quickly and find the most favourable rates.
Is it Easy to Get a Bridging Loan?
Yes, compared to a mortgage, bridging finance is quick and easy to arrange. A bridging broker will guide you through the process, work with you to ensure your application is presented to the lender in the best possible light, and find you a deal that best fits your needs as a borrower.
Bridging finance can be secured in less than a month, and you can fast-track your application if you're under time constraints. Depending on the case's complexity, an accelerated bridging application can be processed in less than two weeks.
Need Advice on a Bridging Loan Deposit?
When making any significant financial decision, especially regarding a property loan, it's always best to seek the help of a financial expert. This will ensure you're getting finance at an affordable and favourable rate.
At Clifton Private Finance, we have an award-winning bridging team dedicated to driving results. We have relationships with lenders across the whole bridging market and have access to the best deals. Our bridging brokers can guide you through the process and liaise with lenders on your behalf.
To see what we can do for you, call us on 0117 205 4838 or book a free consultation below.
FAQs
Yes, a valuation is typically required for a bridging loan in the UK. Since bridging loans are often secured against a property or other valuable assets, lenders will want to assess the market value of the property being used as security. This helps the lender determine how much deposit they want you to provide based on the value and condition of the property. You can borrow up to £25m with bridging finance, but it’s typically capped at about 80% of the value of the property you’re using as security. It's important to note that different lenders have varying policies and criteria regarding the maximum loan amounts they offer for bridging finance. Some lenders have a maximum limit of over £1 million, while others may specialize in smaller loan amounts. Additionally, the terms and conditions of the loan, including interest rates and fees, should also be taken into consideration when determining the overall affordability of the bridging loan. Yes, you typically need a 20-40% deposit for a bridging loan. It can be possible to get a bridging loan without a deposit (a 100% bridging loan), but you’ll need other assets in the background to secure the loan against, and more stringent criteria and higher costs could apply. Yes, it is possible to get a 100% bridging loan (also known as a 100% LTV bridging loan), but it is rare. This means that you won’t need to put down a deposit and can borrow the full value of your property. However, the criteria for these loans can be hard to meet, and you’ll need to provide additional assets as security for your loan. Interest rates and fees can also be higher to compensate. While using bridging finance doesn’t technically make you a cash-buyer, it can allow you to act like one. Mortgages take months to process, often leading to an ‘onward chain’ where all parties involved need to wait for funds to be transferred. Bridging finance can usually be accessed a lot quicker than mortgages so you can bypass the onward chain, giving you an advantage over other buyers and being attractive to sellers. Bridging loans typically have a term of 12 months, but some lenders are willing to stretch their terms to 18 months, or even 2 –3 years depending on the case. Terms longer than 2 years will usually only be considered for specific cases. Yes, you can use a bridging loan to pay Stamp Duty. This amount could be covered by a bridging loan, providing you have a way to repay the additional borrowing amount to your lender. Yes, bridging loans are safe when they’re used in the right circumstances with a solid repayment strategy. However, we recommend speaking to a qualified advisor, like our brokers at Clifton Private Finance, before you take out a product. The main factors to consider with bridging finance are that the full loan amount will usually need to be repaid within a year, and like a mortgage, it is secured against a property as collateral. This means that in the case that you aren’t able to repay your bridging loan, your property would be at risk of repossession. But with a watertight exit strategy, bridging finance can be an efficient way to secure property quickly. Bridging loans are designed to be short-term so there’s no maximum age limit when applying for a bridging loan. This does depend on the lender, as some bridging lenders do have an upper age limit, but there are lenders on the market who offer bridging loans for borrowers aged 70 and over. Bridging loan interest rates usually range between 0.45% - 2% per month, depending on the case and the market rate. Unlike mortgage interest rates, bridging loan interest is calculated monthly instead of yearly. This is because bridging loans are short-term and, in many cases, repaid within a year. Bridging loans can be arranged without early repayment penalties, so interest is calculated monthly to ensure you only pay interest on the months you have the loan for. Unfortunately, mainstream banks in the UK don’t offer bridging loans. This means that if you’re looking for a bridging loan, you won’t be able to get one using a lender you’d find on the high street. There are a variety of specialist lenders that offer bridging loans, but because these lenders are smaller and more niche, you may need a bridging broker to access them. Banks typically charge two main