Bridging Finance Criteria Explained

Understanding the eligibility criteria to get bridging finance is the first step to buying the property you’re after. With different types of bridging finance, a range of viable exit strategies, and questions regarding credit scoring and affordability, there’s a lot to think about.

This guide to bridging finance criteria will help you plan your bridging finance efficiently and maximise your chance for a perfect tailored deal.

And for a sense-check on your own bridging plans and whether you'll likely meet the criteria, our free calculator determines your eligibility based on loan-to-value and provides an estimate of costs: 

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Key Takeaways

• Bridging finance criteria is largely focused on security and your exit strategy
• The property you purchase is one of the primary forms of security for your loan
• Exit strategies are usually through mortgaging or sale of property
• At Clifton Private Finance, we pre-approve your application, giving you the best chance of fulfilling all the lender’s criteria

A Brief Reminder of Bridging Finance

New to bridging finance or just need to brush up on the details? Our knowledge base has everything you need to know to refresh your understanding of this powerful funding tool. For in-depth information and examples look to:

• Our Complete Guide to Bridging Loans

The Core Bridging Finance Criteria

While there are many fine nuances to your bridging finance eligibility, there are two main considerations that come above all others:

• Security
• Exit strategy

Understanding these in depth is essential for a successful application.

Security for Bridging Finance

There are many names for the leverage that’s used to secure finance. In bridging finance, this is typically called security though terms such as collateral, guarantee, asset and even deposit may be used to describe it.

Security in bridging finance represents the physical assets that the borrowing is tied to, and that can be legally repossessed by the lender and sold to cover the debt if it is not repaid. Bridging finance is most often secured through property.

Security can be made up of the equity in multiple properties. Examples of equity for use as security include:

• A property owned in its entirety with no mortgage and valued at £350,000 would result in a security value of £350,000 (100% of the value).
• A joint property with no mortgage valued at £240,000 and a sole-owned property valued at £190,000 but with £35,000 of mortgage left to pay would result in total security of £275,000 (half of £240,000 plus (£190,000 - £35,000)).
• A joint home worth £550,000 with an existing mortgage of £200,000 would result in personal security of £187,500 (half of (£550,000 - £200,000)).

For joint bridging finance applications, the equity owned by both parties would be combined to make the full security value.

Combined with the loan-to-value (LTV) ratio, the value of the security is used to calculate the maximum size of the bridging finance. For example:

• A total security value of £850,000 made up of the combined equity in two properties of £500,000 and £350,000, and a LTV of 70% would result in a total finance offer of £595,000. (£850,000 x 70%)
• A 65% LTV loan secured by a property valued at £1,000,000 with an existing mortgage total of £400,000 would return a total finance offer of £390,000. ((£1,000,000 - £400,000) x 65%)
• Purchasing a property valued at £340,000 with only that for security, and a LTV of 75% would result in a total finance offer of £255,000. (£340,000 x 75%).

Because security forms the basis for risk assessment when lenders underwrite bridging finance, it is the most important criterion in the process. Security in bridging finance is often:

• The property being purchased or renovated
• Equity in a property being sold as part of the bridging finance exit strategy
• Equity in other properties

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The Exit Strategy for Bridging Finance

Your exit strategy, or simply exit, for bridging finance is the means by which you intend to pay off the loan, plus all fees and interest associated with it.

The exit strategy is a key part of the bridging finance application as it shows the clear plan for repayment. Unlike traditional loans that are repaid through regular monthly payments, the bridging finance is covered in full once the planned exit occurs.

Exit strategies are usually one of these four:

Remortgaging

Though a mortgage is typically unsuitable in the first instance, they are the most stable form of funding for long-term property ownership.

In these cases, once those problems are overcome, either because the property has been bought with the bridging finance and there’s time to put a mortgage in place, or because renovations have been completed, the mortgage can be obtained and used to pay off the bridging finance.

This repayment through remortgaging is the most suitable exit strategy for those looking to own the property outright for the long term.

Sale of Existing Property

If you are moving house from an existing home to a new property and are looking to bridging finance to not lose out on an opportunity, add additional funds for renovation, or to gain the advantages of a cash buyer and ‘break the property chain’, then you will have that old home to sell once everything has been completed. This forms your exit strategy.

The proceeds from the sale of your existing property are used to repay the bridging finance.

Sale of Financed Property

The third most common exit strategy is to sell the property being bought for profit. This occurs when the property is bought as an investment project, renovated to a high standard, and placed back on the market at a higher price. Commonly known as ‘flipping’, using bridging loans to provide the essential capital allows for the opportunity for investment where mortgages and other forms of funding may be too slow or otherwise inadequate.

Once the property is flipped - that is, renovated and resold - the proceeds are used to exit the bridging finance, with profit left for the investor.

