Bridging Finance Explained - How Long It Takes, How Much It Costs & How To Repay The Entire Loan

welcome back everyone to another video my name is Leah and I'm AK and if you're new here then we make videos all about property investing business and working together as a couple in one of our latest videos how to use bridging Finance to buy an investment property we got a lot of comments on that video so we have decided to do another video with the most asked questions about bridging Finance but before we go into the most asked questions if you haven't already please check out our website linked below property couple. co.uk where you can sign up to our newsletter for more advice and tips on property investing so let's get into [Music] it so if you are not already familiar let's start with what you might use bridging Finance for it could be that you're maybe purchasing a new home before selling your current property it could be that you've just acquired a property through auction and worth noting that the period between exchange at the auction and completion is usually 28 days it's always worth checking so bridging Finance can help you get that money fast or maybe you're financing a renovation on a property like you've seen us do quite a few times now or perhaps you're undertaking a land or development project something bigger bridging loans are both regulated and unregulated and when I first heard the term unregulated to describe a bridging loan that we were entering into I did Panic a little bit but don't worry we're going to explain the difference between a regulated and unregulated bridging loan so a bridging loan is regulated if the security property is going to be occupied by the borrower so for example if you're buying it and you planning on living in it then that kind of bridging loan is for a homeowner it's backed by the FCA Financial conduct Authority and it can be used to perhaps help you if you're buying your next property before your last property has sold so bridge that Gap bridging loans that are not regulated are loans where the borrower will not occupy the security property and it is used for business purposes so investment properties for example now these are definitely more common type of bridging loans and are used by people like us as property investors to acquire land properties and fund works so in this video we're going to be focusing on unregulated bridging loans and the word unregulated in relation to bridging Finance is nothing to be worried about it simply means that the property is used as security for the loan for business purposes and therefore it doesn't require the fca's protection because a consumer is not personally involved now remember your due diligence is always needed make sure you completely understand the charges and the terms and conditions before you go through with anything so one of the most asked questions is how long will it take to get the funds and one of the best things about bridging loans are that they are super quick to arrange sometimes within days possibly the fastest method for getting Finance would be through llord's bridging Finance tool for those of you that are not already familiar Lendl is an all-in-one platform that makes property investing easy and there are so so many features to use on the platform but today we're going to focus on their digital lending for financing your property projects using llord you can find out if you are eligible for a bridging loan and if successful have funds land in your account in as little as 5 days so the way it works is this so the first thing you would do would be to fill in a short questionnaire and review the heads of terms then you'd have to upload all your relevant documents The Next Step would be allowing for legal processing and the final step would be receiving your funds chick Ching sorry chi ching so check out the link in our description box to join lenord for free and get a 40% discount on a premium upgrade when using our referral link thank you to lenord for sponsoring that part of the video now the next most popular question is is bridging Finance available to me if I do not have any income this is a great question it is and the answer is no next chapter no I'm joking well the answer is uh yes bridging Finance can be available to you although most lenders require some income proof a bridging loan is normally arranged with all fees and monthly interest payments added so no monthly payments to make so this aspect normally removes the need for you to prove that the loan is Affordable by your income what you're getting monthly obviously every lender is different in our experience it is usually based on the deal itself rather than your personal situation of being it able to make the monthly payments another popular question is how do I repay a bridging loan bridging loans are always arranged with the first question being how will the loan be repaid so Brokers and lenders will put a huge amount of emphasis on this point and if the exit strategy does not sound feasible or make sense then usually the lender will not allow the loan to go through acceptable exit methods are more often than not sale of property or refinance so if the sale is the stated exit route then the lender would expect uh agreement that the property to be sold would either be on the market prior to the commencement of the loan or on the market within a specified time frame such as uh following the completion of all the renovation works for example if the exit route is listed as refinance then lenders will do much more due diligence beforehand to ensure that this is a possibility I.E the lender will perform checks to ensure that the client's credit is likely to be good enough to achieve a refinance