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Mint Take The Stress Out Of Securing A Bridge Loan
At Mint Bridging we understand that time can be key in ensuring a bridge loan is delivered quickly so that cashflow, key investment stages, and payments are met. Our fast acceptance period is one of the key reasons why we have seen year on year growth over the last 10 years because at the front of all our financial decisions are you the lender.
At every stage of your journey, we look to put efficiency and speed of service in place to ensure our lender s and brokers can gain access to finance without the need for lengthy red tape. From our finance options built for speed like our no valuation simplicity offering through to our industry-leading finance underwriters, we are built to take the stress out of gaining access to competitive finance with built-in speed of service at every stage of the application process.
Award winning bridging finance company
Mint Bridging have recently been awarded the prestigious ‘What Bridging Lender of the year 2019’ ; this highly coveted award within the financial sector highlighted our specialist services from transparent underwriting, dedicated account management right through to being recognised as a preferred option for first time developers as areas that set us apart from other lenders within our field.
What is a bridge loan
A bridge loan while for a number of years has been seen as a method of financing which received the bad reputation of being a risky financing source. As this financing a source and also lenders have evolved over the years this could not be further from the truth. At Mint especially we have all the measures in place to ensure complete ethical lending to our customers but also the infrastructure to ensure our borrowers have the infrastructure in place to maximize their end goal results.
As stated previously bridging finance has evolved over recent years and from the staple of short term lending for property investment there has also been a rise in the number of companies using this funding source for short term raising of capital, refinancing, pensioner bridging loans amongst others. There has been a rise in the use of bridging finance since a large number of financial institutes have fine-tuned their lending criteria making it more difficult for businesses and individuals to access short term finance.
Bridging loans are not typically set up in the standard monthly repayment structures and are more likely to be set up with payment on interest being paid at the end of the loan for interest accrued throughout the agreement period.
This is unlike a development loan that can be based on key investment/development points within the time period and as such bridging loans have been referred to as “interest-only loans”. Another plus for this type of financing product is that the borrower is not subject to early repayment fees, unlike more conventional financial loan offerings. As such it is in the best interests of the borrower to complete the loan as soon as possible to avoid additional finance charges.
What bridging options are there
There are primarily two types of bridging loans which are an open bridging loan and a closed bridging loan. An open bridging loan is a method of property finance that is utilised by borrowers who want to purchase a new property prior to exchanging contracts on a property they already have control of that they wish to sell. A closed bridging loan is when a lender knows exactly how a loan will be repaid at the end of a term essentially this is when the exit strategy for the loan is clear from the outset, this could be in the form of a property sale or when the borrowers is clear on when the funds will arrive.
It is for reasons like this that we attain a 98.5% redemption rate which vastly outperforms the industry average.
What can a bridging loan be used for
What a bridge loan will allow the borrower to do is utilise an asset whether this is an existing property or an initial amount of cash to secure against the loan in order for the lender to underwrite the loan. The amount the lender will provide to the borrower will be based on the amount of security they are looking to put up against the requested loan amount. Should the lender not wish to meet the full amount requested then the borrower can add in supplemental security in the form of secondary assets be these additional properties or cash. Property can be in the form of both residential, commercial or a combination. One of the key benefits of a bridge loan compared to a conventional loan is the ability of the borrower to be adaptable to meet the lender’s security requirements in order to certain the short term finance. Typically to limit risk from the lender’s perspective they will look for the security of a closed bridge loan in order to get a definitive repayment date. If the borrower can provide this then they are far more likely to receive a more attractive interest rate.
This funding solution is heavily utilised within the property development, while not discounting against any sector the parameters of this financing solution offer the perfect criteria for short term loans.
What are the factors underwriters use to measure bridging finance risk
Factors that can also play a part in whether a loan is approved are the time frames requested. Bridge loans as stated are short term and typically range from 6 – 18 months however dependent on the lender these can be shorter and longer. It is not uncommon for a business to ask for a bridge loan as low as 1 month, or even as low as 1 day has been known. Reasons for this can be varying from a business tax bill to pay, through to securing a deposit in a new premise, whatever the case may be what is significant is adaptability that a bridging loan provides to companies in need of short term finance.
Typically Mint does lend to these timeframes but due to the nature of putting our customers first, we do regularly put bespoke lending packages together for our borrowers.
