When you enter a bridging loan, you will usually need to put down a deposit. This is a lump sum paid upfront. The amount you will need to pay as deposit depends on the amount you want to borrow, the value of the property you are looking to purchase and the LTV (which is dictated by your lender).
Your deposit will be at least 20% to 25%, as the LTV available on a bridging loan is 70% LTV or 75% LTV unregulated. The deposit represents the proportion of the property you own outright, the LTV is the rest of the property which you pay off with a bridging loan.
What is LTV?
LTV (otherwise known as the Loan-to-Value) is the ratio lenders use that shows how much you may be able to borrow versus the value of the asset you want to borrow against.
For example, if you wanted to purchase a property worth £100,000 and wanted to borrow £75,000, the LTV of the loan would be 75%. Your deposit would be the other 25% which would be £25,000.
LTV Key Features
- Borrow up to 75% LTV regulated
- Borrow up to 100% LTV unregulated
- No deposit bridging loans available
- 100% LTV may require additional secured asset
What is the difference between regulated and unregulated LTV?
Currently only part of the bridging loan industry is regulated by the FCA. The FCA are the Financial Conduct Authority, which regulate financial services firms in the UK with the goal of protecting consumers and ensuring the integrity of the UK financial industry.
A regulated bridging loan would be one which falls under the protection of the FCA, these are usually residential ones. Regulated bridging loans aim to offer consumers a heightened level of protection and peace of mind.
At this time, all commercial bridging finance is unregulated, meaning the FCA does not supervise this area of the industry. If you’re securing a loan for an investment property, a commercial building, or for a buy-to-let it will not be regulated, meaning you VTL will be 75%.
Can I get a bridging loan with no deposit?
Yes, you can get a bridging loan without putting down a deposit. However, you may need to look at different types of products such as mezzanine finance. Mezzanine finance allows companies to give up some of their equity to secure a loan. You can find out more about mezzanine finance here.
Can I Use a Bridging Loan for a Deposit?
Yes, you can use a bridging loan as a deposit on a property. Bridging loans are commonly used by those stuck in between the purchase of a new property and the sale of their current one, not wanting to lose their dream home by delays in selling their existing home.
These types of borrowers can use a bridging loan to pay for a deposit on a new property, which can then be repaid once their existing house is then sold. In these types of situations, bridging loans can offer a temporary solution, with borrowers able to secure their dream house and not miss out before their current house is sold.
