Bridging loans can be an excellent financing option for those who need short-term funding, often used to ‘bridge’ a gap between buying and selling properties. However, it’s important to understand that bridging finance comes with a variety of costs.
Here is a simplified breakdown of the different types of fees you might encounter when securing a bridging loan in the UK.
1. Interest Rates
The most significant cost of a bridging loan is usually the interest. Interest rates can vary widely depending on the lender, the loan-to-value ratio, and the borrower’s creditworthiness.
They are typically higher than standard mortgage rates due to the short-term and risky nature of bridging loans. Interest rates can be charged monthly or rolled up into a lump sum to be paid at the end of the term. Our team will be able to source the most suitable bridging finance loan for you.
2. Arrangement Fee
Also known as a facility fee, this is a charge for setting up the loan. It’s usually a percentage of the loan amount, typically between 1% and 2%. This fee can be added to the loan amount or paid upfront. Note that some lenders may charge more or less, it is always best to check with your broker.
3. Valuation Fee
The lender will need to have the property you are securing against the loan valued. This valuation fee varies depending on the value of the property, with more expensive properties typically requiring a higher fee. Valuation fees vary but you can expect to pay anything from £400 upwards.
4. Legal Fees
Both you and the lender will have legal fees, as both parties will need a solicitor to oversee the transaction. You will be required to cover both your own and the lender’s legal fees, which can vary based on the complexity of the transaction. Ordinarily legal fees range between £1200 -£1800. Again check with our team, as there may be a variation in how this is calculated.
5. Exit Fees
Some lenders charge an exit fee when the loan is repaid. This is also typically a percentage of the loan, but not all lenders charge this, so it’s worth checking the terms of your agreement.
6. Broker Fees
If you use a broker to arrange the loan, they will typically charge a fee for their services. This fee is usually a percentage of the loan amount and can be added to the loan or paid upfront.
7. Early Repayment Charges
If you repay your bridging loan earlier than agreed, some lenders may charge an early repayment fee. These charges can vary between lenders, so it’s crucial to understand the terms before signing.
It’s worth noting that many lenders no longer charge a fee. Whilst some lenders waive all early redemption penalties as long as you meet their minimum loan term which can be just 1 month! if you wish to pay off the loan earlier than contracted.for early repayment.
Remember, this is a simplified overview, and actual costs may vary based on your unique situation and the lender’s terms.
If you’d like to learn more about bridging finance and how this type of funding can help you purchase your net property then feel free to get in touch with our experienced mortgage brokers on 020 3645 4322.