Step by step Bridging loan process

THE PROCESS
Since a bridging loan is, in effect, a mortgage, formalities are
inescapable. Because such loans are non-status, however, and
speed is of the essence, paperwork tends to be minimal and the
lender moves swiftly to secure a charge on the property.

Paperwork
The application form should require little more than name,
address, details of current mortgage lender and solicitor, together
with a signed authorisation to conduct credit reference checks. If
anyone else aged 18 or over also lives in the property, the lender
will want him to sign a mortgage consent form, effectively
agreeing to the mortgage and waiving any right to remain in the
property should the lender require possession. Details of current
buildings insurance will be required, and you will need to ask the
insurer to note the new lender’s interest. Failure to get this piece
of paperwork at an early stage can hold up the entire process.
Lenders who ask for more paperwork than the above should be
treated with extreme caution. You may encounter the following:
- A requirement that the borrower write a letter (in his own
handwriting) stating that he does not wish to use his own bank
for a bridging loan.
- A further statement, again in the borrower’s own handwriting,
stating that he can afford the loan repayments from his income.
As the loan is non-status, affordability is not an issue and the loan
will not be repaid from income. As for the reference to banks, you
might well wonder what experience other borrowers have had with
such a lender and whether you should proceed any further.
Valuation

As in the case of a mortgage, a valuation will be required. If the
amount to be borrowed is well below any likely valuation, the
lender may settle for a drive-by valuation which does not require
a visit and costs a good deal less than a normal valuation.
Independent legal advice
A reputable lender will advise in writing, at the outset, that
independent legal advice should be sought before proceeding.
Have nothing to do with a lender who does not follow this
practice.
Mortgage deed
The last stage before completion is the signing of the mortgage
deed. This will usually be witnessed by your solicitor.
Release of funds
Normally through the lender’s solicitor direct to your solicitor’s
bank account.

TIP
Given the cost and the risks involved, every effort should be made to avoid bridging
loans altogether. Try your bank first. It won’t gouge your eyes out! If you have to
use a specialist lender, look out for scams and extortionate fees. Ask if you are
dealing with an agent or principal lender. Ask if the lender has ever subsequently
asked for fees additional to those quoted in the initial offer letter. If you are using
a broker, check that he has used this lender before and ask for details. If he hasn’t
used this lender, find another broker. If he hasn’t arranged a bridging loan before,
find another broker. Watch out for strange requests such as handwritten letters
indemnifying the lender. Go elsewhere. Don’t accept the interest rate and charges
quoted. Negotiate better terms.