Naturally, the most important factor which drives any bridging loan is the amount required by the borrower, within the sector the borrowers can look to secure finance from as low as £10,000 all the way up to £10M. Mint sits in the middle of this market offering finance ranging from £50,000 to £5M with the amount eligible to be borrowed based on the terms provided.
How the bridge loan process works
While on the surface bridging loans can appear to be complicated and even off-putting to new investors the truth is they are actually quite simple and straight forward. To illustrate this further we have laid out an example of how such a loan can be structured. In this instance, we will base it on the borrower looking to raise finance for a new property using the security of an existing process as the first charge:
Current property value : £300,000
Existing mortgage remaining : £150,000
New property purchase price : £450,000
Presently the mortgage provider gave you an 80% LTV (current property) : £240,000
Amount from £240,000 used to pay off the new property mortgage : £150,000
Now the remaining of £90,000 will go towards costs of arranging the bridging loan and as a downpayment on the new loan
It is worth noting that on the majority of bridging loans the amount of interest you pay can be restricted by completing the loan early. In the instance, above if the loan was initially taken out over a 9 month period but was repaid within 6 months then the loan would complete early without the need to pay the additional 3 months interest. Such repayment restructuring can not be applied to funding options such as a cash-out refinance loan as this will always contain a closing payment irrespective of whether the borrower completes the loan early.
On most bridging loans, interest is normally only liable for the amount of time that the loan is used i.e. if a loan is arranged for 12 months but repaid after 3 months and 6 days, interest is usually charged and repaid on the loan for the 3 month and 6 day period and not for the full 12 months.
By utilising a bridging loan as outlined in this scenario it means that the borrower is able to secure the new property. On a day to day basis, such instances as securing a new home and also securing land or property at auction where speed of funds is essential can be seen as a plus for undertaking a bridging finance application.
Example Bridging Interest Rates
The below example is based on a £100,000 bridging loan
|Interest Rate||Monthly Interest|
What are the advantage of a bridging loan
. Quick financial funding solution i.e. allow you to move into or purchase an investment property prior to selling an existing property
. Adaptable finance: the borrower can use a variety of security options in order to secure their finance
. No Valuation: in some cases, lenders may provide financing without the need for a valuation on the new property or land to take place. Mint provides this in the form of our simplicity offering, contact us for further details.
. Vastly reduced contingency costs: eradicate costs such as storage, any idle time costs for workmen, temporary living costs if you plan to live in the new property.
. Project management: while not every lender will provide this there are specialist lenders such as Mint who will provide professional client management services which is geared to help project delivery timescales for investors/developers.
What are the disadvantage of a bridging loan
. Reputation: Bridging finance has historically received a bad perception from the financial sector with financial advisors warning against them, however, the reality is the solutions have now evolved significantly and provide a vital source of short term financing to the UK economy.
. Interest repayments: repayment can be deemed high, however, this should be offset by the fact that it is a short term loan and you will not be paying repayments for years but rather months
. Speed of sale is key: whether selling your previous home or property development efficiency of sale is important. This is why dealing with specialists like Mint is key as we always work with our lenders at every stage to ensure significant safeguards and security are in place for not just us but also the borrower.
. Chances of repossession: this is similar to a conventional mortgage or loan in that you need to keep up with your repayments. It is in circumstances where there is a chance of a loss of an asset that working with a lender like Mint is critical as we.
. Incurred payments if the sale falls through: the borrower will be subject to any incurred costs during the buying process should the purchase of a property fall through
Who can apply for a bridging loan
There are varying reasons why a bridging loan may be considered the preferred option of finance compared to a traditional loan but not all cases will be accepted. Different lenders will look for certain degrees of security with this differing from lender to lender and it will not always be based on financial circumstance as many lenders will also take into account the individual themselves and there experience within the field for which they require the loan. For instance, many lenders will view first-time property developers as a substantial risk and likewise adjust risk accordingly. At Mint Bridging due to our experience within this sector and our internal processes we are recognised as a first-time investor funding specialist. Key areas that a lender will look into are:
- Entity : Companies or individuals
- Collateral : Anyone with equity in their property or an available cash deposit
- Income status : Clients who can prove or cannot prove available income
- Credit Rating : Clients with an excellent or unfavorable credit rating
- Employment status : Clients who are unemployed, employed or self-employed
Why would a bridging loan be refused
- Credit rating: While impaired credit rating isn’t always a factor the level of borrow rating in combination with other risk factors can deem the risk of the application to be too high.
