Introduction
When evaluating a bridging loan application, there are a number of different factors that the lender will consider. It is important for borrowers to fully understand these factors in order to maximize their chances of getting their application approved. There are hundreds of different bridging loan lenders in the UK, each with their own products and processes.
While each lender will have their own criteria, there are some important factors to consider prior to applying for a bridging loan:
Credit Score
A credit score is essentially a numerical value that demonstrates a borrower's creditworthiness. Credit scores are used by lenders to determine if a borrower can support additional debt and the likelihood that they will make their repayments on time.
In order to boost your credit score and increase your likelihood of loan approval there are a number of important considerations.
It is important to make regular, on-time payments to repay your existing debt. Your ability to make on-time payments is crucial to achieving a higher credit score as it demonstrates your reliability as a borrower.
By reducing your overall debt levels to a manageable amount you are likely to see a boost in your credit score. High levels of debt are likely to signal to lenders that a borrower is unable to manage their finances and may not be able to take on additional debt.
You should ensure that you keep your oldest credit accounts open. Old accounts help to illustrate your credit history, especially when you are applying for new debt. With this in mind, it is important to keep your old accounts open for as long as possible, especially if you have not missed a payment on these accounts.
Planned Exit
When evaluating a bridging loan application, lenders will place high importance on your planned exit. A planned exit is how you intend to repay the bridging loan. Some common planned exits include: refinance of the facility onto a traditional mortgage, sale of the property and cash repayment. In order to ensure that your planned exit is approved by the lenders you should evaluate its certainty. Lenders prefer an exit that is absolutely certain of occurring. For example if a borrower owns a property that is un-mortgageable, lenders will not accept a refinance as a planned exit.
Purpose of the Loan
Another important factor to consider is the purpose of the loan. It is important that the purpose of your loan is acceptable to the lender. Generally, lenders will grant loans where the funds are to be used to purchase other properties, as working capital in a business or to fund a renovation. Other uses such as gambling, shopping and high risk investments. Borrowers should be sure to have an in-depth description of their use of funds, as lenders will use this as the basis of their application.
Sufficient Equity
When evaluating property bridging loans application, lenders will take into account their risk exposure. One of the ways in which a lender will look to reduce their risk will be by reducing the LTV on the loan, this will have several implications. Most importantly, the lender is reducing the amount of capital they are risking in the facility. On the chance that the borrower is unable to service the loan, the lender will be able to recoup their loan from the sale of the property, even if the value of the property decreases.
Mortgage Broker
Mortgage brokers are able to leverage on their years of industry experience to assist their clients in getting their bridging loan application approved. There are a number of ways in which brokers can do this.
Brokers have a vast network of lenders, from high street banks to specialist lenders. They are able to leverage this network of lenders to ensure that their clients are being offered the best products from the best lenders.
Mortgage brokers have guided numerous clients through the bridging loans UK application process and are able to ensure that their client obtains their finance with minimum time and fuss.
Mortgage brokers have established relationships with lenders, enabling them to fast track the application process and ensure that the lender and borrower are kept in-communication at all times.
Independent mortgage brokers are able to structure the bridging loan application so that it is easy to understand and clear, increasing the chances of success.
Conclusion
There are a number of factors to consider when applying for a bridging loan, with some being more important than others. Borrowers who wish to maximize their chances of getting their application approved should consult with an independent mortgage broker prior to applying for a loan.
Their independent mortgage broker can guide them through the process, helping them understand how the lenders will evaluate their application, increasing their chances of success.
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