Bridging loans start at around 0.44% per month, but the typical interest rate charges is around 1% per month, with loans ranging from around 3 to 24 months in total duration. There are various fees involved during the application process including arrangement fees, broker fees, survey fees, legal fees and other fees to consider include early exit fees too.
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Here is a breakdown of bridging loan fees:
- Monthly interest – from 0.44%
- Broker/arrangement fee – 1-2%
- Legal costs – circa £750
- Valuation – £250 to £1,000 depending on size of property
- Solicitor fees – £1,000 upwards – depending on complexity of deal
- Early exit fees – 1%
Bridging Loan Repayment Example:
For a bridging loan that is completed worth £500,000 and repaid over 12 months, the client will pay fees of:
- Loan amount – £500,000
- 1% interest per month – £5,000 (total of £60,000)
- 1% broker fee – £5,000
- Legal fees – £750
- Valuation – £250 to £1,000
- Solicitor fees – £1,000 upwards
Total: £567,750 approximately
How is Interest Repaid for a Bridging Loan?
Interest only – this is where you pay off the interest each month, so the overall loan amount remains the same and you pay off the full loan at the end of the term.
Rolled up or deferred – this is most common, where you make no repayments until the end of the loan term where all the interest is rolled up into one final payment. By this point, you may have built up and sold the property for a higher amount or refinanced under new terms.
Retained interest – here the total interest is calculated at an agree rate at the beginning and added to the total figure at the end of the loan term
Are Bridging Loans Expensive?
Yes, bridging loans are expensive compared to a traditional residential mortgage that you might offer rates of 3.5% per year. When annualised, a bridging loan may equal to 12% or higher – but it is important to remember that these are used for short-term purposes only and have benefits such as fast funding, more available to adverse credit histories and the ability to avoid property chains.
Using a bridging loan is typically for investing in a property purchase, whether you are looking to develop it and sell it for a higher price or rent out the property to tenants. So keeping an eye on the numbers is very important when using a bridging loan – and if you have found a great property with real potential, it can yield a very positive return on investment.
Always Check The Terms and Conditions
It is always important to check the terms of your agreement and make sure that you are aware of any potential fees or add-ons, just in case things do not turned out as planned.
For instance, you may wish to end the agreement early and this would incur a penalty of 1%.
Equally, you may need to refinance at the end of the loan term and you may want to know what is available to you in case your property is delayed.
Repossession of property is possible with bridging loans, albeit rarely, but it is essential that you are aware of all possible outcomes.
How Do You Get Cheaper Rates on a Bridging Loan?
The lower the risk to the lender, the cheaper the rates can be. Simple.
Bridging lenders can offer more favourable rates depending on the applicant and the opportunity. So if you are an experienced property developer and are looking to purchase a property in a good location, with good market conditions and a healthy demand for tenancy or potential for growth, you can certainly be eligible for the lowest rates on the market that start at 0.44% per month.
Certainly having equity in the property helps and you will certainly pay higher rates if you have a high LTV and most of your purchase consists of a loan.
Other factors include having a stable income, good equity in the property and a good credit score. Equally the more you borrow, the lower the rates typically are, since the lender receives a potentially higher return.
For cheap bridging loan rates, you should have:
- Experience as a property developer
- A good credit score
- Equity in your property
- Excellent exit strategy
- A valuable property in a good area
- Property with a healthy demand
- Good rapport and history with the lender
- Full overview of the market and rates charged
To access low rates, you can also speak to a bridging loans broker, like Lending Expert. The rates vary from lender-to-lender, but to truly get the lowest rates possible, a broker can help you compare all the rates and terms based on your requirements. Do not settle for the first option! We are here to help you get the best deal possible.