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What Deposit Do You Need For A Bridging Loan?
Generally, you'll need a deposit for a bridging loan or at least 20% equity in the transaction - and this can be through an existing property you own.
The easiest way to check your eligibility based on your property values is to use our bridging loan calculator - it will confirm if you meet the loan-to-value threshold (80%), while also illustrating the estimated costs and fees involved:
Take a Look at our Bridging Loan Calculator
Get started with our calculator
A lot depends on the equity used to secure your bridge loan alongside a lender’s criteria. They will look at several factors, including your income, credit history, the LTV (Loan-to-Value) ratio of the loan you need and the overall size of the loan.
Bridging loans don’t have to be complex and confusing. They are an incredibly useful alternative to traditional borrowing and are accessible to most. Here’s our guide on what you’ll need to get a bridge loan and the likely amount needed for a deposit.
Key Takeaways
- You'll usually need a 20-40% deposit, but requirements do vary between lenders.
- Instead of a cash deposit, borrowers can use collateral such as property or valuable assets.
- One of the most important pillars of a bridging loan application is your exit strategy (how you plan to repay it once the terms are up).
- While rare, 100% LTV bridging loans may be possible with additional security beyond the primary property.
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What Are the Requirements for a Bridging Loan?
Can You Get a Bridging Loan for a Deposit?
How Much Equity Do You Need for a Bridging Loan?
How Much Can I Borrow with a Bridging Loan?
Can I Get a 100% LTV Bridging Loan?
Do You Pay a Bridging Loan Monthly?
Which UK Banks Offer Bridging Loans?
Is it Easy to Get a Bridging Loan?
Do You Need a Deposit for a Bridging Loan?
Yes, you'll typically need a deposit for a bridging loan. While deposit requirements can vary depending on the lender and individual circumstances, having some form of deposit or collateral is generally necessary to secure a bridging loan.
In general, lenders may require a deposit ranging from 20% to 40% of the property's value. However, it's essential to consult with potential lenders to understand their specific deposit requirements based on your unique circumstances and the loan terms offered.
Can You Use Collateral Instead of a Deposit?
You can often use collateral instead of a cash deposit when applying for a bridging loan. Collateral refers to assets such as property, vehicles, or valuable possessions you offer the lender as security against the loan. The value of the collateral will typically need to meet or exceed the loan amount being requested.
Yes, in many cases, you can use collateral instead of a cash deposit when applying for a bridging loan. Collateral refers to assets such as property, vehicles, or valuable possessions you offer the lender as security against the loan. The value of the collateral will typically need to meet or exceed the requested loan amount.
Using collateral instead of a cash deposit can be advantageous for borrowers who may not have sufficient cash on hand for a deposit but have valuable assets that they can leverage. However, it's essential to carefully consider the risks involved, as failure to repay the loan could result in the loss of your collateral.
See similar: How Much Does a Bridging Loan Cost?
What Are the Requirements for a Bridging Loan?
To elaborate on some of the requirements for a bridging loan, here’s a brief overview of some of the things lenders will look at and some of the things you’ll need to have in place to apply for a bridge loan successfully:
Security/assets
You will need suitable collateral to raise the loan against. Typically, this comes in the form of property or additional assets, but it could also be the property you're buying. This will affect the deposit you need, depending on the size and value of your property.
Credit history
Bridging loans come with risks to the lender, so naturally, most lenders will need reassurance. They may look at your credit history before determining whether to lend to you.
The LTV ratio
Put simply, this is the loan amount compared to the property's value expressed as a percentage. Typically, the highest LTVs offered by lenders range from 70 to 80%, so you’ll need to have a deposit to cover the remaining amount.
Exit strategy
Bridging loans are short-term, with terms of around 12-18 months. Before applying for a bridging loan, it's essential that you have a sufficient exit strategy in place to repay the loan. Usually, this is met through selling the property used as collateral, releasing equity, or refinancing with a longer-term loan.
