Closed Bridging Loan

What is a closed bridging loan? Is it hard to get one?

A closed bridging loan is almost always referred to as a regulated bridging loan. That’s where the borrower lives in, or intends to live in, the property we’re bridging. There are a few differences between a regulated and unregulated loan.

For a regulated, closed bridging loan the borrower has to have a clear and confirmed exit strategy. We need a Decision in Principle from a bank regarding refinance, or for the property to be up for sale on the market.

Close bridging loans are not very difficult to get. There are a few more hoops to jump through versus regulated open bridging loans, because we have to prove the exit and it’s regulated.

What is the difference between open and closed bridging finance?

Besides how the Financial Conduct Authority categorises them as regulated or unregulated, the main difference is the certainty of repayment. With an unregulated, open loan, we don’t have to prove an exit strategy. You can just say that you intend to either refinance or sell at the end. We don’t have to prove that.

With a closed bridging loan, we have to confirm the exit. Closed, regulated loans are almost always capped at 12 months as a maximum and we have to demonstrate that exit strategy before they will lend you the money. That’s the big difference.

Why is it important to have an exit strategy?

Peace of mind is the first reason. It’s reassuring to know how you’re going to repay that loan because you don’t want to default and be repossessed. It also helps you plan the future steps.

In the case of a closed bridging loan, you need to understand whether your exit is sale or refinance. If it’s refinance, is it really feasible? We would get a Decision in Principle to confirm with a bank that it’s affordable, because if we put refinance in place that isn’t the best option for you, you could just end up defaulting with the next lender instead.

It’s all about planning with a wider view than just the 12 or 18 months.

What can a closed bridging loan be used for?

These are primarily regulated loans for property you’re going to be living in. Perhaps you’ve found a property on the market that you really like, but you haven’t sold yours yet. You can use a bridging loan to buy the new one.

If you want to buy a home and refurbish it, we can build that into the loan facility. You can even put both properties up as security for the loan, and the sale of the old property is your exit vehicle.

You might want to get funds out of your home immediately for a tax bill, a car purchase, a wedding… that can be done immediately with a regulated bridging loan and repaid with a refinance. Those are just a few options.

Should I choose an open or closed bridging loan?

As the client, you don’t really get the choice. In almost all cases it will be determined by whether the product is unregulated or regulated. Unregulated is for investment, regulated is for your home or future home.

If you tell me you’ve found a property you want to live in, that will be a regulated, closed bridging facility. If it’s an investment property in your personal name or a limited company, it’s almost always unregulated and open.

The choice is made for you by what you’re trying to achieve. We will cover that off with you at the time.

Can I still get a closed bridging loan if I have bad credit?

Yes. You can have very bad credit and still get a regulated closed bridging loan because it’s based on the exit strategy. If you’ve got bad credit, but your exit is the sale of a property, that works because it’s feasible. Your credit has no impact on the exit.

If you’ve got bad credit and we’re refinancing, we would need to prove that we have a lender that’s comfortable with your credit position and will lend to you.

How do I get a closed bridging loan? What is the process?

The process is pretty quick. I used to say under four weeks, but it’s slowed down a bit. It’s still within five to six weeks maximum. It can be done quicker with some lenders, but the faster you want it, the more you’ll pay.

Regarding the process, the first step is a discussion with us so we understand what you’re trying to achieve, the Loan to Value involved, the property and your credit history. We’ll then approach the correct lenders for the circumstances to get you some terms, negotiate those if they’re not what we want, and present those to you.

Once you’re happy to proceed, we submit the full application, get valuations instructed and engage the legal side. We manage all that for you. It can be quite intensive for us as brokers, but we try to take the headache away from our clients.

It’s fairly straightforward from there. You pay for the valuation and the legals, and it should be plain sailing.

What are the pros and cons of a closed bridging loan?

A closed bridging loan will often have lower interest rate than an open bridging loan, because there’s a secure exit in place. That means the bank has slightly less risk.

It can be easier to get approved, depending on the lender and the exit strategy. A property sale is a very easy one – if it’s on the market we can just say it’s listed at the specific price.

In terms of the disadvantages, there’s less flexibility with a closed loan. You can’t have different exit options in place. If you can live in the property, there has to be something guaranteed regarding the exit – either refinance or sale.

It’s also limited to 12 months in almost all cases, so you have a shorter window to achieve that exit.

What else do we need to know about a closed bridging loan?

Presentation is really key. Giving your broker – us, hopefully – all the information and being open with us allows us to give the best presentation of the case to any lender we go to.

With some lenders we are on their preferred panels, giving us discounts and rates you won’t find online, so brokers can obviously save you money.

We’ve already dealt with the endless lists of enquiries that solicitors can come back with, and I’ve got responses for most of those. Again, we can save time and headaches when it comes to legals.

By managing a lot of the process, we make it as pain-free as we can for clients – which is extra value on top of saving you some money. We’re hands on to make sure your loan completes in a timely manner, while minimising extra enquiries and speed bumps as we go.

SOME BRIDGING FINANCE IS NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.