If you’ve had credit problems in the past, it’s still possible to get a bridging loan. We look at what lenders consider and how to improve your chances.
Bridging loans are a type of short-term finance designed to bridge the gap between having to pay for something or clear a debt and being able to get the money to do it.
For example, you might need to buy a new home before your old one is sold but can’t get a mortgage to buy the new property until your existing mortgage has been paid off by the sale. You could use a bridging loan to buy it and then pay the loan off when you sell the other property and can get a mortgage on the new one.
Bridging loans are also much quicker to arrange than mortgages so are useful if you need funds quickly, such as to buy a property at auction that you don’t want to miss out on.
Overall representative example for regulated bridging loans If you borrowed £195,000 over a 1-year term at 8.40% p.a. (fixed), you would make 12 monthly payments of £1,399.93 and pay £211,799.16 overall, which includes interest of £16,799.16, a broker fee of £995 and a lender fee of £3995.00. The overall cost for comparison is 11.6% APRC representative.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
Finder survey: What proportion of Brits understand what a bridging loan is?
Response
55+
45-54
35-44
25-34
16-24
Yes, to some extent
44.32%
28.07%
30.93%
33.54%
33.01%
No
31.58%
55.56%
55.08%
49.69%
45.63%
Yes, fully
24.1%
16.37%
13.98%
16.77%
21.36%
Source: Finder survey by Censuswide of 1032 Brits, December 2023
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Is it possible to get a bridging loan with bad credit?
Although getting any type of loan may be harder and more expensive with a poor credit history – you may have missed credit repayments in the past or been bankrupt, for example – and there may be fewer lenders willing to lend to you, it’s less of an issue with bridging loans than mortgages.
This is because the exit strategy – the way you plan to pay off the loan – and the value of the property (or assets) it is secured on (either the one you’re buying or one you already own), which can be sold to pay off the debt, is more important than how likely you are to default on monthly repayments.
Unlike a mortgage, most bridging loans are for 12 months or less and you either just make interest payments each month or the interest is “rolled up” (compounded) over the course of the loan or calculated at the beginning. You then pay the interest off with the capital at the end.
What types of credit problems will lenders accept?
Issues that could affect your credit score include late payments on mortgages, loans or credit cards, county court judgements (CCJs) against you for failing to pay back money you owe, having an individual voluntary arrangement (IVA) – an agreement with your creditors to pay your debts back over a period of time – or bankruptcy.
You might also struggle to get a loan if you have no credit history because you’ve never borrowed money before so don’t have a track record of paying it off.
Some credit problems are seen as more serious than others and the longer ago they took place, the less of an issue they are seen to be; as long as they are unlikely to affect whether the exit strategy will succeed, lenders may be willing to disregard them.
If your exit strategy is to take out a mortgage to pay off the loan, the lender might be concerned that you’ll struggle to get one, so you should get a mortgage in principle from a lender beforehand so you can prove this won’t be the case.
You will help your case if you have taken steps to repair your credit score since you had the problems, such as by not missing any repayments or by not using credit cards too much, and you haven’t applied for lots of other credit.
If having no credit history is your problem, spending on a credit card and regularly paying it off will help. There are specialist credit builder cards designed for this purpose. You should also make sure you’re on the electoral roll as lenders use this to confirm your name and address. Learn more about and check your credit score here.
Is a credit check carried out when you apply for a bridging loan?
As with any loan, the lender will carry out a credit check to help it assess how much risk you pose as a borrower, but it may sometimes use a more manual approach than when you are applying for a mortgage, when a credit scoring system is used.
What other eligibility criteria are there?
Other factors taken into account include the exit strategy, the property the loan will be secured on and the size of your deposit – while you can usually borrow up to 75% of the value of the property being used as security, the bigger the deposit you have the better your chances of being approved for a loan and the cheaper the deal you’re likely to get.
If you’re taking out the bridging loan for property development, showing that you have experience in this area can help, and if you are taking out the loan for business purposes the lender may want to see that you have a viable business plan.
What about second charge and third charge bridging loans?
A second charge loan is one you take out on a property you have already borrowed against, such as with a mortgage. It poses a higher risk for the lender because the first charge lender has priority if the property needs to be sold to pay off your debts, even though the size of a second charge loan is based on the equity in the property. Likewise, a third charge loan is even more risky.
You’ll find it much harder to get a second charge loan if you have bad credit, and if you are accepted, you’ll pay a higher interest rate. You are even less likely to get a third charge loan.
Whatever type of bridging loan you want to get, it’s worth talking to a specialist bridging finance broker who can look at the whole available market to find you the best deal.
Alternatives to bridging loans
If you can’t get a regular bridging loan, even with a guarantor, a “non-status” bridging loan could be an option. The lender will focus entirely on the asset when deciding whether to lend, so it won’t consider your credit history or income, but these types of loans are a lot more costly.
You can also take out a personal loan but won’t be able to borrow more than £50,000.
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Cathy is a freelance journalist specialising in money, property, smart homes and technology. She worked at Which? for 12 years, first as a money writer then as an editor, before going freelance in 2018.
She's written for publications including The Money Edit, Ideal Home, Loveproperty.com, The i newspaper, the London Evening Standard. Cathy is also a Homes Under the Hammer superfan. See full bio
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Buy-to-sell mortgages (also called bridging loans) are designed for buyers who are looking to sell on a property within a relatively short time-frame. Read our guide and compare rates.
If you haven’t sold your house yet, but want to buy your next one before the sale is completed, a bridging loan may be able to help.
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