Yes you can and we explain how.
The beauty about bridging loans is unike a traditional residential mortgage, where the credit worthiness of the applicant or borrower is the most important thing, on a bridging loan the most important thing is the asset, in other words the house, other dwelling or land that the bridging loan is being set against.
Whilst a borrowers credit situation is important and we will explain why later it’s not the most important thing on a bridging loan.
It’s all about the credit risk
Lenders in every lending sector will always assess the risk of a borrower defaulting on their loan. On a residential first charge mortgage, lenders will often lend up to 95% of the property value whereas on a bridging loan or development finance loan, the lender will often lend a maximum of 70 or 75% of the value of the property/security. This extra deposit that is required to obtain a bridging loan, is the reason why bridging lenders are able to allow people to get a bridging loan with bad credit.
Like most things in life, certainly in regards to financial services, the best available options are only available to the best available clients which means that those people who do have bad credit or an adverse credit history will not be able to get the same competitive interest rates and fees on bridging loan as those people who have an excellent credit history.
However, it still allows people with bad credit to get a bridging loan and potentially earn many thousands of pounds in profit on their property development or project, despite their credit history.
In terms of what types of adverse credit are acceptable, typical bad credit issues such as County Court judgements and defaults can be accepted if they are what is known as historical which means they are typically over 3 years old. One thing lenders really don’t like is if payment are missed on a mortgage or loan and that’s because this demonstrates how a borrower may approach the next mortgage or loan that they take out and if the bridging lender in question thinks this could be an issue then there is no doubt that this will put them off.
Some bridging lenders will offer loans of 85% of the property/security value but you will not be able to achieve this level of loan to value (LTV) if you have bad credit. Additionally, if you are looking to get a bridging loan with bad credit then you should expect to pay in excess of 1% per month interest as opposed to a typical 0.85% per month. Doesn’t sound like a lot of difference but on a £750,000 bridging loan I can prove to be rather expensive. The only way you could possibly keep costs down is by offering the bridging lender additional security.
Tell lenders the truth
This is the area where most borrowers let them selves down. They feel they can pull the wool over the lenders eyes by not telling them every detail of their bad credit. What some borrowers fail to realise is that lenders have access to a very comprehensive credit search on every borrower that they deal with this search tells them about the borrowers electoral roll status, all of their previous credit that they have taken out in the last six years, details of any County Court Judgements (CCJs), defaults, missed payments and arrears. It will also tell the lender if the borrower has ever been made bankrupt and it will also show the lender how many credit searches have been made against the borrower in the last 12 months.
In other words, you will not be able to hide anything from your bridging lender.
- Be truthful about your credit issues
- Tell the lender everything upfront and don’t allow them to find out themselves
- Make sure you are on the voters roll
- Save up for a bigger deposit, typically 25% of the security value. This will be in addition to the other typical cost of a bridging loan
- Don’t keep applying for loans and credit – this will securely impact on your credit score