at the end of the term and that the income is sufficient to raise enough funds via a refinance to repay the bridging loan plus any acur fees or charges so even with very careful underwriting it is inevitable that some loans will overrun the term agreed as not everything in property goes to plan as we've seen firsthand lenders will normally contact the borrower around 3 months before the end of the term and they'll just ask you how's it going you want track to pay us back uh how's your exit strategy coming along yeah and actually the project previous to the last one we've just done uh that was the case because we were overrunning we had some problems in terms of our Builder's health and things like that and things were running well over the project timeline and they we were in constant contact with them in terms of the delays and that sort of thing so yeah it definitely happens next big question is what happens if I don't pay back the loan on time now if the lender believes that the exit is looking unlikely then they will normally make recommendations you know one of these recommendations for example if you were selling the property if you were doing a flip strategy would potentially be to maybe drop the sale price mhm so long as the sale price could cover everything that they owned back exactly but the lenders clearly want the loan repaid um as per the offer but normally you know they'll work with you the borrower if it has overrun provided that you're keeping in regular contact with them like AK said in our previous example when that did happen to us yeah and and it does feel uncomfortable and um you kind of feel like you're being put on the spots slightly but it's it's so important to work with them because they they want to work with you they you know they don't want things to go down the route where you know it becomes very difficult and you know you have to um go through Court proceedings or you know move onto something like that for example so it's really important to just be as transparent as possible and communicate as much as you can exactly they just want to work on an action plan and on that note we would always suggest taking out a bridging loan for the longest term available I think the longest ones I've seen are 18 months everything we've done so far has been 12 obviously we have run over and it's this is what happens you have a time frame and often things overrun so i' would always say and this is not Financial advice but this is just speaking from experience we like to take things out for the longest period possible now so let's talk about interest now this isn't a question per se but I did want to include it it's to do with uh bridging lenders charging interest in three different ways so the first way is monthly you can make monthly repayments while the overall amount of the loan stays the same second way is deferred interest where the interest is not paid off monthly instead it is added to the final amount which is paid off at the very end of the loan like a tab yeah STI on the tab and the third is retained interest so this is the total interest that is calculated at agreed rate at the start with the lender so is then added to the total bridging Finance figure in our last bridging video we spoke about the interest getting deducted up front and we also wanted to mention you know these alternate options since we got this lovely comment from one of our viewers so Andy said thanks again for the content probably worth mentioning to the audience that the interest on a bridge does not have to be retained by the lender could also be rolled or capitalized where it's then added to the loan and paid off at the end or serviced where is paid off every month he said he's used both options so we just wanted to cover all of those here even though we've only ever experienced it has retained interest cool thanks for sharing that as well Andy the next question is what is the average cost of a bridging loan well here's a recent example with llord on their website showing approximate fees on a 150k bridging loan so you've got £3,000 here in Arrangement fees a valuation fee of £220 legal fees TBD to be decided but we usually budget around 1,500 or 1,200 plus vat for legals tubed and then it says TVD it's so funny cuz imagine if you're like legal fees tubed sorry sorry Sor and then um and then then we've got an admin fee here of £495 so you know in our last video we did share all of the fees that we've been paying on different bridging products so if you haven't already you can click on that video in the cards to watch the breakdown of costs it's also worth mentioning that nobody said that this was cheap but it certainly is fast and usually that is what you are paying for you're paying for Speed with this type of Finance that's absolutely right this isn't cheap but it's fast and usually speed is what you need especially when it comes to things like auction Finance yeah it's a tool like and if you if you know how to use it it can be super super effective so we hope you enjoyed this video um don't forget to like And subscribe we'll see you in our next upload see you in the next one bye [Music] bye

Channel: Property Couple

Views: 3,582

Keywords: uk property, uk real estate, uk property investor, how to start investing in property, buy to let, HMO, hmo conversion, property investing, UK real estate, wealth building, property investment tips, real estate entrepreneurship, financial success, property portfolio growth, financial freedom, UK property market, property investment strategies, entrepreneurial journey, real estate partnerships, business and life balance, personal finance UK, property

Id: GLwByDgdrDk

Length: 10min 31sec (631 seconds)

Published: Sun Mar 24 2024