We break down all of the typical costs of a bridging loan. In a number of these instances, these fees will also apply to development finance loans as well.

Lots of borrowers think that the only thing you need is a deposit and that is it. In fact there are quite a few fees involved in obtaining a bridging loan so please forget everything you’ve heard about buying a property with no money down or applying and obtaining a 100% bridging loan because that simply will not happen.

Typical Bridging Loan costs

Deposit

Almost every lender offering bridging loans in the UK currently will require the borrower to find a deposit of between 20% and 25% of the property value. The lender is basing their lending on what is known as LTV in (loan to value).

Typically, LTVs for lenders are at 70% or 75%, hence why we have said you’ll need a 20% or 20% deposit. Lenders may also ask evidence of where this deposit is coming from, be at a gift from a family member or friend, an investment, your own funds and most importantly of all, the lender will want to know that you have not borrowed money to raise this deposit because otherwise you will have two financial commitments, one being the bridging loan and one being the deposit.

The same thing applies to a development finance loan in that you will also need a deposit to purchase or acquire the property, land or security you are buying.

There are one or two lenders who will allow borrowing up to 80% or 85% LTV. Obviously the fees and rates involved on these higher loan to value schemes are more expensive but that’s the price you pay for the lender taking on the extra risk and the higher LTVs will not be offered to first time developers.

Solicitor fees

You will have two sets of legal fees to pay. One is your own solicitor costs which will vary depending on the quality on the type of solicitor or conveyancer that you use on the other will be the lenders legal fees. This is not untypical as every lender will insist that the borrower pays not only their own legal fees but also that of the lenders so we can be quite expensive cost for the borrower to pay however there is no way around it. An important point to note here is that lenders will insist on the borrowers solicitor having a minimum of two partners in the firm and quite often they will also insist that it must be a fully qualified solicitor and not a licensed conveyancer.

Licensed conveyancers are quite common in the residential mortgage market but are not acceptable in the commercial lending world. Solicitors must also have experience of working with bridging and development finance otherwise the process will become difficult, long winded and potentially expensive for the borrower.

Valuation fees

Every lender will insist on a new valuation being done on the property or security that they are lending on. The valuation they will insist on is what is known as a Red Book valuation, this is an industry recognised valuation undertaken by a RICS (professional body) valuer or surveyor. The reason lenders insist on the Redbook valuation is because the content and the detailed information presented in these reports is intended to provide lenders with a well considered opinion that can be relied on now and in the near future. Lenders will also want to see the 90 day, 180 day and Open Market Valuation (OMV).

It’s difficult to predict how much a valuation fee will be on a specific property transaction as the valuation will depend on a number of factors such as location, value of the property and the type of report that the lender may require.

So every valuation quote is based on the individual circumstances of the bridging loan application at the time and of course, all valuation fees are also paid for by the borrower.

The costs noted above are for a bridging loan application and as mentioned earlier, there are additional fees and costs involved in applying for a development finance loan, which we will discuss in more detail in another article.

To find out more and get a no obligation, no cost quote, contact us