Is bridging an expensive option?

When I mention bridging finance as a means of funding a property purchase most investors do that sharp intake of breath and, inevitably, say “Isn’t that expensive?”

Most people see bridging as an expensive option as the interest rates are much higher than a mortgage - but, for the smart investor, bridging is only expensive if you don’t use it intelligently.

If you:

• Have a big wad of money in your bank
• Have a full-time day job earning a good salary big enough to build deposits as fast as you need to add to your portfolio
• Aren’t fussed about making a big profit on the property you’re thinking of buying
• Don’t need to recycle your cash out of every purchase to continue building your protfolio
• Have a pristine credit record

You probably don’t need bridging.  However, if you can’t tick all of these boxes bridging offers a route to increasing the health of your bank account.

How much does bridging cost?

This is a bit like asking ‘how much does a car cost?’.  The answer depends on the engine size, the model, options included, the fuel efficiency and even the badge on the bonnet.

The cost of bridging will depend on:

• The property you want to buy
• What you intend to do with it
• Your current situation.

However, to give you a ballpark view of bridging costs, here’s the basics:

• Almost every bridger charges a set-up fee, most usually 2%.
• Monthly fees vary for a host of different reasons - location, property type, size of loan to name a few, but the variance is likely to be between 0.45% and 1%.
• Exit fees are not usually charged, but some bridgers do charge them and you need to check this out before agreeing to the contract.
• You will pay for a survey, or valuation, and also for the lenders legal costs.
• The term of the loan is your choice. Bridger's will have loan terms up to 12 months, some even longer than that. Bridgers have a minimum loan term too, often it is 1 month but other bridgers have a 3 month minimum loan period.
• The loan can be set up in days, but it may take longer to complete the legal work. How quickly that is done will, in most cases, be determined by your choice of solicitor.
• No single lender provides the best of everything on any deal.
• There is a plethora of minimum loan thresholds, each bridger sets their own and it can be anything from £50k to £250k for the majority of bridging lenders
• If you intend to refinance into a BTL mortgage, it would be prudent to take an 8 or 9 month term, no less, assuming the lenders you want to use make you wait 6 months.

If you’ve never used bridging finance before, the research is going to be a massive mountain to climb.  However, an experienced bridging broker will have a wealth of invaluable knowledge that will save you time, money and headaches. 

Remember that all mortgage brokers are not experienced in bridging loans (regardless of what they may say).  Some will ‘give it a go’, others will outsource it to someone else.  Don’t risk putting your funding in inexperienced hands - then bridging can end up being VERY expensive!

You need an expert who knows which lenders will lend on property value rather than purchase price, which lenders aren’t focused on your slightly spotty credit record, which lenders don’t run for the hills if you’re not meeting some mystical annual income from your full-time work, which lenders will fund your refurb costs as well as the purchase.

If you need some guidance - get in touch.

If you want more information, watch this video on my YouTube Channel