Bridging loans have been popular among investors and developers in Northern Ireland for some time. In today’s increasingly unstable economic climate, bridging finance has the potential to be uniquely beneficial.
What is Bridging Finance?
As the name suggests, bridging finance is a short-term funding solution, designed to ‘bridge’ temporary financial gaps. Bridging loans differ from most conventional loans and mortgages, in that they can be arranged and accessed within a few working days.
This makes bridging finance ideal for time-critical purchase and investment opportunities, covering unexpected costs and outgoings, when conventional funding solutions would take too long to organise.
Who Can Qualify for Bridging Finance?
Bridging loans are secured against assets of value – typically the home of the applicant, or a business property. This is the main eligibility requirement for bridging finance, as security must be provided to cover the full costs of the loan.
In addition, most lenders expect applicants to provide convincing evidence of a workable ‘exit strategy’. This means a clear indication of when and how they will repay their loan, typically 6 to 24 months after being issued.
What Are Open and Closed Bridging Loans?
Most bridging finance is issued in the form of ‘closed’ bridging loans. This is where a final repayment date is formally agreed between the issuer and the borrower, based on the applicant’s exit strategy.
Elsewhere, ‘open’ bridging loans are those with no specific repayment date. The facility is left ‘open’ for as long as it takes for the borrower to raise the funds needed to repay the loan. As open bridging loans are considered higher risk on the part of the lender, they can be more difficult to qualify for and typically attach higher overall borrowing costs.
Do You Need Proof of Income for a Bridging Loan?
Not necessarily, as bridging finance is not normally repaid by way of regular accrued income. Most bridging loans are repaid upon the sale of an asset or the receipt of lump-sum finance from another source.
For example, bridging finance is often taken out to purchase and renovate low-cost homes, which are then sold on at a profit. When the sale closes, the bridging loan is repaid and the borrower retains the additional revenues.
Whether proof of income is necessary will therefore depend on the applicant’s exit strategy.
What is the Maximum Value for Bridging Loans in Northern Ireland?
Maximum loan values are tied to the value of the assets used as security for the loan. Most bridging loans are capped at a maximum LTV of 85%, though some lenders will offer more than this in special cases.
If the assets you use as security are valued at £400,000, this would mean the most you could borrow would be £340,000 (85%). Higher-LTV loans can be more difficult to qualify for, but are widely available where assets of sufficient value can be provided as security.
How is a Bridging Loan Repaid?
Bridging finance is repaid in the form of a single lump sum payment on an agreed date, usually 6 to 24 months after the facility was issued.
How Much Do Bridging Loans in Northern Ireland Cost?
Terms, conditions and borrowing costs vary significantly from one product and lender to the next. Interest applies on a monthly basis – typically in the region of around 0.5%.
This interest can be paid monthly if preferred, or ‘rolled up’ into the final balance payable on the agreed repayment date.
How is Bridging Finance Different to Development Finance?
The biggest difference between the two facilities is that you do not need to be an experienced developer or investor to qualify for bridging finance. In addition, bridging finance is issued in the form of a single lump sum payment, while development finance is transferred by way of several consecutive instalments.
During your initial consultation, your service provider will help you determine which of the two facilities best suits your requirements.