Whilst you don’t need a deposit for a bridging loan per se, you will need a cash deposit for the asset you are buying. The amount you will need depends on the value of the property and the LTV ratio offered by the lender.
In this article, we will break down everything you need to know about how deposits work in regards to bridging loans.
What Is A Bridging Loan?
A bridging loan is a fast loan used to ‘bridge’ a gap between property transactions. For example, if you want to buy a property at auction before another sells, a bridging loan can provide a quick and flexible option to unlock more capital.
In order to secure these loans, borrowers will usually need to offer up a property or asset as collateral. This assures the lender that if a borrower defaults on a payment, they can still get their money back.
At Blue Square Capital, we specialise in bridging loans ranging from £250,000 to £2 million with repayment terms up to 15 months. We provide both 1st and 2nd charge loans, giving our clients flexibility in financing.
Is A Deposit Needed For A Bridging Loan?
A cash deposit isn’t normally needed to secure a bridging loan, instead, a lender will want some kind of equity in an asset as collateral.
However, the borrower will need to have some cash available to purchase a percentage of the new property that the bridging loan will not cover. This percentage is known as the Loan To Value (LTV) Ratio.
A low LTV on a high-priced property will mean that a bigger cash injection is needed from the borrower.
Blue Square Capital offers bridging loans with a maximum Loan-to-Value (LTV) ratio of 70%, which means you need to cover the remaining 30% as a deposit. Understanding how this works can help you better prepare for the application process.
Understanding The Loan-To-Value (LTV) Ratio
The LTV ratio is the loan amount compared to the value of the property being bought.
For example, if you are buying a property valued at £1,000,000 and the lender offers a bridging loan with a 70% LTV, you would be able to borrow up to £700,000. This means that you will need to cover the remaining £300,000.
If this LTV was agreed at 60%, the cash injection from the borrower would be considerably more at £400,000.
The lender will work out the LTV on a case-by-case basis. As a general rule, the higher the LTV, the more risk the lender takes on and the smaller the deposit needs to be.
Most lenders won’t want to take on a LTV that is much higher than this because it means that there is no leeway if anything goes wrong. If the property market changes for example, it means the property only needs to retain 70% of its original value for them to get their money out.
At Blue Square Capital, our maximum LTV for bridging loans is set at 70%, which should allow you to access significant capital for your investment.
Factors Affecting The Deposit Amount
The main factor that affects how much of a deposit you need for the property transaction is the LTV. Here are a few factors that a lender will take into account when deciding the LTV rate of a loan.
Property Value and Type
The value of the property or asset you are buying is the main factor. Higher-value properties will likely come with lower LTVs and need larger deposits, especially if they are considered high-risk. The lender will adjust the LTV that they are comfortable with depending on the factors involved. The lower the LTV, the higher deposit a borrower will need to contribute.
Credit History and Financial Stability
Lenders will look at your credit history and financial stability before deciding how much they are comfortable loaning you. A strong credit history may mean you are able to borrow more, which could reduce the deposit amount.
Exit Strategy
Bridging loans are short-term, normally with terms up to 15 months.
A well-thought-through exit strategy can influence the deposit amount. A clear and viable exit strategy may mean the lender is happy to offer a higher LTV, reducing the deposit amount needed.
Bridging Loan Options With Blue Square Capital
At Blue Square Capital, we understand that every client has their own unique needs. That’s why we offer flexible bridging loan options with:
- Loan Amounts: From £250,000 to £2 million
- Repayment Terms: Up to 15 months
- LTV: Maximum of 70%
- 1st and 2nd Charge Loans: This allows you to choose the best loan structure for your project.
Our team of experts can guide you through the process, making sure you understand all the conditions of the loan and the deposit required.
We provide a clear application process and quick decisions to help you access the funds you need as soon as possible.
How to Apply For A Bridging Loan With Blue Square Capital
Applying for a bridging loan with Blue Square Capital is simple. Here’s a step-by-step guide to get you started:
- Initial Consultation: Contact us to discuss your needs and financial situation. Our advisors will aim to get back to you with an initial response within 24 hours.
- Submit Your Application: Send in your documents, providing details of the property or asset you want to use as security, your credit history and your planned exit strategy.
- Get A Quick Decision: We will assess your application and provide a decision quickly, often within days. We understand the need for a quick and efficient approval process.
- Appoint A RICS Qualified Surveyor – we will instruct a valuer from our panel to go out to the property and provide a full valuation report.
- Complete The Legal Documents: Once approved, you will need to complete the legal documents. We work with a network of professional solicitors to speed up this process.
- Receive Your Funds: Once completed, the funds will be released, and you can move forward with your property purchase, development, or refinancing plans.
Understanding Bridging Loan Deposits
Understanding the deposit specifics for a bridging loan will help you make the right financial decision.
At Blue Square Capital, we provide transparent, flexible, and competitive bridging loans with your project needs in mind. Whether you are a property investor, developer or someone in need of quick access to funds, we can help you secure the right loan for your project.
Get in touch with Blue Square Capital now and let us help you bridge the gap to your next investment opportunity.
