As a way to access a large amount of money quickly, bridging loans have grown in popularity in recent years but why do bridging loan rates UK vary so much?
The answer is really straightforward and it’s down to this type of alternative finance attracting lots of lenders with their own lending criteria.
The bridging loan rates will vary depending on the amount being borrowed, the purpose of the loan and other issues as well.
The loan rates will also be affected by the security property’s value and its location, the loan’s LTV (loan to value) and whether the loan is going to be a first or second charge. Some lenders will also forward money on third or fourth charge loans.
Best bridging loan interest rates UK
The best bridging loan interest rates UK, for example, tend to be for a loan with a low LTV value on a prime property; some lenders may offer 0.45% per month in these instances.
That’s the rate for a loan with a first charge and for those with a higher LTV then borrowers could be looking at a 1% per month rate and more than this for a second charge.
However, the interest payments on bridging finance can be ‘rolled up’ and paid when the loan falls due.
There’s no doubt that while bridging finance offers a quick way to access large sums of money, there are costs involved.
One reason for this is that bridging finance will not involve the lengthy checks that a high street lender may undertake but it does mean this convenience comes with a price tag.
For example, most bridging finance lenders in the UK will have an arrangement fee that can range from 0% to 2%.
Using a broker to arrange your bridging finance
Also, if you are using a broker to arrange your bridging finance they may also charge a fee that could range from 0.5% to 1%. This depends on the loan size.
Other costs include legal fees but these will also vary depending on the size of the loan being requested and the complexity of the transaction.
The borrower will also need to pay for the lender’s valuation fees, which means a surveyor will need to assess the property being offered a security.
In addition, some bridging lenders have an exit fee when the loan is repaid and this could be up to 2% of the total amount. These exit fees are rare so it is worthwhile shopping around to find a lender without exit fees.
Bridging loan rates do vary between lenders
As we have seen, bridging loan rates do vary between lenders so it could be time well spent to shop around various providers and also to utilise the bridging loan calculator that many have on their websites.
The calculator will spell out whether this type of finance is for you and what the costs will amount to. Using one of these calculators is highly recommended and they also offer a great way to compare offerings between financial products.
The big issue for bridging loan rates is that they tend to be of a higher interest rate than a traditional lender will offer. This also helps explain why most lenders offer money for up to one year, and in some cases up to two years.
Bridging finance is a short-term facility to help plug a financial gap for firms and other borrowers and helps explain why they are particularly attractive to property buyers.
Landlords looking to develop their buy to let portfolio
For landlords looking to develop their buy to let portfolio, bridging finance offers a way to do this by leveraging their property’s equity and it’s also a way for someone to buy property at auction.
For example, there is a deadline to meet between making a bid and having to deliver the money to ensure the buyer actually takes possession of the property and a bridging lender can accommodate these requests.
Indeed, it’s this quick turnaround that helps make the big difference between this type of alternative finance and what traditional high street lenders offer.
This level of customer service and an understanding that the money can be used for a wide variety of purposes has helped to fuel the popularity in bridging finance, particularly since traditional lenders have tightened their lending criteria in recent years.
If you want to know more about why do bridging loan rates UK vary so much, then it’s time to speak with experts at The Bridge Crowd.