Bridging loans have become an increasingly popular financial solution for those needing short-term funding, particularly in property transactions.
However, many people wonder whether they can obtain these loans from their familiar high street banks. This article will explore the current landscape of bridging loans, the role of high street banks in this market, and what options are available to borrowers.
The Current Landscape of Bridging Loans
Bridging loans are short-term, secured loans typically used to cover a financial gap.
They’re commonly used in property transactions, such as buying a new home before selling an existing one, or for property developers needing quick capital for a project. These loans usually last between a few months to a year and are secured against property or land.
Before 2008, many high street banks offered bridging loans as part of their standard product range.
However, the financial crisis of that year led to significant changes in the lending landscape. As banks became more risk-averse, many stepped back from offering bridging finance, creating a gap in the market that specialist lenders quickly filled.
explore bridging loansDo High Street Banks Currently Offer Bridging Loans?
The short answer is: some do, but it’s not straightforward.
While several high street banks still provide bridging loans, they often don’t actively promote these products. This low-key approach is due to the complex nature of bridging finance and the higher risk compared to traditional mortgages.
Banks that offer bridging loans include Barclays, NatWest, and Lloyds Banking Group (which includes Bank of Scotland).
However, it’s important to note that their offerings may be limited and often aren’t directly accessible to the public. Instead, these products are made available through intermediaries or specialist brokers. As with their mainstream mortgages, the lending criteria is generally quite rigid and more conservative than the specialists.
Why High Street Banks Stepped Back from Bridging Loans
The 2007/2008 financial crisis was a turning point for many banks’ lending practices. As the property market faltered and financial regulations tightened, banks reassessed their risk exposure. Bridging loans, with their short-term nature and reliance on property values, were seen as higher risk than traditional mortgages.
Moreover, new banking regulations introduced stricter lending criteria, making it more challenging for banks to offer bridging loans under their previous models. As a result, many banks chose to focus on their core products, such as residential mortgages and personal loans, where they had established processes and could more easily meet regulatory requirements.
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Comparing High Street Banks to Specialist Lenders
High street banks can have some advantages when it comes to bridging loans. They often have lower interest rates due to their lower cost of funds. For existing customers, banks may offer preferential terms or a smoother application process. Additionally, borrowing from a well-established bank can provide reassurance for some customers.
Specialist lenders have gradually filled the gap left by high street banks in the bridging loan market.
These lenders provide more flexibility in their lending criteria, with some offering non-status options and can process applications more quickly. They’re more comfortable with complex cases or non-standard properties. Specialist lenders also tend to offer higher loan-to-value ratios and can sometimes provide loans for longer terms than banks.
How to Access Bridging Loans from High Street Banks
If you’re interested in a bridging loan from a high street bank, your best approach is to work with a specialist broker. These professionals have relationships with various lenders, including banks, and can access products that aren’t advertised to the general public.
The application process for a bank bridging loan is often more rigorous than with specialist lenders. You’ll typically need to provide detailed information about the property being used as security, your financial situation, and your repayment plan (how you intend to repay the loan). Banks may also require a higher deposit and have stricter criteria regarding the property’s condition and location.
Types of Bridging Finance Available
While the types of bridging finance offered by high street banks may be more limited than those from specialist lenders, it’s useful to understand the main categories:
First Charge Bridging Loans are the most common type. These are secured against a property with no existing mortgage or other loans secured against it. This is the least risky option for a lender.
Second Charge Bridging Loans are used when there’s already a mortgage on the property. The bridging loan becomes the second priority for repayment if the property is sold.
Open Bridging Loans don’t have a fixed repayment date, offering more flexibility but often at a higher interest rate. Closed Bridging Loans have a set repayment date, usually aligned with a specific event like the sale of a property and are made available when you have exchanged contracts.
Alternatives
If you’re unable to secure a bridging loan from a high street bank or find their terms unsuitable, there are several alternatives:
Specialist bridging lenders form the backbone of the current bridging loan market. They offer a wide range of products tailored to different needs and circumstances.
Challenger banks, which are smaller and newer than traditional banks, often have bridging loan products. They may offer more flexible terms and faster processing times.
Private lenders and peer-to-peer platforms provide another option for bridging finance. These can offer competitive rates but may have less regulatory oversight than banks or established lenders.
How to Find the Best Bridging Loan Deal
To find the best bridging loan, it’s essential to compare offers from different lenders, including both banks and specialists. Working with a reputable bridging loan broker can save you time and potentially money. Brokers have access to a wide range of products and can often secure better terms than you might find on your own.
When comparing deals, look beyond just the interest rate. Consider the total cost of the loan, including all fees. Assess the lender’s flexibility regarding loan term and repayment options. Also, factor in the speed of funding – if you need the money quickly, a lender’s ability to offer a fast bridging loan could be crucial.
Need some help?
If you need a short-term bridging loan then a specialist broker is a good place to start. You will get expert help and advice along with a wide range of lenders to choose from.
To get matched with a specialist broker, please call us on 0330 030 5050.