Eligibility for a bridging loan depends on a number of factors, including your age, the investment purposes and how you plan to repay it.
This guide will walk you through the key factors that determine whether you qualify for a bridging loan, what you need to know before applying, and how you can make the best financial decision for your needs.
What Is A Bridging Loan?
A bridging loan is a short-term financing option designed to “bridge” the gap between the purchase of a new property and the sale of an existing one. It can be a great option for those looking for quick financing for large sums with flexible terms.
Bridging loans normally last between 1 to 12 months, though some can extend up to 36 months, and they generally come with higher interest rates compared to traditional mortgages. Essentially, you pay for the convenience of a quick loan by accepting slightly higher interest rates.
Bridging Loan Eligibility Criteria: What You Need To Know
The first thing you need to know about bridging loan eligibility is that criteria can change slightly depending on the lender.
However, most lenders will look for a few core elements during the application form, these include:
1. Age and Residency
To be eligible for a bridging loan, you must be at least 18 years old, though some lenders may impose a higher age limit.
If you’re over 70, you may find fewer lenders willing to offer you a bridging loan, but options are still available.
Residency is another important factor. Most bridging loans are available to UK residents, though non-UK nationals can also apply with certain companies.
If you’re a UK expat or a non-UK national looking to secure a bridging loan for a property in the UK, your options may be more limited, but they do exist.
2. Collateral For The Loan
Bridging loans are secured loans, meaning you need to put down another asset as collateral. This lets the company know that if you default on your payments, they can still receive the payment. Traditionally, bridging loans are secured against properties – but not all of them will be accepted.
Some examples of properties you can use as collateral include:
- Houses
- Flats
- Hotels
- Bungalows
- Commercial Properties
- Offices
- Depots
- Factories
- And more.
The type of property, where it is located and the condition it is in are all factors that will be taken into consideration. Not only that, but a borrower has to have substantial equity in the property for it to count. Ultimately, the lender wants to know that if the loan can’t be repaid, that they are able to sell the property for the value owed.
It is worth noting that a deposit or equity of at least 25-30% is usually expected, with better rates available if a larger deposit can be given.
3. Your Exit Strategy: How You Plan To Repay The Bridging Loan
Any lender or bridging loan broker will want to know that you have a realistic exit strategy before giving you a loan.
This exit strategy can be in the form of selling a property, refinancing through a mortgage or using other funds.
A well-thought-out exit strategy not only makes it more likely for you to be approved, but it can also help you get better interest rates. If your exit plan involves selling the property, the lender will likely look at the property’s marketability and the current state of the property market to ensure you can pay it back on time.
4. Credit History And Income
One of the aspects of bridging loans that can be appealing is that they often don’t take into account credit history. While a good credit history can help you secure better rates, it’s not the most important factor and you can likely secure one without it. Lenders tend to be more concerned with the security you provide and the strength of your exit strategy.
Similarly, proof of income isn’t normally something you need to provide. This is because the loan is secured against your assets and not your liquid income. However, a good income could still help boost your application and maybe provide some leverage for more favourable terms.
Are You Ready To Apply For A Bridging Loan?
Bridging loans can be a great option for those needing short-term finance, but eligibility depends on several factors, including your age, residency, the security you can offer, and your exit strategy. Not to mention any additional criteria set by the lenders.
By understanding these and preparing your application properly, you can improve your chances of securing the bridging loan you need.
If you’re unsure about your eligibility or need help navigating the process, get in touch with Blue Square today.