Combined Exit Strategies

There is no requirement for your exit strategy to neatly fit exactly one of these outcomes. Combined exit strategies are often used, for example, one that involves the sale of the old property as well as an additional mortgage for additional capital.

Combining exit strategies requires a clear, well-written exit strategy plan. Working with a professional broker will help ensure that it meets the lender’s requirements.

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Secondary Bridging Finance Criteria

With a solid exit strategy and required security, bridging finance is within your grasp. However, there are a few secondary criteria that must also be met.

• Credit History - Bridging lenders focus more on your security than your credit score or financial history. Nonetheless, your credit history will be checked by the lender as part of their due diligence. Maintaining a good credit score is important for all financial undertakings.
• Income and Affordability - Unlike mortgages, your income and associated affordability tests are far less significant for bridging finance, however, they will have an impact if your exit strategy is based on a remortgage. This is because the bridging lender needs to be sure your exit strategy is viable. Simply saying ‘I’ll get a mortgage’ isn’t enough; an agreement in principle is often expected, and this will be based on your income or rental yield for landlords.
• Identity - As with all financial lending in the UK, your identity documents must be up-to-date to secure finance.
• Residency Status - Some bridging finance may be limited based on your current residency, with more UK loans available for UK nationals than foreign application.
• Your Application Quality - How you present yourself is not a direct criterion, but will have an effect on how you are considered by the lenders. Working with a top-quality broker such as Clifton Private Finance will help ensure your application is written to the highest possible standard, maximising your chance of acceptance. We pre-qualify applications, which means any mistakes will be caught early and can be easily corrected.

Regulated vs. Non-Regulated Bridging Finance

In the UK, there are two types of bridging products - regulated loans that are for personal property purchases, and non-regulated loans that are used for investment and commercial purposes.

Regulated loans are overseen by the Financial Conduct Authority (FCA), who work on your behalf to provide guarantees and protection. Bridging finance must be regulated if you intend to live in the property after purchase. This ensures:

• Lender transparency
• Fairness of loan terms and conditions
• An adherence by the lender to qualified advice and responsible lending
• A strict cooling-off period
• Borrowing limits
• A structured complaints process

Non-regulated bridging finance is more flexible and provides funding for commercial purposes, such as:

• Buying property as a landlord
• Flipping properties
• Buying land for development

Regulated loans have a stricter application process and can take longer to arrange.

Regulated vs. Non-Regulated Bridging Finance Criteria

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Bridging Finance Criteria FAQ

Q: Do I need to worry about my credit history when applying for bridging finance?

A: Bridging finance is focused far more on your security and exit strategy than your credit history and income. While these will be considered, especially if your exit strategy is based on refinancing with a mortgage, they are of much less weight than with other types of loan.

Q: Can I get bridging finance without owning another property?

A: Yes. Bridging finance is typically used to buy property, and often when moving from an old house to a new one, but first time buyers or those with no current assets can also use bridging finance. As part of your investment, you will need a 25% deposit to meet most lender’s LTV criteria.

Q: Can I get bridging finance if I’m not a UK national?

A: Yes. Bridging finance in the UK includes both regulated and non-regulated loans. Non-regulated bridging finance is perfect for foreign investment in UK property and can be swiftly obtained with help from Clifton Private Finance.

Q: Do I need a deposit for bridging finance?

A: Not always. If you have enough equity in property to support your application, a wide range of lenders will approve you for bridging finance without any direct capital. However, a deposit is required when you are looking to purchase a property without additional equity.

Q: Can I use bridging finance to buy to let?

A: Yes, bridging finance is available to landlords. You can use equity in existing property or a cash deposit to secure the bridging finance you need to purchase a new house to renovate and rent out.

Q: Do bridging finance lenders use affordability and stress testing?

A: Not always. Bridging finance is based on your security and not your income or credit history. However, if your exit strategy is to get a mortgage, lender’s may insist on an agreement in principle (AIP) from your mortgage lender, which may involve affordability and stress testing. Speaking to a bridging specialist at Clifton Private Finance will help.

Passing Bridging Finance Criteria with Clifton Private Finance

At Clifton Private Finance we thoroughly pre-approve your application, working with our experience of specific lender requirements to make sure you have the greatest possible chance at a successful final approval. Our experts will help you construct a watertight application and support you throughout the process, ensuring your exit strategy and selected securities are precisely those wanted by the lenders to approve your loan.

We understand the finer nuances of both regulated and non-regulated bridging finance and help you select the lender who best fits your requirement, giving you impartial advice so that you’re able to make informed decisions throughout.

To get your bridging finance pre-approved and turn your property plans into reality, speak to a specialist at Clifton Private Finance today.

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