There are two main types of bridging property development loans in the UK: Closed and Open. In both kinds, you’ll need an exit route, so you can pay off the loan.
Closed Bridging Loans - This kind of loan has to be paid off before the fixed end date. So mostly borrowers know when the needed funds will be available. Typically, these loans take a few weeks or months tops.
Open Bridging Loan - This kind of loan doesn’t have any fixed end date. But mostly they still don’t last for more than a year. For the flexibility they offer, these loans are relatively more expensive than the closed ones.
First Charge and Second Charge Loans
This is again something you should know about. ‘Charges’ are added on the property you use as security.
When you don’t have other loans secured against the property, you can get the ‘first charge’ bridging loan.
But if you already have a mortgage on the property, you can take a second charge bridging loan on it. If you are unable to pay it off, these charges are considered to determine the priority of debts.
There’s a higher chance for you to get more loan to value (LTV) rate on a first charge bridging loan for property development because the property has no other claim. In a second charge loan, the lender calculates the Loan to Value based on the amount of equity you have on the secured property after other mortgages are deducted. It’s worth noticing that you might need permission from the first charge lender before adding a second charge lender.
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