Bridging Loans: How Much Can I Borrow?

If you are looking to bridging finance to give you the backing you need for a successful property purchase, renovation, or development, then one of the key questions that’s going to be on the forefront of your mind is how much you can borrow. Knowing your potential budget is key to the early stages of planning and it can be very frustrating trying to move forward without this key piece of information.

Of course, it’s never as simple as a straight figure, but at Clifton Private Finance we have the experience to help you understand how bridging finance ceilings are calculated and how you can start to plan with a solid estimate.

Using Our Bridging Loan Calculator

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Wondering how bridging finance works? Explore our comprehensive Guide to Bridging Loans to learn more.

Key Takeaways

• Bridging loans are short-term financing solutions used for time-sensitive situations, like auction purchases, unmortgageable properties, or bridging gaps in property transactions.
• The amount you can borrow depends on factors such as the lender's criteria, your financial circumstances, and the loan-to-value ratio (LTV).
• Higher equity or a bigger deposit can usually afford you more favourable borrowing terms.

The Two Factors That Control Bridging Finance Amounts

1 - Collateral

The single biggest factor that determines how much you can borrow for your bridging finance is the value of the collateral you have as security.

Why

Risk mitigation for bridging finance is centred around collateral. This means the equity in the assets (property or properties) that are leveraged as security against the loan.

Even at 100% loan-to-value, something no bridging finance lender would realistically offer, your bridging finance would still only be equal to the value of the collateral. No lender will ever offer more.

2 - Loan-to-Value (LTV)

Loan-to-value is the percentage of your collateral the lender is willing to offer as bridging finance. The majority of bridging finance is between 60% and 80% LTV. Combined with the value of collateral, loan-to-value dictates the maximum size of borrowing.

Why

Lenders need to be sure that if the full balance of the loan needs to be collected, that the assets can be sold and that the proceeds will cover the debt including all costs.

When LTV is high (80%), then the property used as security needs to reach near to its market value to provide the capital to pay the balance of the loan. This means more time and effort needs to go into selling, as well as trust that the market is stable and that the property value hasn’t decreased.

Lower LTV has more margin for error. If the loan-to-value is 60%, the property can be sold at speed for below market value and still the proceeds will cover the remaining debt.

Higher LTVs represent higher risk for the lender. Lower LTVs represent lower risk.

Calculating Maximum Bridging Finance

The basic calculation to determine the capital that can be raised through bridging finance is:

• total value of collateral x LTV %

Improving Collateral - Raising The Bridging Finance Ceiling Through Assets

If you can offer more collateral, you can obtain greater levels of bridging finance. Most property bridging finance has the following collateral that can be considered:

• Cash deposits - Capital that you invest in the property in the form of a cash deposit is considered alongside all asset-based collateral and will have a significant impact on the size of the financing available.
• The property being bought - If you are using bridging finance to fund a property purchase, then the property you are buying is the primary asset used for collateral. As you will own it in full once it has been purchased, 100% of its value can be considered for the total collateral calculation.
• Equity in the property being sold - Many bridging finance agreements are obtained when buying a new home before having sold the existing home, with an exit strategy based on paying off the bridge once the existing property is sold. As the existing home remains yours until it is sold, it can be used as collateral for the finance. It’s important to note that only the existing equity in the property can be leveraged as capital. This means that any existing finance such as a current mortgage must first be subtracted from any calculation. As an example, an existing home valued at £400,000 with a current mortgage balance of £220,000 would represent equity of £180,000. It is this equity that would be considered in the total collateral calculation.
• Equity in additional properties - If you own other properties, these can also be leveraged as collateral. Equity would be assessed in the same way as with any existing home for sale, and that equity considered for the total collateral calculation.
• Equity in non-property assets - Some specialist bridging finance lenders are able to factor in additional, non-property assets of value. These may include: company shares, vehicles, business equipment, or high-value collections.

Offering more assets as collateral will increase the maximum potential size of your bridging finance. Working with an experienced broker, such as Clifton Private Finance, will provide you with every advantage when it comes to presenting your assets, giving you the greatest chance of those assets being accepted at full value for security. With long-established relationships with specialist lenders, we are able to support the widest range of valuable assets, matching you with bridging finance lenders that understand your unique circumstances.

