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Bridging Loan Costs
Using a bridging loan in the right way can be very effective for a number of uses. They are quick to arrange and are a very flexible way of borrowing money, for all manner of business reasons. While most people look at the interest rate as the way to determine cost they should also be looking at the various other bridging loan costs too.
The following is a guide to the costs and fees you need to consider.
For the most part lenders will charge you a percentage of the loan amount to provide the loan to you. Typically this would be around 2% and is normally added to the loan when your application is completed.
This fee is at the other end of the loan, when you pay it back. Not all lenders charge them but those that do will typically be 1-2% or possibly a month or two’s worth of interest. With the increased competition in the market from lenders looking to get your business exit fees are becoming a thing of the past in bridging. (They are still common with development finance.)
To make sure that the property you are using as security for the loan actually exists and is worth what you think, a valuation will have to be carried out. The lender would normally instruct a surveyor from their panel to give them an unbiased opinion of value.
The valuation is carried out at the start of the process, and is part of the underwriting and due diligence to be carried out by the lender. You will need to pay for it up front rather than have the cost added to the loan.
The price will vary depending on the expected property value with the cost to be paid by the borrower. A common misconception from the borrower is that the report is theirs but actually it is the lenders. They are instructing the report and despite you paying for it, the report is theirs.
If you want to see a copy of it a lender may well only allow that at the end of the process, to stop you shopping around for a better deal after they have committed time and resources to get the loan in place for you.
The borrower will also have to pay the lenders’ solicitors fees. As with all the other fees involved in bridging, the solicitor cost will potentially vary depending on the size of loan, complexity of case or number of security properties involved.
Most solicitors will want an undertaking for their costs before starting work. This is to ensure they are paid for carrying out their work even if you don’t take the loan or the application is declined, for whatever reason.
Some brokers will charge a fee in addition to any commission that is paid by the lender. We normally look at the overall detail of the case and will talk to you about what, if anything, we would need to charge.
To avoid as much bridging loan cost as possible, it will pay to use an experienced broker, like Volo FS.