- Purchasing property: A lender may choose to refuse an application should the property being purchased being in need of a mass amount of development and the degree of refurbishment is either adjudged to be too much of a risk or the timescales requested are deemed insufficient to meet completion in time for sale.
- Applicant age: The borrower is older than the age threshold accepted by the lender
- Classification of development: this can come down to whether the development is regulated and unregulated. Due to the FCA implication of borrowing to regulated developments lenders may choose only to borrow to unregulated developments.
- Level of liquid collateral: If the bridging finance is to be constructed of not enough cash and is to be built with primarily or completely from assets via first and second charges then the borrower could refuse the application or place much more stringent conditions on the loan.
- Sale conditions: if the borrower is only focusing the sale towards no chain buyers for a hassle-free sale then the lender can deem this as a risk as increased timescales could unnecessarily be applied to the time it takes to sell.
- Type of development: Your application could be refused should you be looking to invest in or personally develop an off-plan development due to the increased risks and timescales that can be associated with such builds.
- Number of charges: Your preferred lender may not wish to accept more than a first charge and as such will refuse to construct a bridging finance package that includes second charge and third charges involved within the construction of a loan
- Averse to process: given the nature of the bridge financing process the applicant should accept that the financing of such loans can be time-consuming from certain lenders given the application, underwriting and legal process which constitute to putting a deal in principle in place to the borrower. (Find out more about Mint Simplicity and it’s the ability to drastically reduce the application process)
- Liquidity: if liquidity is of a deposit is not accessible due to being tied up in the sale of another property thus affecting the level of borrower contribution this could be a significant factor in the loan application
- Loan Requirement: Certain lenders will want to stick to the property development environment and as such will refuse business finance loan applications from different sectors. Also, should the loan be to pay for large business bills or even to fund second charges of the additional loan then they are likely to be refused.
- Borrowing Term: Not all lenders work to short time scales with 3 – 6 months being the minimum period a lender will borrow from.
It is worth bearing in mind that in many of the potential refusals highlighted above that speaking to the lender directly such as Mint could lead to a resolution being reached. So should you fall foul on one or a number of the above factor don’t completely discount your ability to raise the finance.
How do I know if I will be eligible for a bridge loan
In order to strengthen your chance of securing your desired bridge loan amount are you able to answer yes to the following points will improve your eligibility
What are the different types of bridging finance
Bridging finance while having evolved over the last few years to be more adaptable to the investment and business financing market does on the whole stick to the main financing options can still be classified as closed bridging and open bridging structures.
- Open Bridging Finance: typically this is a property financing solution open to individuals and businesses looking to purchase a property prior to selling an outstanding property that will look to fund the new property investment.
- Closed Bridging Finance : this classification is when there is a clearly defined repayment period and as such the lender isn’t reliant on an asset being sold to repay the loan amount.
There are additional funding consideration a lender will build into the risk when a borrower classifies the type of loan they require:
- Is the finance for a regulated bridge loan : this is when the borrower applies for a closed or open funding option but they are purchasing a property with the intention to live in the property once this has been completed. Due to FCA regulations involved with the property being the actual place of residence of the borrower understandably there are significant changes to the legal terms for both the lender and the protection of the property for the borrower.
- Is the finance for an unregulated bridge loan : typically this is the preferred method for most lenders as the red tape attributed to legals and underwriting can be more straight forward and also the risk to the lender is substantially reduced. From the borrowers perspective, the significant benefit for this can be the speed of acceptance and also the same property if desired for an unregulated loan is likely to receive more favorable terms.
What you are likely to find is that funding an unregulated bridge loan can be significantly easier and faster to complete with the vast majority of lender compared to funding a bridging loan which is regulated and classed as open.
