Are bridging loans expensive? All your financial concerns addressed

When it comes to expense, it’s all relative. Bridging loans, alternative forms of flexible finance to those found on the high street, can be costlier than their mainstream counterparts. But this expense is short-term in nature. Those asking the question why are bridging loans so expensive may want to take a step back and take a more long-term view. In truth, the question of ‘are bridging loans expensive’ may be a bit simplistic, all things considered.  Bridging loan terms typically last mere months and are designed to be exited quickly onto traditional finance or by other means, such as selling an asset.

Investors need to remember that while there may be cheaper deals on the high street, there may not be a traditional mortgage or long-term solution suitable for their individual circumstances – especially if they are complex. Mainstream lenders pulled deals and tightened their criteria as the economic climate shifted, and this left some borrowers without the finance they needed to continue with their plans.

Specialist lenders were there to fill the void. Bridging loans can provide investors with fast and flexible finance for their residential and commercial investments.

Most of the time, borrowers use some form of collateral as security, such as real estate or stock inventory. The lengths can vary depending on the bridging lender involved. At Market Financial Solutions, for example, our loan products are available from 3 to 24 months and are secured on property only.

Bridging loans can be difficult to understand, and many of our clients often ask, ‘why are bridging loans so expensive?’. As such, this blog will investigate their various fees that can incur. We’ll examine how expensive bridging loans are, and how investors can assess the expenses involved.

Are bridging loans expensive?

Like any loan, the interest rate and the duration of the loan will have the biggest impact on how expensive a bridging loan is.

These charges will change depending on what a loan is used for. The answer to the question of ‘is bridging finance expensive’ will be affected by whether the funding will be used to renovate a property, buy a house, or invest in commercial property. What’s more, the charges involved will vary between lenders.

Moreover, the longer a loan term is, the more a borrower will be expected to pay. Ultimately, to answer the question, ‘are bridging loans expensive?’ one must consider the circumstances of each individual case.

What fees should you expect with Market Financial Solutions?

Product Fees:

Overall, most lenders will charge a product fee for the delivery of a loan. This fee is typically calculated as a percentage of the amount being borrowed and can range between 1.5% and 3%. Normally, product fees are charged from 2%, depending on the product used.

For example, if an investor wants a loan of £200,000, the product fee could be £4,000. However, typically, if one is taking out a very large loan, the fee may be lowered or waived altogether.

Broker fees:

While lenders can be approached directly, investors may want to employ the services of a bridging loan broker. They can help find the best possible financial product for their client’s circumstances, and get all the complex paperwork completed properly.

Again, broker fees are often calculated by a percentage of the loan amount. These percentages can range between 0.5% to 2%. It could also be a flat fee.

For most borrowers, it may be worth shopping around when looking for a broker to make sure that they are able to deliver the type of finance required. If they already deal with specialist finance, they will know how the process and fees for the products work.

Valuation & survey fees:

What a bridge loan will be used for is one of the main factors that will determine how expensive the funding is. Lenders will often want a property to be inspected to see whether it’s worth their efforts. They’ll also want to see it’s in good condition and that the valuation is accurate.

Generally, the fees may be more expensive the higher in value a property is.

Deposit:

Bridging loans do not typically have a ‘deposit’ as such, however there will likely be a maximum loan-to-value that is able to be achieved on a property. At Market Financial Solutions, our maximum loan-to-value (LTV) is 75%, meaning that the other 25% of a property’s value would need to be covered by the borrower.

Typically, the lower the LTV of the bridging loan, the cheaper it will become.

How to get an in-expensive bridging loan

The obvious next question after ‘are bridging loans expensive?’, is how to get the best and cheapest bridging loan possible for one’s needs.

As such, it’s important that investors assess their options and fully comprehend the product that they’re applying for. This is especially important for bridge loans, which can offer very niche solutions.

By employing a broker, investors can go some way in finding a bridging loan that will match their unique financial needs – whether it ends up being ‘cheap’ or otherwise. However, it’s also vital that investors select the right lender, as they can make all the difference in how expensive a bridging loan is.

Brokers regularly bring their clients back to us understanding this. They know our flexibility and speed can provide the best outcomes for their borrowers. We provide a bespoke service, where all our products can be tailored to fit a borrower’s circumstances.

Can I trust bridging lenders?

It is important for borrowers to trust their lenders. It is therefore wise to use a lender with a good track record of delivery and flexibility. The crucial element of trust, however, will be dependent on transparency. The importance of this, is why we underwrite our deals from the start of the application process.

This means we lay out all the fees, terms, and rates that our borrowers and their brokers will face for their loan(s) on day one.

This approach allows borrowers to take out a loan with confidence. They know they won’t be hit with any unexpected or surprise fees when the loan comes to its conclusion.

Market Financial Solutions provides value for money

As we have described, bridging loans can be an expensive form of specialist finance. But, specialist finance can support those who struggle to get far with mainstream lenders. We’re happy to work with borrowers that high street banks may not have appetite for, including those with CCJs, adverse credit histories, or bankruptcies to their name.

Bridging expenses can be relatively high to reflect this risk. However, the extra expense could be worth it where borrowers find reliability, flexibility, and speed. Market Financial Solutions can provide all of this and more. We are a well-established, specialist lender with a track record of providing quality bridging loans since 2006.

We offer reliability, with a highly experienced underwriting staff who specialise in complex circumstances. They can support brokers and their investors, who can rest assured that rates will not be changed once terms are agreed upon.

Moreover, to help investors with unique or complex circumstances, we do not use a tick-box criteria. Instead, we take the investor and the property into consideration by assessing individual merits. This means we can provide finance for complex deals other lenders might normally shy away from.

Finally, we can move incredibly quickly when an enquiry is made. We’re able to respond to all enquiries within 4 hours. We can issue funding in as little as 3 days, underlining our ability to move as quickly as the market does. Investors may ask themselves ‘is bridging finance expensive?’, but they shouldn’t forget about the quality of service they receive which could be the real key differentiator.

Check our bridging loan calculator to get an instant estimate of what you can borrow and what it would cost you.