fees when taking out a bridging loan – arrangement fees and interest. But there are other costs to consider such as valuation fees, broker fees and administration fees. Costs can vary from lender to lender, and will also depend on what your bridging loan is for (e.g., residential or commercial purposes.) Arrangement fees are what the lender charges you to take out the loan and can range between 1.5 - 3% of your overall loan. Bridging loan interest, on the other hand, is calculated monthly. This can catch borrowers out who may be expecting an Annual Percentage Rate (APR) like with a mortgage. Yes, you can convert a bridging loan to a mortgage through refinancing, and it is common among borrowers who use bridging finance to buy residential properties. However, whether or not you’ll be able to refinance to a mortgage is dependent on your financial circumstances, the lender, and the property you’re planning to buy. It’s important to be sure that refinancing is a viable repayment option before you take out a bridging loan on a residential property. Yes, bridging loans are typically more expensive than mortgages. Bridging loan interest rates can be much higher than a mortgage, and are calculated and displayed as monthly rates instead of the usual annual percentage rate (APR) that you’ll see on a mortgage. However, bridging loans are a short-term solution, and you’ll only pay interest on the months you’ve borrowed money for – and you can repay early without any charges (for most loans). There are many circumstances where bridging loans are an affordable option and a means to an end - for borrowers that need to finance a property purchase quickly, it may be the only option available. The two most common ways to pay a bridging loan are to sell a property or refinance to a mortgage. You may also need to ‘service’ the loan through the term, which means paying the interest monthly. However, you can opt to ‘roll up’ your bridging interest to be repaid at the end along with the capital. There are also other ways to repay a bridging loan, such as selling a business or even using money from an inheritance. The method in which you pay your bridging loan can be flexible, just as long as it is clear in your application that you have a surefire way to repay your loan when the terms are up. In most cases, a bridging loan will require a minimum deposit of 25%. However, the minimum can vary depending on the lender and the specific circumstances of the loan itself. Generally, bridging loans are secured against a property or other valuable assets, and the deposit required is often expressed as a percentage of the property's value, known as the loan-to-value ratio. In some cases, 0% deposit bridging loans are an option, but only if you have other property or assets in the background to provide additional security. No, typically, you’ll repay a bridging loan in one chunk at the end of the loan term. Bridging loans are a form of short-term finance and will usually need to be repaid within 12 months, but there can be room for flexibility. In some cases, borrowers may be required to make monthly interest payments. This means that each month, you would pay the interest accrued on the loan amount while the principal amount remains outstanding until the end of the loan term. But usually, the interest is "rolled up" or added to the loan balance and paid with the rest of the loan at the end of the term. This option can help protect your cashflow so you can spend it on moving costs or refurbishments, for example. Bridging loans can be arranged in as little as 7 working days. However, it depends on the complexity of the bridge loan and your specific circumstances. It may also be more expensive for you to rush an urgent application through – but not impossible. Bridging loans are a popular option for borrowers who are under time constraints, such as buying a property at auction or breaking a chain. The key factors lenders tend to consider are: Security - Bridging finance is usually secured against property or other valuable assets. Lenders will assess the value and marketability of your security. Exit Strategy - Lenders will want to understand how you plan to repay your bridging loan. In most cases, this is selling your old property, selling the new property (flipping), or refinancing with a long-term mortgage. Loan-to-Value (LTV) Ratio - Lenders consider the loan amount compared to the value of the property being used as security as a percentage. The LTV ratio can vary, but most lenders will have a maximum of 60-80% LTV. Remember, the criteria for obtaining bridging finance in the UK can vary depending on the lender and your circumstances.
Do you need a valuation for a bridging loan?
How much can you borrow with bridging finance?
Do you need a deposit for a bridging loan?
Can I get 100% bridging finance?
Does a bridging loan make you a cash buyer?
What is the longest bridging loan term?
Can I use a bridging loan to pay stamp duty?
Are bridging loans safe?
Can an 80 year old get a bridging loan?
What is the monthly interest rate on a bridging loan?
Do banks still do bridging loans?
How much do banks charge for bridging loans?
Can you turn a bridging loan into a mortgage?
Is a bridging loan more expensive than a mortgage?
How are bridging loans paid?
What is the minimum deposit for a bridging loan?
Do you pay monthly payments on a bridging loan?
How long does it take for a bridging loan to come through?
What is the criteria for bridging finance?
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