The minimum deposit needed for a bridging loan depends on the LTV (Loan-to-Value) ratio. Most bridging loan lenders require a deposit of 20% to 40% of the property’s value, however this does vary by lender.
At Blue Square Capital, we offer bridging loans with a maximum LTV of 70%. This means borrowers must provide at least 30% of the property’s value as a deposit.
How Bridging Loan Deposits Work
If you are looking to buy a property worth £500,000, your bridging loan can cover up to 70% of the property’s value (i.e. £350,000). This means you would need to provide the remaining £150,000 as a deposit.
Here is a breakdown of the minimum deposit needed for different property prices, assuming an LTV of 70%.
| Property Value | Maximum Bridging Loan (70% LTV) | Minimum Deposit Required |
|---|---|---|
| £250,000 | £175,000 | £75,000 |
| £500,000 | £350,000 | £150,000 |
| £1,000,000 | £700,000 | £300,000 |
| £2,000,000 | £1,400,000 | £600,000 |
The higher the LTV, the lower your required deposit – but this also means borrowing a larger amount, which could come with higher interest rates.
Understanding LTV in Bridging Loans
LTV refers to the percentage of the property’s value that a lender is willing to finance.
For example, if a lender offers a 70% LTV, they will cover up to 70% of the purchase price or property valuation. The borrower must fund the remaining 30% as a deposit.
How To Calculate Loan-to-Value (LTV) For A Bridging Loan
To work out the loan to value, you can use this formula:
LTV (%) = (Loan Amount ÷ Property Value) × 100
An example:
If a lender offers a 60% LTV on a £750,000 property:
LTV = (450,000 ÷ 750,000) × 100 = 60%
Here:
- The loan amount would be £450,000.
- The deposit required would be £300,000 (which is 40% of the property value).
If you want to work out your LTV, why not try our calculator?
LTV Calculator
Why Does LTV Matter?
Higher LTV = Lower Deposit
If a lender offers an 80% LTV, you would need just a 20% deposit. However, higher LTVs often come with higher interest rates and stricter criteria. Whilst the initial deposit might be smaller, it’s worth considering the overall cost including the interest you will have to pay.
Lower LTV = Higher Deposit
If a lender only offers a 60% LTV, you would need a 40% deposit. This reduces the lender’s risk but increases the amount of cash needed for the borrower.
Is a 100% LTV Bridging Loan Possible?
While most bridging loans will need you to put down a deposit, 100% LTV bridging loans are possible in some cases.
However, they usually need additional security, such as another property or asset. It’s also worth noting that given these will be seen as high-risk investments, the interest rate is likely to be extremely high.
What Affects Your Bridging Loan Deposit?
When setting the LTV that they are comfortable with, lenders will look at a number of factors before approving a bridging loan and determining the deposit required.
1. Property Type & Condition
- Residential properties generally mean lower deposit amounts than commercial or high-risk properties. This is because they will be easy to sell, so the secured asset is perceived to be lower risk.
- On the flip side, uninhabitable properties may require a larger deposit due to higher lender risk.
2. Exit Strategy
- Bridging loans are short-term, meaning lenders will want to see a clear repayment plan (exit strategy) before approving it. The more fool-proof your exit strategy, the higher the LTV is likely to be.
- You will need to have your exit strategy thought through before you apply, so it’s worth thinking about how you plan to repay the loan before contacting lenders.
- Common exit strategies include:
- Selling the property
- Refinancing onto a long-term mortgage
- Repaying with other funds
In essence, a strong exit strategy can increase your chances of securing a higher LTV, reducing the deposit that is needed.
3. Credit History & Financial Position
- A good credit history may help you secure a better LTV and lower interest rates.
- A borrower with bad credit or outstanding debts may need to provide a larger deposit to reassure the lender.
- However, it is worth noting that one of the benefits of bridging loans is that they can be secured even if a person has bad credit. The exit strategy is one of the most important elements in this regard, so it’s worth taking seriously.
4. Loan Size
- Larger loans may need higher deposits, as they represent greater risk to lenders.
- Borrowers taking loans closer to £3 million may need to provide more than the standard 30% deposit.
How To Reduce Your Bridging Loan Deposit
If you’re looking to lower your deposit amount, consider these options:
1. Use Additional Security
Offering another property as collateral can increase your LTV and reduce the cash deposit required.
2. Improve Your Credit Score
A strong credit history may help negotiate better terms, potentially lowering the amount of deposit that is needed.
3. Improve Your Exit Strategy
Lenders prefer borrowers with a clear repayment plan. Showing that you have a strong exit strategy may allow for higher LTV approval.
4. Work with a Bridging Loan Broker
A specialist bridging loan broker can help find the best lender for your needs, potentially securing better deposit terms.
What Is The Minimum Deposit For A Bridging Loan?
The minimum deposit for a bridging loan is typically 20% to 40%, but with Blue Square Capital, we offer an LTV of 70%, meaning borrowers will need at least a 30% deposit.
Before applying for a bridging loan, make sure you understand the deposit requirements, loan terms, and repayment strategy to ensure the best financial outcome.
Need help securing a fast bridging loan? At Blue Square Capital you can borrow between £250,000 – £2,000,000 with an LTV of up to 70% in as little as 2 weeks. Get in touch with the team at [email protected] to find out more.
