Full breakdown of all the costs for bridging Loans Fees
The purpose of this article is to give an overview of the Bridging Loans Fees payable when setting up Bridging Finance secured against property / real estate. The actual costs will depend on the size of the transaction, Bridging Lender and Product.
It pays to shop around and use a professional Finance Broker to find the most suitable product and to help negotiate should the Bridging Lender look to increase the terms during the process.
Some of these Bridging Loans Fees/charges are also subject to VAT.
DEPOSIT (Purchases only)
Of all the Bridging Loans Fees and costs, this is likely to be your largest outlay. The amount you need to put in is also deceptive and often underestimated by first time users of bridging finance. This is because of the need to borrow a gross amount to allow for the lender’s charges (and potentially interest) before you get to a net amount in your pocket). This is explained more in the Difference Between Gross and Net Figures On Bridging Finance Article INSERT LINK.
The other thing to mention in the case of an auction part of the deposit, typically 10%, is required in the early stages of the transaction.
TAXES
This is a large and detailed topic and I just wanted to make you aware of Stamp Duty, CGT, IHT may be applicable to certain transactions so you should seek professional Tax Advice.
BRIDGING LOAN VALUATION FEE
A bridging valuation is pivotal to the Bridging Lender’s decision to lend. The cost is dependent on the property value. In the case of a purchase, it is typically the price you are looking to buy at if it is a private sale. Otherwise, the property value is normally your own estimation.
This Bridging fee cost normally starts from a few hundred pounds and typically increases in accordance to a scale provided by either the Bridging Lender or the Surveyor.
Some Bridging Lenders empower you to shop around for a Surveyor but will typically limit choice to a panel they have used in the past and trust.
As well as the Open Market Value the Bridging Lender may ask for the value of the property if sold quickly in a certain number of days. Not all Surveying firms will be accustomed to providing “Restricted Day Values”; and this level of expertise, like Commercial Valuations, may move the price up.
PROPERTY RE-INSPECTION
If the Bridging Lender is releasing money in stages, such as a built project, then they may also charge an admin fee which is passed back to the Surveyor to cover their site re-visit costs
HOMEBUYER AND BUILDING SURVEYS
Whilst the Bridging Valuation is for the Lenders purposes higher grade surveys will provide insight from the buyer’s perspective.
SPECIALIST VALUATION REPORTS
Property developers in particular will buy properties to renovate. Electrical and Damp reports are common extras.
LENDER ARRANGEMENT FEE
Bridging Lenders position this fee as a “facility charge”. In other words, if they do not charge this payment it would not be economically viable for them to lend.
It helps the Lender cross-subsidise the rate, admin costs and any commission to the introducing source.
This is normally expressed as a percentage of the gross loan and normally ranges from 1% to 2%.
LENDER FEE
This Bridging fee charge is a flat fee i.e. set £ amount and is designed to offset the Bridging Lender’s administration costs of processing the bridging loan.
On bridges up to £500,000, this bridging fee typically ranges from £295 to £495 depending on the Bridging Lender and bridging product.
LEGAL COSTS
As a warning, the figures provided at the initial “Initial Terms” stage serve as a guide and can turn out to be quite different. This is because they are predominantly based on the key components of the conveyancing such as a number of properties involved, nature of the charge, property type, legal system in that country and tenure.
Later in the transaction, this will be refined to factor in the anticipated level of work involved and to include case specifics checks such as lease extensions, building regulations, planning permission, title changes etc. all of which are associated with short-term finance.
Importantly, the standard process involves you arranging your own Solicitor and also paying for the Bridging Lenders’ legal costs as well as yours.
Some Bridging Lenders offer what is known as “dual representation” whereby the same Solicitor acts for both sides. This can speed matters up and save money, but potentially detracts from the impartiality of the advice given.
TITLE INSURANCE
Bridging finance, by nature, is time sensitive. The registration of ownership at the Land Registry can take months. So rather than wait the Bridging Lender may choose to insure against getting a “bad” title. There is a lot at stake for the insurers so they charge accordingly around £500 to £700 is a typical charge for this facility and this is passed directly onto the borrower.
REPAYING THE BRIDGE
When you pay off the Bridge there could be an early repayment charge otherwise known as an “exit fee”. This could be either a flat or a percentage fee.
TELEGRAPHIC TRANSFER FEE
When the bridging fees are released they will be transferred electronically from the Lender to your Solicitor. This tends to cost between £15 to £75.
END STRATEGY
If you are looking to keep the property rather than sell it then you will need to consider remortgage costs, letting agency fees; energy efficiency, electric and gas certification; and an HMO property licensing.
I hope you found this article useful and if you want further clarification on bridging loans fees please do complete the below enquiry form
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