The Cost of a Bridging Loan
When it comes to Bridging Loans, there are a number of costs to consider. Bridging loans can be a lifeline in tight financial situations, but they can also be expensive. Here our Bridging Loan Solicitors break down the the costs you might face.
If you already understand how Bridging Loan costs are structured, you may want to jump down to our Bridging Loan Calculator. It’s a comprehensive calculator that covers interest rates, legal fees and stamp duty costs.
JUMP TO THE BRIDGING LOAN CALCULATOR
New to bridging finance? Read our guide to what a bridging loan is first, then use this page to work out what one would really cost you.
The Breakdown of Bridging Loan Costs
Interest Rates – Bridging loans usually come with higher interest rates than standard mortgages because they’re short-term and involve more risk for the lender.
Interest rates typically range from 1% to 2% per month. For example, a £100,000 loan at 1% per month would cost you £1,000 in interest each month.
Arrangement Fees – This is a one-time fee the lender charges to set up your loan. It covers the cost of processing your application and getting the loan in place.
Arrangement fees are usually 1% to 2% of the loan amount. For a £100,000 loan, this would be £1,000 to £2,000.
Exit Fees – Some lenders charge an exit fee when you repay the loan, especially if you repay it earlier than planned. It’s a fee for closing the loan before the agreed term ends.
Exit fees can vary, but they’re often around 1% of the loan amount.
Valuation Fees – Before lending, the lender may require a property valuation to ensure it’s worth the amount you’re borrowing. You typically pay for this valuation.
Valuation fees can range from £200 to £1,000. Fees are generally larger for properties of higher value.
Default Fees – Default fees are penalties that apply if you miss a payment or fail to repay the loan on time. These fees can be substantial and may include higher interest rates, additional charges, or legal costs.
Default fees can vary significantly depending on the lender and the terms of your loan, but they can add hundreds or even thousands of pounds to your overall cost. Some lenders may be more lenient towards late payments, and others may apply additional late payment fees on top of the default fees.
Legal Fees
Another cost to consider when it comes to Bridging Loans are the legal fees involved. The extent of these fees depends on factors such as the amount being borrowed and the lender you use. Some of the typical fees you may be dealing with are as follows:
- Solicitor’s Fees – In most cases a borrower may need a bridging loan solicitor to handle the bridging loan conveyancing, review the terms of the loan agreement and ensure the transaction is legally sound
- Bridging Lender Solicitor fees – the Bridging Lender you use will have a solicitor of their own, and so these fees cover the work of that solicitor on behalf of your lender. This could involve a number of tasks including: conducting property searches, reviewing the borrower’s legal documentation, preparing the loan agreement, and ensuring that the lender’s interests are protected
- Administration Fees – this includes various tasks, for example processing the loan, dealing with additional documentation and title insurance
- Disbursements – these are costs that the solicitor may incur involving standard checks, possibly Land Registry Fees, etc.
- Stamp Duty Land Tax (SDLT) – in the case of the loan being used for property purchase, stamp duty may be an applicable cost.
It is important to be aware that this is not an extensive list of the costs involved. It is vital to consider your individual case, and how this may reflect on the costs you may incur. These fees can quickly add up; therefore, it is recommended that you have an in-depth conversation with your lenders and solicitors before proceeding with a decision However, if you would like an idea of bridging loan costs, our bridging loan calculator will give you an estimate of the likely fees you will face.
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We’re a six-partner practice accredited by the Law Society’s Conveyancing Quality Scheme (CQS) with £3 million professional indemnity insurance. Our quality service is recognised by our admission onto the residential conveyancing panels of major mortgage lenders, including bridging loan lender specialists.
The Bridging Loan Calculator (including Stamp Duty Calculations)
Tips to Keep Costs Down
Bridging loans can be costly, but there are ways to manage these expenses:
- Choose the Right Type of Loan: If you know when your property will sell, opt for a closed bridging loan to benefit from lower interest rates.
- Shop Around: Different lenders offer different rates and fees. Compare offers to find the best deal for your situation.
- Negotiate Fees: Some fees, like arrangement and exit fees, may be negotiable. It’s worth asking your lender if they can reduce or waive certain charges.
- Plan Ahead: To avoid default fees, make sure you have a clear plan for repaying the loan on time.
Title Split
A Title Split (in simple terms) is when you split a larger property into multiple different units and arrange new mortgages for each of these new units. This can help you pay back your Bridging Loan in the case where you do not plan to live in the new property but rather convert it. Splitting your title may significantly improve the value of your investment asset, and you may be able to create new leases for the new properties you have created.
Why Title Splits are Popular using Bridging Loans
- Speed: Bridging loans are known for their quick approval times, making them ideal when timing is crucial, such as when a property needs to be acquired and developed rapidly.
- Flexibility: Bridging loans are often more flexible than traditional loans, accommodating the complexities of title splits and phased developments.
- Short-Term Nature: Since bridging loans are short-term, they are well-suited to projects like title splits where the investment can be realized quickly through sales or refinancing.
