Bridging Fees – Lets talk about gross and net bridging loans costs
A large majority of bridging enquiries I receive are from applicants wanting the maximum loan-to-value and expecting their deposit outlay to be limited to 25%. The reality is the “single first charge” bridging market typically sits between at around 30% mark when you deduct the associated set-up charges, and this in short is the difference between gross and net bridging loans.
In the case of property development finance you may seek help to finance the work. In which case the Bridging Lender might effectively give you a higher overall facility. The way this typically works is 65% loan-to-value day one and up to 100% of the build costs, released in instalments and on the provisio that the value of the property never exceeds 65% at any one point. However the same relationship exists between gross and net bridging loans for the delay one advance.
“Multiple cross-charges i.e. secured against more than property can “net” much higher and I will cover this in a separate article.
Frequentantly asked questions on The Difference Between Gross and Net Bridging Loans
A) It is the overall amount a Bridging Lender lends. This total is subject to interest charges i.e. it is the amount borrowed.
A) The amount you receive in your pocket to use. This figure is after (net) the deductions of set up fees. It may also include interest deductions for the borrowing.
A) As standard the fees that are deducted from the gross bridging loan are: Lender arrangement/facility fee: Lender admin fee; Lender legal costs and a Telegraphic transfer fee.
A) Examples are Title insurance and Broker Fees, depending on the transaction there could be others.
A) Yes, some Bridging Lenders configure the bridging loan on a “retained interest” basis. This means they take the interest either in part or fully upfront and add this to the fees This sum is then deducted from the gross bridge to arrive at the net advance.
A) No, it does reduce your admin burden but would attract interest on the charge.
A) The lending is more risky and can be short term. The fees also create a profit margin within the product to allow a lower interest rate which aids sales and marketing.
A) Bridging has historically been used as a vehicle to disguise underhanded fradulent activities. As such the Bridging Lenders place the onus on the Solicitors to identify who will benefit from the transaction; determine if there are any black marks against them; check the property has good title; sufficient lease length; has been licenced (if needed); correct planning permission in place, conforms with any building regulations etc. And, that’s just a taste of the checks the Solicitor has to make. Furthermore by nature bridging work needs to be done quickly which comes at a premium.
A) The highest I’ve come across is 85% released day one. This was 75% for the purchase and 10% for identifiable light refurbishment work.
You also need to be careful as some Bridging Lenders publish a loan to value but work off a “restrictive day sale” valuation i.e. a fire sale rather than the open market value which puts a downward pressure on the outcome.
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