Improving LTV - Influencing the Final Calculation

Getting the best loan-to-value possible involves considering a multiple elements.

The Lender

Each lender is unique. There is a wide range of bridging finance available and each application is evaluated on its own merits by the lenders, with decision makers at those lenders following different criteria and assessing your application in a different way. Some lenders are simply more likely to offer higher LTV finance than others, based on their preferences.

Approaching a lender and making an application is a time-consuming process and can be off-putting. This is why obtaining bridging finance without the aid of a specialist broker is unlikely to yield the best result - individuals speaking to lenders one-by-one soon tire and will either jump on the first positive offer, or will fail to present themselves well enough to even get a worthwhile arrangement.

When looking for a high LTV, having multiple lenders to compare is essential. Use Clifton Private Finance as your partner to give yourself the best possible chance of larger bridging finance.

Asset Marketability

The type of your leveraged assets and the market demand for them will have a significant impact on the LTV offered. Assets that are difficult to sell or require specialist or niche buyers will be tied to lower LTVs than high-demand assets.

This can be seen in multiple ways:

• Properties in extremely rural locations - It can be difficult to sell properties that are far from urban centres, especially if they are off-the-grid with either electricity or water and sewerage.
• Uninhabitable properties - Bridging finance is excellent for property renovation projects, taking a previously dilapidated property and bringing it up to modern standards, but what about properties that do not have a proposed renovation to eliminate this problem? If the lender considers the property difficult to sell due to being in a poor condition it will negatively affect the LTV on offer.
• Leasehold properties - Leasehold flats are harder to use to secure sizeable bridging loans than those that are freehold. This problem increases as the lease shortens.
• Depreciating assets - Some non-property assets, such as vehicles, suffer from depreciation and are considered more likely to drop in value than increase over time. These will necessitate a lower LTV.
• Niche assets - Specialised machinery or equipment, and niche collectibles with a smaller market, will be tied to smaller LTV ratios than those that can be quickly and easily sold on.

The Exit Strategy

The more robust your exit strategy, the lower risk you present to a bridging finance lender, and thus the greater LTV you may achieve. Presenting your exit strategy well is key to getting the most from your bridging finance.

Examples of strong exit strategies include:

• Moving to a guaranteed mortgage - When it is clear you will meet mortgage criteria at the expected time, the lender will be more comfortable. For example, if the only thing preventing an initial mortgage is the need for significant renovations, then a mortgage-based exit strategy with comprehensively planned refurbishments will be seen as low risk and command a better LTV.
• Sale of a family home in a sought-after area - An exit strategy to sell your existing home in a strong market is very low risk.
• Incoming inheritance - If your exit strategy is based on an inheritance coming through that merely waiting for the probate process to complete, your lender will be comfortable offering a higher LTV.

Your Financial Situation

While bridging finance does not lean on credit scoring or income affordability tests as heavily as other finance, it is still a factor than can affect the LTV on offer. If your financial history is stable, you may reach higher potential LTVs.

At Clifton Private Finance, we work closely with lenders who understand the difficulties of poor credit histories, especially those than come from time spent out of the country. Partnering with us will help you get the bridging finance you’re after.

The Low End - Where Bridging Finance Isn’t Suitable

Bridging finance is not always applicable. With minimum fees and an intensive application process, sometimes the time, money, and effort that goes into securing bridging finance isn’t worth it for you, your broker, or the lender.

• Typically, this is the case when seeking bridging finance for properties worth less than £50,000. With a range of alternative financing available at that level, from unsecured personal loans to short-term homeowner loans, it becomes inefficient to apply for bridging finance.

Our advisors at Clifton Private Finance will be able to advise you on alternate funding methods should you fall below the threshold for bridging finance.

How Much Bridging Finance You Can Borrow With Clifton Private Finance

Speaking to us at Clifton Private Finance gives you the best chance of maximising your buying power. Our experience and access to the full market of bridging finance lenders makes us the perfect partner for achieving the finest results. We will work with you throughout the process, helping you evaluate different lenders, matching you to the ones that give you the best rates and highest LTVs, and being on hand from the early stages of application right through to the moment your exit strategy takes hold - and beyond.

Contact a Clifton Private Finance advisor today and discover the potential bridging finance offers your property ownership dreams.