Using Secured Loans Instead of Bridging Finance

We've recently had a few deals that started out as Bridging Loan inquiries but ended up as Secured Loans. While this isn't a unique or unprecedented occurrence it is happening more frequently recently and the circumstances around the deals seem to share some similarities so we thought it was worth mentioning in a Blog.

The deals in question all broadly shared some or all of the following traits:

1. The timing of the Borrower's exit was uncertain and the initial bridging finance inquiry was for a period of "6-12 month"
2. The LTV of the loan was generally quite high (above 60%)
3. The size of the loan was, in Bridging finance terms, relatively small and never above £100,000
4. In some cases the income of the Borrower too was uncertain but generally when we were dealing with smaller loans of less than £30,000

In each of these cases when we examined the Bridging finance option it seemed that it became quite expensive as time progressed. Bridging loans are very flexible and quick to arrange but this does come at a price in that they become more expensive as time goes on and are generally unsuitable as a longer term source of finance. For the Borrowers in these deals they seemed to be leaving themselves open to undetermined costs, especially where their exit was unclear.

In these cases we then started to look at a Secured Loan option instead. This presented a few advantages across different cases:

• Secured Loans can generally accept higher LTVs. Up to 85% LTV is available in up to £125,000 and just this month a new Secured Loan Lender has started offering 95% LTV loans albeit only to a maximum of £20,000
• For non-status lending there are also greater options with Secured Loans with up to 75% LTV available in up to £20,000 or up to 65% LTV in up to £30,000
• By taking the loan over a long period like 25 years, monthly payments are kept low and the penalty for retaining the loan in the medium to long term is reduced. For many borrowers who were unsure of heir exit, this flexibility and certainty was a  big advantage
• There was extra flexibility in that a Secured Loan can be repaid at any point with just the "one and one" charge: give one month's notice and pay one month's interest. With the loan set over as long a period as possible this keeps the monthly payments - and ergo the penalties for early repayment - low too
• While there isn't a huge difference between Secured loans and Bridging Loans in terms of costs, for amounts above £50,000 Secured Loans do tend to have lower charges (but it does depend on a case by case basis)

So for certain cases we found it made more sense to the borrower to take a Secured Loan rather than a Bridging Loan. The good thing about how we work here at Choice Loans is that we have the flexibility to look at both options for our clients.

To inquire about a Bridging Loan then please see our Bridging Loan inquiry form here. To inquire about a secured Loan please see our Secured loan inquiry form here. Or if you'd prefer to talk through your options with us then give us a call on 0845 1260350