Bridging Finance Cost for the avarage

Bridging Finance Cost for the Avarage

The costs that can be incurred in obtaining bridging finance are
staggering. Consider the following.

Interest rates
Rates are set on a monthly basis and can range from 1.25% to
1.5% per month. These are credit card rates! A typical mortgage
would cost a third of this.

Fees
In addition to the standard valuation fee and your own legal costs
you can expect the following:
- Solicitor’s fees: not your solicitor’s, the lender’s! It is standard
practice to require the borrower to pay all the lender’s
expenses, including their solicitor’s costs. Unfortunately these
costs are not the standard conveyancing costs prevalent in the
mortgage industry. While solicitors charge a flat fee for their
work in relation to a routine mortgage, they base their bridging
finance fees on the value of the property! You can expect to
pay two or three times the normal rate.
- Broker’s fee: if you are using a broker to arrange the bridging
loan, he will be paid by the lender but you will pay the fee to
the lender. This is usually 1% of the loan. It is not possible to
avoid this as no bridging finance provider will pay the broker’s
costs.
- Redemption fee: this is paid when the loan is redeemed and is
typically one or two months’ interest. In other words, you can
expect a redemption fee of between 1.25 and 3% of the loan.

CASE STUDY
Consider the example of a £350,000 bridging loan taken out for just one
month:
One month’s interest at 1.25% 4,375
Lender’s legal fees 1,200
Broker’s fee 3,500
Redemption fee (2 months’ interest) 8,750
Total £17,825
These figures could change dramatically if the interest rate charged is
higher or the loan is out for more than a month. It is quite common for
lenders to insist on a minimum loan period of, say, three months. In the
above example, this would bring the total cost to an eye-watering £26,575!
This could more than wipe out any possible savings made by buying at
auction.