What is The Maximum LTV For a Bridging Loan?
The maximum loan-to-value (LTV) for a bridging loan is usually around 70%-75%, with some borrowers able to access 80% or 90% in very rare cases.
The loan-to-value refers to how much of the entire property value can be covered by a loan. Therefore, if the bridging loan is offered at a 75% loan-to-value (LTV) ratio, the remaining 25% must be covered by a deposit, which can come from savings, investments, or equity from another property.
Bridging Loan LTV Example
If a borrower wants to purchase a property for ÂŁ500,000, the lender may offer them a maximum LTV of 75% at ÂŁ350,000 and they will be required to pay a deposit of ÂŁ150,000 at 25%
What is The Average LTV For a Bridging Loan?
Reports from Bridging Trends show that the average LTV for a bridging loan is around 55%.
Although 70% or 75% is the maximum available from bridging lenders, accessing terms of 50% to 60% may be far more common and accessible.
What Influences The Loan To Value (LTV) For a Bridging Loan?
The loan-to-value for a bridging loan may vary between lenders, but will be influenced by:
- Whether the loan falls under regulated or unregulated (unregulated typically offers a higher LTV)
- The lender’s appetite risk and terms
- First charge or second charge bridging loan
- The borrower’s background, track record, previous experience
- The business plan, opportunity, forecast and exit strategy
Unregulated Bridging Loans May Offer a Higher LTV
Bridging loans are either classed as regulated or unregulated activity by the Financial Conduct Authority (FCA).Â
Regulated bridging loans are typically subject to stricter rules, as they are secured against a borrower’s primary residence. As a result, maximum loan-to-value (LTV) ratios are generally limited to around 65%–75%.
With unregulated activity, this falls outside of the FCA’s remit and therefore bridging lenders can take more of a personal view on individual bridging loan applications and cases, in which case they may wish to take on more risk and offer up to 75% LTV, or in some cases, 80% or 85%.
Residential Bridging Loans May Access Higher LTV
Whilst every property and opportunity is different, residential properties overall offer higher LTVs for bridging loans, because lenders consider the demand for residential property such as homes and flats to be significantly higher than commercial properties – and therefore less risk for the lender.
For example, semi-commercial properties are deemed to be higher risk and may only offer maximum LTV ratios of 50% or 60%.
Other influencing factors may include the location, condition and potential value of the property. Hence, the LTV offered by the lender will be reflected by how risky they consider the opportunity and their likelihood of recovering their funds.
Second Charge Bridging Loans Offer a Lower LTV
Second charge bridging loans typically offer a lower loan-to-value (LTV) ratio because they carry more risk for the lender compared to first charge loans. The second charge sits behind the first charge when it comes to priorities for repayment and at this point, there is less equity in the property anyway. For lenders, there is a greater risk of loss and a longer and more complex recovery process.
The Lender’s Risk Appetite May Vary When It Comes To LTV
Different bridging lenders will vary when it comes to risk appetite, with some being more open to risk and others less so.Â
In fact, even the time of year can impact their appetite, in terms of hitting targets and having access to funding lines.
Your Deposit May Impact LTV
For some borrowers, they may not require the maximum LTV, with some able to offer a 50% deposit and only require 50% LTV.
In the event of having a 10% or 15% LTV, the lender may not be able to offer something as generous as a 85% or 90%, in which case the borrower will need to top this up through additional funds, savings or investments – or equity in another property can be used to get this over the line.
Your Strategy and Exit Will Boost LTV
Fundamentally, the bridging lender is presenting terms where they believe they can get their loan repaid and their funds fully recovered.Â
For a borrower that presents an exciting property opportunity with great prospects and they have the experience, exit strategy and track record to back it up – they are more likely to access the higher loan-to-value ratios at 75%.
What Should I Do If I Need To Access More Than 70% LTV Through a Bridging Loan?
If you need a bridging loan with more than 70% or 75% LTV, you may have to speak to multiple providers to find a lender that is willing to offer 80% LTV or more.
In some cases, the provider might consider a higher LTV if offered additional security, such as taking a charge on another property, charging higher rates or requiring personal guarantees.
There are other finance products that are designed for adding more debt to the loan including personal loans, mezzanine finance, senior stretch debt and senior bridging loans – but these may be from specialist lenders and not bridging providers.
Is it Possible To Get a Bridging Loan With 80% or 90%?
Whilst uncommon, yes, there are bridging lenders that can offer LTVs of 80% or 90% in certain circumstances. The borrower may need to have a close relationship with the lender, a superb track record or strong business plan, or added security to be considered.