Can a lender cancel the bridge loan
As with any financial agreement the borrower and lender are both legally bound to the conditions for which the agreement was legally agreed. In instances where the bridging finance agreement has been broken by the borrower then the lender is within there rights to cancel the agreement. The borrower should, therefore, pay special attention to reasons below as to conditions that may deem their agreement to be able to be canceled:
- Agreed development timescales significantly over running
- Allocating funds to un-agreed areas of development
- Sitting on funds and not utilising
- Changing the use of funds for a new project
Mint care and assistance
Mint Bridging are recognised within the industry for our customer service and ethics of funding. We always place borrower welfare at the forefront of our decisions it is for this reason that any client of Mint has the following privileges attributed to their case:
- Direct access to under writers
- There own personal project manager
- Access to Mint valuers throughout their development
- Access to Mint quantity surveyors
It is this attention to detail and client care which has seen Mint’s position within the sector recently awarded as the ‘What Bridging Lender 2019’. Mint’s internal practices continue to adapt and evolve to our market and clients as we continually review all processes and service to provide a best in class offering to our customers.
What are the alternatives to a bridge loan
A Home equity loan is regarded as one of the most common alternatives to a bridge loan. Home equity loans apply a second mortgage on your home, this equity then forms the collateral for the borrower’s new loan but due to criteria around such loans, the borrower may find it difficult to acquire such a funding solution. One of the key criteria is that the borrower has a good credit score which for an investor/developer who consistently has finance deals in play across different developments can mean acquiring such a loan can be difficult.
An additional issue with home equity loans is that you can have additional loans in play requiring monthly repayment and as such should you have more creditors to meet and should you struggle to sell your property you will be left with multiple lenders to repay. Further to this you will need considerable cash flow to meet multiple loan obligations meaning that your ratio of debt to income is substantially increased.
Another alternative is a ‘Cash Out Refinance’ loan which converts one mortgage into a large one, again one of the main stumbling blocks here for investors is the level of credit rating required ignorer to secure such a deal. Also you may need substantial equity in order to secure such finance, you will also need to pay closing costs.
Mint succeed where other lenders don’t
We recently completed a case for a borrower who had previously been denied a bridge loan. The borrower turned to mint who played their fears about the loan being to complex and also that we would be able to meet their extremely short time scales to complete on a property. Due to our superior financial structure and speed of service borrower had funds deposited in their account within 5 days:
Key Finance Highlights
Bridge Amount: £545,000
Days To Complete: 5 Days
Purpose of Bridge : Property Purchase
Loan To Value (LTV) : 62%
Time to acceptance: 2 Hours
Valuation : Within 24 Hours
Asset Manager Appointment: Within 24 Hours
One of the key attributes of Mint Bridging is our proactive nature to thoroughly review all case in an efficient timeframe and to never take a case at face value. This is just one of the reason that minute is so highly regarded within the lending sector.
Simple 4 step application process
Clients contacts Mint by phone, email or online submission
A junior underwriter reviews the claim and discusses the case with the client and forwards this to an underwriters
3.Case Accepted & Underwritten
Senior underwriter provides agreement in principle for a legal team to review and complete
4.Legal completion and fund deposited
One both set of legals have been agreed funds are deposited into the clients designated account
Most frequently asked bridge loan questions
While all companies may handle the clients differently at Mint Bridging once you have been onboarded you will have been already introduced to your underwriter, likewise, your project manager who will be your point of contact going forward will have leased with you regarding valuations, statement of work and much more. The project manager is an invaluable asset who can provide experience to aid in meeting your goals and time schedules of your project.
We personally do not ask for any application costs but should you be accepted then dependent on the deal in principle offered you could pay between 1-2%. This is however only payable once you have accepted the loan and funds have been deposited.
There can be additional cost attributed to valuations of properties at various stages of the development. Mint Bridging also provides free of charge access to project managers who aid in the delivery of client projects.
You can contact Mint bridging direct over the phone, via email or by completing an online eligibility check, then once we have your loan requirements we can begin the application process.
Given the amount of due-diligence done nay the lender and also possibly the broker if one was involved the most important aspect which will have been covered of first is how do you expect to repay the loan and within what time frame. Failure to meet clear guidelines set by the lender on this will mean the bridging finance would fail.
If the sale of a property is the expected method of exit then it is very common that after the statement of works the lender and borrower would leave a small amount to fo time which they agree on within the loan 1-3 months whatever the case maybe in order to have ample time for the property to be sold.
If they list refinance then numerous due-diligence checks will be done by the lender to ensure the client will be able to retain a good credit rating in order for this to be secured at the end of the agreement.
