I want the cheapest bridging finance but am not sure how it all works with the rates and other costs.
Bridging Interest Rates
The interest rates on bridging finance are charged on a ‘monthly’ basis rather than an ‘annual’ basis that is associated with most credit. The bridging rates typically range from 0.75% to 1.45% for residential bridges, and 1% to 1.95% on buy-to-lets or houses in multiple occupation (HMOS). So in annual terms the equivalent would be at least 9%.
Furthermore, there is not a strict pattern to acceptance unlike a mortgages offered by a building society as the rates are not taken ‘off the shelf’, they are instead by agreement and negotiation. The negotiation element should be handled by a professional broker on your behalf otherwise the rates will almost certainly be higher and could change at a critical point such as exchange or completion if the lender believes they can exploit the situation.
By definition Bridging Finance is a short term loan and the lenders will therefore look to maximize their return. It is the same concept as ‘Pay Day Loans’ but obviously not to the same extremity on price.
You are paying for a ‘quick win’ and if you plan to borrow the money for longer than 9 months I suggest you talk to us about alternative solutions.
What Are The Other Costs Associated With Setting Up Bridging Finance?
The lender normally charges a ‘facility fee’, typically a percentage of loan, ranging between: 1.5% and 3%; and a admin fee of up to £500.
They will also ask you to cover their legal representation, typically £350 to £800 excluding vat and disbursements (stamp duty and searches).
You will also need to demonstrate the value of the property(s) that they are to lend against. This is nearly always achieved by paying for the services of a surveyor, who although ’independent’, will have the lenders interests at heart as that’s the hand that feeds them. The survey may need to include ‘a fire sale price’ and confirm likely rental income in the case of a buy-to-let and HMO. Surveys normally start around £300 for small properties and about £900 for properties worth circa £1m.
How much do Professional Brokers charge?
Professional bridging finance brokers typically charge between 0.5% to 2% of the loan size depending on complexity of the deal. The more reputable brokers, such as Niche Advice, do not charge upfront fees as this demonstrates they will add value and can help. Good negotiation and positioning of the application will make this worthwhile and affectively self financing.
Summary Of Bridging Finance Costs
|TYPICAL COSTS||MAIN RESIDENCY||BUY-TO-LET or HOUSES IN MULTIPLE OCCUPANCY (HMOs)|
|Rates||0.75% to 1.45% per calendar month||1% to 1.95% per calendar month|
|Lender Facility Fee||1.5% to 3% of the loan size||1.5% to 3% of the loan size|
|Lender Admin Fee||£0 to £350||£0 to £500|
|Survey Fee||Starts from £300 and rises in increments dependent on the property size. Typically £100 more for every £100,000 in value.||Starts from £450 and rises in increments dependent on the property size. Typically £100 more for every £100,000 in value.|
|Broker Fees||0.5% to 1.5% of the loan size||0.5% to 2% of the loan size|
For more information on how we can help with your Bridging Finance requirments , please contact us on 0207 993 2044 or alternatively complete the simple enquiry form on the top right hand side of this page.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines.