Bridging Loans Exit
An exit route is the strategy for repaying the bridge loan at the end of its term. This is of paramount importance to both lender and borrower given that bridging finance is, by definition, only a short term loan. An actual exit strategy does not have to be in place when the loan is first drawn down but the borrower should have at least a realistic plan in place for repayment at the inception of the loan.
Whats the difference between Bridge Loans and Development Finance?
Bridging loans and development finance have many similarities. Both are used to finance property renovation projects and both are intended only as short term loan solutions (although most development loans are generally taken out for longer periods than bridging loans). In the case of development loans, however, as monies are usually released in tranches as a project progresses, evidenced by Monitoring Surveyor signed off certification.
Bridge Loans only allow the borrower to refurbish the property whereas Development Finance Loans allow for all manner of structural changes.
Does a borrower have to be employed?
What is a closed bridging loan?
A closed bridging loan is a loan with a fixed repayment date. It is used when the borrower has a clear exit strategy on their bridging loan. So, for instance, a closed bridging loan would be used where there has already been exchange of contracts on the property offered as security and the borrower is merely waiting for completion to occur.
What is an open bridging loan?
An open bridging loan has no set date for repaying the loan. It is therefore a far riskier strategy for both borrower and lender and this will usually be reflected in the interest rate charged by the lender. This type of bridging loan would be used, for example, by a purchaser who has found a house they want to buy but have not exchanged contracts on the sale of their current home, or maybe an investor who is buying a property to refurbish before selling it later and repaying the loan.
What interest rate will the borrower pay?
The interest rate charged on a bridging loan is driven by how risky the loan is for the lender to make. As bridging loans are non-standard and the circumstances of every borrower always different, it is difficult to provide a comprehensive list of factors that a lender will consider when setting the interest rate. However the main factors will be the level of the LTV and whether the security is first or second charge.
Do you make short - term loans on only specific types of properties?
Vitvo will lend against residential houses (including HMOs), and flats.
Where do you lend?
Vitvo will make bridge loans on properties in England and Wales only.
Who can apply?
Vitvo lends to individuals, corporations, partnerships, trusts and similar entities on a short term bridge loan basis.
Will you lend to SPVs, SIPPs, offshore vehicles or similar?
In principle, yes.
Are bridging loans regulated?
The term ‘bridging loan’ covers a wide range of loans used for a variety of funding purposes. Some are regulated by the FCA and others are outside the scope of FCA regulation. As of March 2016, if a borrower is a consumer and is applying for a loan where the security being offered is a first or second charge over a property in which the borrower or a person related to the borrower occupies most of the property (or intends to so occupy at some point in the future) then that loan is regulated by the Financial Conduct Authority as a regulated mortgage contract. A consumer for these purposes is defined as someone acting outside of their trade, business or profession. Thus, broadly speaking, unregulated loans are ones that are used for commercial, business or investment purposes.
Does Vitvo offer FCA regulated bridging loans?
No. We only offer unregulated loans.
After taking out a bridging loan, can a borrower then borrow more?
Yes, provided the existing bridging loan is not in default and there is enough property equity available as security for a further loan.
Can a borrower make some capital repayments early?
Yes. Not only will this lower the borrower’s outstanding balance on their bridging loan, it will also reduce the overall amount of interest charged.
Can the loan be repaid early?
Yes, but if a borrower wants to redeem their loan within the first 3 months, then the first 3 months’ interest is payable.
Are there early exit fees?
Vitvo does not charge exit fees. However, if a borrower wants to repay within the first 3 months of a loan, the first 3 months’ interest is payable.
What happens if I don’t make repayments on time?
Despite best intentions, it may be that a borrower is unable to make the scheduled bridging loan repayments on time. In these circumstances, a borrower should always contact their lender as soon as they are aware they may have difficulties and agree a course of action. Falling into arrears, irrespective of whether repossession takes place, is likely to result in a borrower incurring extra fees and/ or higher interest rate charges.
Can a borrower use a property they do not own as security?
Yes, but the property owner must be a party to the loan.
Can you lend outside your stated criteria?
Yes, but only in certain circumstances and if there is a compelling loan case.
Can a borrower use Vitvo’s solicitor or do they need their own?
A borrower requires their own solicitor. Vitvo’s solicitor provides due diligence and legal services for us as a lender and it would be a conflict of interest for that solicitor to provide the same services to our borrower on any proposed transaction. We recommend a borrower always takes independent advice from a reputable solicitor experienced in the area of property conveyancing and ideally, bridge financing.
Do you have a minimum or maximum age for borrowers?
A borrower must be a minimum of 21 years and a maximum of 85 years.