At Mint Bridging we stay in regular contact with our borrowers so that if an exit is looking unlikely 1,2,3 months prior to the end of the agreement then we can begin to put safety measures and put recommendations in place to ensure either the loan is complete or an extension can be granted (but this will be based on numerous factors being met).
This is where getting your time scales correctly is vital to the profitability of your project; by working with Mint Bridging we can assist borrowers at every stage of the funding and development process to ensure their projects goals have an increased degree of success compared to our competitors.
The majority of lenders will require a certain degree of proof of income (this can vary from lender to lender). Typically the structuring of bridging loans sees all interest and payment dates included within the agreement hence a typical monthly payment schedule is not the norm. It is this type of structuring which reduces the need for substantial proof of income.
Certain Bridging loan lenders can arrange a second charge bridging loan by securing their interest by way of an “equitable charge”. An equitable charge still fully secures the bridging loan lender but importantly does not require the authority or permission from the first charge lender prior to entry onto the land registry documentation.
This can vary from lender to lender with rates ranging from 0.4% – 1.5%, but ultimately this will be dependent on numerous factors. For instance, Mint Bridging have a starting rate of 0.43% which again is attributed to certain property purchases. Contact us for further information or apply via our online eligibility check to see what you could be eligible for.
Once the application process has been verified by both sets of legals then borrowers can have their funds deposited into their accounts. This can occur as fast as 5 working days depending on all key areas have been satisfied by both parties.
This is a method of finance for development projects which are generally used for projects which are being built from the ground up. The majority of the finance for the development will be from a primary lender with the remaining funds being made up vis the developer and the mezzanine lender who will take a second charge for security.
While this is not an initial refusal for a bridge loan as there are many solutions available if a borrower has previously had financial constraints. The borrower must just be prepared to ask additional questions if required around such instances.
The short answer is yes as at the forefront of most lender decisions is the security being put up for the loan. However, more ethical lenders like Mint may ask a few additional questions at the application stage just to ensure that the borrower can meet the timescales obligations.
In this instance, the property would be eligible as it is not totally uncommon to even have third charge security in place assuming there is enough equity within the property in question.
This is a security measure which is put in place by lenders and requires that the property has to be owned by the current owner for a minimum of 6 months prior to being remortgaged. This is down to lender preferences and circumstances as a number of lenders will waive this condition. The 6-month rule can sometimes cause problems if the property being sold has not been owned for more than this period.
The vast majority of bridging loans do not have early exit fees applied to them as this is one of the key benefits of taking out such a loan. However, if this is applied it will be explained clearly at the outset of the agreement in principle.
If a borrower’s existing bridge finance gets to the point where it is deemed insufficient then they will need to apply for an extension as not to go into default. Now it is up to the lender whether they grant additional funding within the extension and if they also actually grant the extension. This can come down to the amount of equity that has built up within the property being developed and also if you are open to adding more security to the loan.
They can be secured against a residential property, commercial property as well as land and building plots. What can also be advantageous is that if the borrower contribution with the applied second charge does not meet the lender’s requirement, lenders may look to combine multiple assets together within the second charge.
With many lenders they would actually prefer to lend to a business rather than an individual, this is mainly due to the risk and an increase in FCA related risk attribute to providing funding to an individual.
Typically applications can be processed with an outcome within 1-3 hours with a decision in principle outlining the structure of the bridge loan within 48 hours.
At Mint Bridging we work within a budget of £50,000 to £5M. But there are lenders that will borrow from as low as £10,000 right through to £100M.
While on the surface both these forms of finance can appear to be the same due to both being associated with short term funding and being also heavily utilised within the property development sector.
With a bridging loan once the development has finished then refinancing in order to repay the bridge is undertaken by arranging a mortgage over a longer period of time is done or the property will be sold.
With development finance these tend to be taken out over a longer period of time, also the way in which the loan is structured is different due to funding being released at key development points of a project. Also, greater emphasis may be placed on the borrower and there experience within the sector.
“Our client had funded their development with a well-known bridging lender. The development of apartments were all completed and on the market for sale but the current lender refused to extend the term and instead was threatening an LPA receiver. We successfully worked with Mint to refinance the loan, providing our borrower with enough time to sell the flats and realise their profit.”