For anyone wanted to take advantage of the flexible, short-term nature of bridging loans, it will be a relief to find out that the application process is not too complicated. With some guidance and preparation, it can be a pain-free process.
The initial conversation with a bridging finance broker
Before applying for a bridging loan, have a conversation with an expert here at Ascot Mortgages. This can be done by phone or in person.
Explain what you want the bridging loan for. The most common use for bridging loan is to quickly complete the purchase of a home while waiting for an existing property sale to go through.
In theory, a bridging loan can be for anything provided you that you know when and how it can be repaid and have an asset such as property to act as security it. Common uses of bridging loans are to complete the sale of property bought at auctions and to refurbish or redevelop property. Businesses can use bridging loans for short-term finance to purchase stock or equipment, or to cover expenses during temporary low cash flow periods.
After your Ascot Mortgage advisor has confirmed that you should be eligible for a bridging loan, you can start applying for a bridging loan.
Individuals and businesses can apply for bridging loans. All types of businesses are eligible, including sole traders, partnerships and limited companies. Landlords can apply for bridging finance to complete purchases of new buy-to-let properties, or to refurbish existing properties.
The initial acceptance
After the bridging loan broker has a clear understanding of what you want the bridging loan for, and is confident that you have a realistic plan to repay the loan, the advisor will approach lenders they think are likely to approve your loan application.
If successful, your loan application should be accepted within 24 hours or less. The initial offer will be conditional depending on a valuation of the property used as security and the legal work that needs to be done. The lender will also look into your financial situation. The borrower will need to provide a number of documents that need to be checked before a formal offer is provided by the lender.
After you accept the initial offer, you will be required to fill in a formal application form as well as proof of your identity.
The property used as security for the loan must be valued to make sure that it will cover the loan. This is normally conducted by a professional valuer, who will write a report about the condition of the property and its value. If the property has had a recent survey, the lender may accept this instead of appointing a valuer.
The borrower normally pays a fee for the valuation.
If you are an individual applicant, the property used as security should be your main residence. Landlords can use other rented property they own as security, and a business can use its work premises as security if it owns the building. Some lenders will consider other company assets as security, such as stock, the value of invoices due to be paid, or equity in the company.
Documents and checks
A number of documents will be required to support your bridging loan application. Individuals will need proof of their financial situation, and companies may need to submit their accounts.
The lender needs to be satisfied that the borrower has a realistic exit strategy, which is a plan for when and how the loan will be repaid. If the bridging loan is a closed bridging loan, there will be an agreed date for repayment. The lender will need proof that funds will be available for this. An open bridging loan has no fixed repayment date but is still a short-term loan that needs repaying within a set time period, rather than on one specific date. The borrower needs to show the lender that the loan can be repaid before it expires. There is no penalty for repaying the loan early.
The applicant will be asked to submit bank statements and pay slips that prove their financial situation. Some lenders will perform credit checks to assess how you well the borrower has performed repaying past loans.
Ascot Mortgages can help people applying for bridging finance to prepare and present the correct documents.
The formal offer and the start of the legal work
After all the documents have been checked and the valuation completed, a formal offer letter will be sent. The offer letter usually comes with a legal pack sent to your solicitor to action. Most lenders will allow you to appoint your own solicitor, but some may have a specified panel of solicitors to choose from. If you choose your own solicitor, make sure it is one who understands bridging loans and the short timelines required for the legal work.
After the formal letter has been received and all legal work has been completed, the loan money will be released. This is usually transferred to the borrower’s solicitor, who will transfer the money to complete the property purchase. If a company is using the loan for short-term cash purposes, it will be put into the company’s bank account.
How long does this take?
One advantage of bridging loans is that they can be arranged quickly. Traditional mortgages take about five weeks to arrange. Depending on how complex the bridging deal is, the time between starting the application process and having funds available can be a matter of days.
It is possible for an application to be treated as a priority. Provided that all the documents to support the application are ready, and the solicitor can work quickly, a priority application can be completed within 48 hours.
The bridging loan application process may seem complicated, but with guidance from Ascot Mortgages, it need not be stressful. If a bridging loan seems right for your current financial needs, contact us today to start the application process.