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In this guide, we’ll highlight the most common pitfalls in bridging finance applications and share actionable tips to help you navigate the process with confidence and success.
Bridging loans require a thorough understanding of the lender’s requirements, the property’s value, and the borrower’s ability to repay. Applications often fail due to:
Avoiding these issues is crucial to securing the funding you need without unnecessary delays.
The exit strategy is your plan for repaying the loan, such as refinancing or selling the property. Lenders need assurance that you can repay the loan within the agreed term.
Example:
Good Exit Plan: “I have a buyer lined up, with contracts exchanged and completion scheduled within three months.”
Property valuation plays a critical role in determining the loan amount. Inaccurate or rushed valuations can lead to reduced borrowing limits or loan rejections.
Tip: If a lender undervalues the property, consider providing comparable sales data to support your case.
Incomplete or inaccurate documentation can stall your application or raise red flags with lenders.
Common Documentation Requirements:
Bridging loans often involve various fees, including arrangement, exit, and legal costs. Borrowers who underestimate these costs risk financial strain.
Delays in property transactions or renovations can extend the loan term, leading to additional interest or penalties.
Not all lenders offer the same terms or specialise in the type of bridging loan you need.
A specialist broker can help you navigate the process, identify suitable lenders, and ensure your application is robust.
Provide honest and accurate information to build trust with the lender. Transparency about your finances and project plans is essential.
Understand the property market, lender requirements, and potential risks associated with your project.
Prepare for unexpected costs or delays by building a buffer into your budget and timeline.
Read the loan agreement carefully, paying attention to fees, penalties, and repayment terms. Seek legal advice if needed.
Scenario: A borrower plans to sell a property within six months to repay a bridging loan. However, the property sale falls through.
Solution: A clear contingency plan, such as refinancing or renting the property, ensures the borrower avoids default.
Scenario: A developer underestimates refurbishment costs, running out of funds mid-project.
Solution: Factoring in a 10-15% contingency budget prevents financial strain.
Scenario: A borrower submits an application without proof of planning permission for a development project.
Solution: Ensuring all necessary documents are provided upfront speeds up approval and avoids complications.
Ans: The most common reason is an unclear or unfeasible exit strategy. Lenders need assurance that the loan can be repaid on time.
Ans: Work with an experienced broker, provide accurate documentation, and present a strong exit strategy.
Ans: Identify the reasons for rejection, address the issues, and reapply with improved documentation or a different lender.
Ans: Yes, but certain property types, like uninhabitable homes or commercial units, may require specialised lenders.
Ans: Prepare all required documents, hire professionals for valuation and legal work, and communicate promptly with your lender.
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