In order to ensure your new mortgages are in place before your bridging loan is due to be repaid, it may be wise to take a mortgage from a specialist lender who provides financial solutions specifically designed for investors using a bridging loan. While many mortgage advisors will not be able to advise on these types of mortgages, our expert mortgage brokers have an in-depth understanding of the options available and can recommend you a loan which meets your requirements.
Our Bridging Lenders
Bridging Loans are provided by specialist lenders who can provide you with short term funding. Our six-partner practice at Starck Uberoi Solicitors can act on behalf of borrowers, involving most bridging lenders including: Aspen Bridging, CPF One Limited, Greenfield Mortgage Bridging, Lendinvest Bridging, Market Harborough Building Society, Mint Property, MT Finance, Octopus Real Estate, Prospect Capital Limited, Shawbrook Bank, SOMO, Together Finance, West One Bridging.
Is a Bridging Loan Right for You?
Bridging loans can be incredibly useful when you need quick access to funds, but they’re not without their costs. Understanding the types of bridging loans and the associated expenses can help you make an informed decision. Always weigh the costs against your needs and consider all your options before proceeding.
How Starck Uberoi can help
Our ‘One Stop Shop’ approach can save you valuable time in finding a bridging loan which is right for you, all while making sure you receive bespoke legal advice from to guide you through the bridging loan conveyancing process. If a bridging loan sounds like an effective solution for you,we can recommend trusted morgage advisors who specilaise in bridging loan finance.
Alternatively if you already have a bridging loan arranged and require bespoke legal advice see our online conveyancing quote calculator for a free online no-obligation quote. Or, to book an appointment please call 020 3805 8554.
Our Offices
Our solicitors in Brentford work from Dock House on the High Street, a short distance from Brentford County Court. Our Ealing solicitors are on St Mary’s Road, close to both Ealing Broadway and South Ealing. Our Belgravia office is five minutes from Victoria station in Grosvenor Gardens, and our solicitors on Pinner High Street serve Pinner and the wider Harrow area. Our Richmond solicitors overlook the picturesque Richmond Green, while our solicitors in Canterbury sit within the precincts of Canterbury Cathedral. Our partner, Raminder Uberoi, can also offer a Notary Public Service at any of our London offices.
Bridging Loan Calculator FAQs
The calculator gives an estimate based on the figures you enter, such as the loan amount, monthly rate, term and fees. Your actual costs depend on the lender’s offer, its valuation and the exact terms in your facility letter. Use the result to budget and compare options, and check the figures against your loan offer before you commit.
With rolled-up interest, the interest is added to the loan each month and repaid in one sum at the end. With retained interest, the lender deducts the interest for an agreed period from the loan at the start, so you receive less cash on completion. With serviced interest, you pay the interest monthly, as with a standard mortgage. How the interest is structured changes both how much money you receive and how much you repay. Make sure you know which one your lender uses.
Yes. If you are buying a property, the calculator estimates the Stamp Duty Land Tax due on the purchase. A bridging loan does not change how much stamp duty you pay, and it is due to HMRC within 14 days of completion. Check whether your lender will lend towards it, because many will not, and you may need to fund it from your own resources.
Not always. Some lenders charge an exit fee when the loan is repaid, usually a percentage of the loan. Check whether it is calculated on the original loan or on the final balance including rolled-up interest, as the second can cost noticeably more. We review the exit fee terms in your loan offer before you sign.
If your sale or refinance is delayed beyond the loan term, the lender may charge an extension fee, default interest at a higher rate, or both. These costs can build up quickly. Choose a realistic term at the outset and speak to your lender early if your exit looks like it will be delayed.
Arrangement fees are often added to the loan, and some lenders allow other costs to be added too. Anything added to the loan accrues interest, so it costs more than paying it up front. Your own solicitor’s fees and disbursements are normally paid directly on completion.
How Starck Uberoi can help
Our ‘One Stop Shop’ approach can save you valuable time in finding a bridging loan which is right for you, all while making sure you receive bespoke legal advice from to guide you through the bridging loan conveyancing process.
Our partner company ‘Starck Uberoi Wealth’ specialises in helping you find the optimal financial solutions for you. We always work in our client’s best interests and are determined to provide the best service for our clients, no matter their situation. If a bridging loan sounds like an effective solution for you, please see our mortgage advisors.
Alternatively if you already have a bridging loan arranged and require bespoke legal advice see our online conveyancing quote calculator for a free online no-obligation quote. Or, to book an appointment please call 020 3805 8554. We have offices in Brentford, Ealing and Belgravia, and in Pinner, Richmond and Canterbury. For an appointment at any of our offices, email us at solicitor@starckuberoi.co.uk or call 020 3805 8554.
Instant Conveyancing Quote
At Starck Uberoi we are committed to providing you with efficient and clear legal advice. We understand that finding a reliable conveyancer can be a time consuming and difficult task; to make it easier for you, we provide a free, online conveyancing quote calculator to save you time on your search.
