How To Rebridge a Bridging Loan
A rebridge or rebridging refers to when you refinance an existing bridging loan with a new one, possibly to give yourself an extended repayment period or to access more favourable terms.
This is very common for developers or investors who are working on a building project and might need a little longer – either to complete their building work or complete the sale of the property.
A rebridge allows them to extend their repayment terms, giving them some additional time to secure long term funding or a sale.
Depending on the status of their property, the terms of rebridging a bridging loan may be less or more favourable than their existing terms.
Rebridging Loan Example:
Original bridging loan:
Loan amount: £1 million
LTV: 70%
Term: 12 months
Interest rate: 0.85%
Monthly interest: £8,500
12 month interest: £102,000
Full repayment amount: £1,102,000
Rebridge:
Loan amount: £1 million
LTV: 75%
Term: 12 months
Interest rate: 1.0%
Monthly interest: £10,000
12 month interest: £120,000
Full repayment amount: £1,120,000
When Would You Need To Rebridge a Bridging Loan?
Project is overrunning – A bridging loan is often used by developers to purchase a property to refurbish and sell for a higher price or rent out to tenants.
Depending on the project, building work can often overrun, whether it is due to waiting for planning permission, unexpected issues with the project or issues with the contractors and builders.
The maximum loan term for a bridging loan is 24 months and if the date is fast approaching or has already passed, the borrower might look at a rebridge to extend their current loan term to complete the project and avoid default.
Awaiting a sale – The exit strategy for the borrower might be completing the sale of the property, with the full sum required to pay off the loan completely. Property sales can often be delayed due to long chains, breaks in the chain, necessary certifications or needing longer to find a buyer at the right price.
Some developers will be far more willing to hold onto the property a little longer to get the best price possible – and using a rebridge will allow them to extend their loan effectively.
Access more capital – In addition to extending the deadline, rebridging a bridging loan can also give the borrower more capital to be used towards the project. If the borrower has already borrowed 70% or 75% LTV of the property’s value, they may be unable to access more through a bridging loan and may have to explore other senior debt options. But if their LTV is 50% or 60%, they may be able to access 10% or 20% more in funding through a rebridge. See what is the maximum LTV for a bridging loan.
Avoid default – Default fees, review fees and late fees are applicable if a customer has not repaid their bridging loan by the time of the loan’s maturity. A rebridge may give a borrower an opportunity to extend their loan and avoid default and even repossession of the property, if it makes sense to do so.
Awaiting long-term finance – Developers may be awaiting longer-term finance through a mortgage, sale or investment, and this might be delayed for some reason. If they are waiting specifically on another financial arrangement to complete, they may look to rebridge for a further 6 months or longer.
When Should You Not Rebridge a Bridging Loan?
Rebridging may not always be in the best interest of the customer and the lender, in circumstances including:
Lack of exit strategy – An exit strategy is a key part of any bridging loan, although some customers may apply for an open bridging loan where they may only decide the outcome of their loan later on.
Without a clear exit strategy, they may not have a viable way to repay their loan in full. For the lender, it may not make business sense to offer a new bridging loan without clear plans in place. For the borrower, it may be expensive to take on another loan without a clear exit.
Value of property has decreased – If there have been unexpected issues with the property and its value has decreased, this may not be a good reason to rebridging a bridging loan at a higher rate.
This may occur due to a fall in the housing market, a problem with the property such as subsidence or flooding, lack of planning permission, squatters or other issues. Selling the property at a reduced price may be a better option for the borrower.
Debt troubles – If the borrower is having financial trouble, taking out a rebridge and relying on short term finance which ties them in with higher rates may not be advisable. At this point, the borrower should consider professional financial advice and other alternatives.
What Will My Loan Terms Be Cheaper if I Rebridge?
Not usually, rebridging often carries higher interest rates than standard bridging loans because lenders perceive them riskier because the borrower has already struggled to meet the initial repayment. In fact, very often, the borrower will rebridge with a different lender because the original lender does not want to take on the risk.
Bridging loan rates range from 0.5% to 2% per month and your existing rate may increase when you rebridge. Importantly, the same fees associated with a bridging loan still apply, such as a broker fee, arrangement fee, survey fee, valuation fee and solicitor fees – and rebridging means that you will have to account for these too.
The rate that you are charged for rebridging a bridging loan will vary on different factors including the current LTV, your equity in the property, the state of the property and its potential value.
If the property and its refurbishment is going extremely well and it could be valuable, the lender may view it as a viable commercial opportunity to offer a rebridge and the rates may not be as severe.
Can I Ask For a Bridging Loan Extension Instead?
If you only require a bridging loan extended for a few more months such as 3 or 4 months, you can always ask the lender for an extension, but note that default fees and late fees may still apply on top of the existing monthly interest rate.