One key advantage of using bridging finance is its flexibility. In many cases, bridging lenders offer tailored terms and even bespoke products based on your unique situation. However, this can become challenging to navigate without professional advice.
Because of this, it's recommended that you use a bridging loan broker. Most bridging lenders operate exclusively using brokers, and a whole-of-market broker can use their extensive network to get you the best rates available for your circumstances.
Can You Get a Bridging Loan for a Deposit?
Unfortunately, you can't use a bridging loan for a deposit on another property with a standard mortgage.
A mortgage provider simply won't accept a loan from another lender as their deposit.
How Much Equity Do You Need for a Bridging Loan?
Generally, lenders will need at least 25% to 40% equity in a property used as security – the higher the LTV, the higher the equity requirements are likely to be.
Additionally, if the property is considered a higher risk, the equity requirements can change accordingly depending on the lender.
However, if you're purchasing a new property with the aim to refinance onto a mortgage, you can secure the bridging loan against the property you're planning to buy, and you won't need any equity in that property.
Watch our bridging loan case study below for another bridging deposit example:
How Much Can I Borrow With a Bridging Loan?
With a bridging loan, you can generally borrow up to 80% of your property's value. The exact amount will depend on your circumstances, the properties in question, and the lender you use.
Again, the amount you can borrow is subject to several factors, most of which are set by the lender and depend on what you're using your loan for.
The funds you actually receive after a successful application will depend mostly on the LTV, which is based on the value of the property. You can receive a percentage of that value as an amount borrowed.
Your borrowing power hinges on the specifics of your loan – the size, your collateral, the plans you have in place for repayment, and the level of risk posed to the lender.
Related: Bridging Loans: How Much Can I Borrow?
Can I Get a 100% LTV Bridging Loan?
Typically, you can get an LTV of up to 80%. But, it can be higher with additional securities alongside a primary property against which the loan is secured.
It is rare that lenders would offer a 100% LTV loan – this would be a high-risk loan and require more equity within the property used as security.
However, these types of loans can be considered depending on your circumstances and the particular details of your case – it may be possible to secure such a loan with additional securities if you use the right lender.
If you want to do this, book a free consultation with our advisers, and we'll tell you whether it's possible.
Do You Pay a Bridging Loan Monthly?
No, you'll typically repay your bridging loan as a lump sum at the end of the loan term. Bridging loans can have slightly higher interest rates than mortgages, so the primary advantage of this is that if you pay your bridging loan off early, you'll only pay interest on the months you had the loan for.
But there are cases where you can pay in monthly instalments or arrange 'retained interest'. Retained interest is similar to rolled-up interest, but the amount is deducted from the total loan amount from the beginning instead of at the end and repaid earlier.
Which UK Banks Offer Bridging Loans?
High street banks don't offer bridging loans directly to customers anymore. However, there are a variety of specialist lenders that do offer bridging finance.
Specialist lenders can be difficult to approach independently. The majority of bridging lenders can only be accessed using a broker, and because these lenders operate through third parties, it can be difficult to get a clear understanding of what options are available without the help of an expert.
A bridging broker can help you navigate lenders, narrow down your options quickly and find the most favourable rates.
Is it Easy to Get a Bridging Loan?
Yes, compared to a mortgage, bridging finance is quick and easy to arrange. A bridging broker will guide you through the process, work with you to ensure your application is presented to the lender in the best possible light, and find you a deal that best fits your needs as a borrower.
Bridging finance can be secured in less than a month, and you can fast-track your application if you're under time constraints. Depending on the case's complexity, an accelerated bridging application can be processed in less than two weeks.
Need Advice on a Bridging Loan Deposit?
When making any significant financial decision, especially regarding a property loan, it's always best to seek the help of a financial expert. This will ensure you're getting finance at an affordable and favourable rate.
At Clifton Private Finance, we have an award-winning bridging team dedicated to driving results. We have relationships with lenders across the whole bridging market and have access to the best deals. Our bridging brokers can guide you through the process and liaise with lenders on your behalf.
To see what we can do for you, call us on 0117 205 4838 or book a free consultation below.
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