Influences that determine monthly bridging loan interest rates
With the UK demand for bridging loans being high and increasing, and high street lenders still not accepting bridging applications, there are a growing number of alternative lenders entering this market. The increasing competition is seeing better deals for customers resulting in monthly interest rates ranging from 0.68% through to upwards of 2% per month. With such a wide range of bridging loan interest rates available customers do wonder how to qualify for the best rates.
When determining the monthly interest rate charged a lender will consider the overall risk for the type of business they are doing and also look at each individual customer to determine where they fit in their lending criteria. They will therefore look at loan to value, credit history, an applicant’s income, the condition, type and location of the property or properties being provided as security and also the cost of the funds to the lender since they will want to make a healthy profit.
The loan to value is very important to any secured lender and the amount of equity available in a property, when taking into consideration the value and total borrowings secured, will directly influence the monthly rate of interest charged. The best rates are obtained with loan to values up to 50%. In addition to available equity a lender will also be concerned about the condition of the property. The level of concern is clearly illustrated when we consider that most mortgage providers will not lend when the security property is in a poor condition. Some lenders offer minor refurbishment plans, this allows funding secured on property that requires some minor work to be carried out. Such plans will come with a slightly higher rate of interest because they are specialist and carry some extra risk to the lender. Many bridging loan providers will lend on property that is in a poor state of repair, but the additional risk will usually mean a higher interest rate.
With some lenders limiting their business to London, location is also an important factor when looking for the best deal on a bridging loan. London is the preferred location for any property being offered as security and there is an increased reluctance to lend the further away from London a lender has to go. However there are lenders who will lend throughout the UK, but preferable monthly interest rates can be achieved in London when compared to Scotland.
The final two important factors with regards to rate are the borrower’s credit history and also ability to afford the monthly repayments. A good income and credit history are obviously a more attractive proposition to any lender. However, a poor credit history and low income may not exclude an application for a bridging loan from being accepted. Because the loan is only for a short term, interest can be added to the facility and paid when the loan is redeemed. This can avoid the income and affordability problem and is particularly useful when an applicant needs money to make improvements to a property to substantially increase its value prior to sale.