Bridging Loans with Bad Credit
Generally speaking, lenders will require you to have a good credit profile when considering your application for a bridging loan. Having a good credit profile will put you in the best position to secure the most competitive rates that are available.
If you have a bad credit profile and try to get a bridging loan, it does not instantly mean that you cannot secure a bridging loan. The most likely outcome to this situation will be that you will end up paying higher rates than if you had a good credit profile.
Poor credit can affect your ability to get a loan or mortgage in many ways, depending on the severity of the adverse credit event(s) and the length of time that has passed since they occurred. The good news is that bridging loans can indeed be available to you if you have a poor credit rating. Similar to mortgages, bridging loans are secured against your property, so if you already have a reasonable amount of equity in your home or other sizable assets, then this may offset the presence of poor credit items on your records.
When assessing your application, lenders will look at more than just your credit score (which is just an interpretation of your credit history made by the lender or one of the UK’s main credit reference agencies – Experian, Equifax and TransUnion). They typically have their own methods of assessing an applicant’s creditworthiness and will usually take into account the size of your deposit and/or the assets you are willing to secure against the bridging loan, as well as your income, outgoings, the value of the property and the repayment plan, just to name a few.
The process for acquiring a bridging loan can be complicated, even for a conventional borrower. When this is coupled with poor credit on the part of the applicant, it can make matters even worse and you can find you have several more hoops to jump through that you may not have anticipated, or criteria that may not be able to fulfil.
In order to secure a bridging loan with poor credit in the least-stressful way possible, you would be well-advised to speak to an experienced broker who will have a greater understanding of the demands and processes, and will be able to offer a great deal more help than the numerous articles on the subject you can find online. A professional broker will have a look at your individual circumstances to understand exactly where your problems lie, advise which lenders will be more favourable to approach as well as the steps you need to take, and present your case to the potential lender in the best possible light.
If you are in the unfortunate position to have bad credit on your financial records, then you could be forgiven for thinking that a lender will not offer you a bridging loan. This is actually a common misunderstanding, perpetuated by the approach taken by most of the lenders you’ll find on the high street. The reality is that while some lenders – particularly mainstream providers – will shy away from lending you any money if you have bad credit, other lenders will be more than willing to take their place and offer you the bridging finance you require.
Bridging loans are a specialist area of finance that is widely misunderstood by the majority of people. Often used to facilitate the completion of a house purchase when the existing property is yet to be sold, they are designed to supply finance for a short period (usually twelve months maximum) to bridge the gap until funds from the house sale come through.
For this reason, you often find lenders are more flexible in their approach. Rather than considering your bad credit in the context of the long duration of a mortgage, when they may perceive a higher risk of you at some point defaulting on payments, they are primarily concerned with the value of the property used as security for the loan, and the sum of money due from the potential current house sale.
As with any financial transaction around your home or other major assets, it is important to get the correct professional advice before trying to secure a bridging loan. The wrong advice or product could cost you thousands of pounds more than is necessary, or in some cases result in your application being declined, which will entail a further black mark on your credit record.
At IMC Mortgage Brokers, we work with a number of specialist lenders who have moved to fill the gap in the market left by the mainstream lenders and are willing to extend bridging loans to borrowers with a bad credit record or a poor credit score. If you have had trouble securing a bridging loan thus far and feel you have exhausted your options, please do get in touch with our expert team today to arrange a free, no-obligation initial consultation. Our advisers will be happy to assist you in finding the best way forward.
Trying to get a bridging loan can seem daunting, especially if you also have bad credit. In order to secure a bridging loan with bad credit it is highly recommended that you speak to an experienced broker. It is important that while dealing with a broker that you are clear from the outset on your objectives. Also vitally important is that you do not withhold any information that the broker requests. The more information the broker has the more in depth and detailed their research will be.
Once a broker has completed their research they will be in a position to carry out an up to credit search on behalf of the potential lender and also present the potential rates that may be available to you. If the lender is happy with the case that is presented to them, including the credit search then you will be in a position to make a full application to the lender via the broker. After the full application is made, the lender will instruct a Surveyor to look at the property or properties you are using as security against the bridging loan. The Surveyor will then report back to the lender to confirm if the property or properties are suitable security. The lender will then assess your application with all the facts that are available and then hopefully make a formal offer.
Once you have a formal offer it is then down to your solicitor to get the money released and transferred into your bank account or sent onto an onward vendor or seller. The process to get a bridging loan with bad credit can be complicated but we will endeavour to try and make the process as easy as possible for you.
Bridging lenders will always make a risk assessment on your profile and potential project before offering you a rate of lending. If you have had credit issues in the past then a lender will perceive you as a slightly higher risk than someone who has a perfect credit history. In traditional lending, lenders can have very rigid criteria with the types of credit issues they are willing to accept. Bridging loans are different as lenders will take a risk assessment approach and increase your rate based on the perceived risk.
Bridging lenders are willing to consider applications from people that have the following credit issues and more:
- Discharged Bankrupts
- County Court Judgments (CCJ)
- Defaults
- Debt Management Plans (DMP)
- Individual Voluntary Arrangements (IVA)
- Missed mortgage payments
- Missed unsecured payments
- Low or no credit history
The only caveat to the above is if any of the above affects the exit strategy of repaying the bridging loan.
Our brokers are well placed to not only asses your eligibility for a bridging loan but also make an assessment on whether they can also secure you a credible exit strategy, especially if the exit strategy requires you to borrow funds from another lender.
There’s a short answer to this question, and it is a resounding no. Much as we would sometimes like it to be otherwise, lenders will always carry out a credit check before committing to lending any money as a bridging loan to you. They have a duty to themselves to perform due diligence when considering all applications, to make sure they are limiting their exposure to potential risk of default, and are likely to get their money back from the loan.
A credit check also serves to protect the borrower as much as the lender. If a borrower with existing debts or a history of defaults was to be granted a loan without the necessary checks, and took on more financial commitments than they were realistically able to maintain, they would only find themselves in deeper financial trouble. This could have serious knock-on effects, not only to their creditors, but also to their property and the people around them as their lifestyle, morale and mental health will all be likely to suffer from the stresses money problems can cause.
It’s worth understanding that your credit score, as compiled and calculated by the three main UK credit reference agencies – Equifax, Experian and TransUnion – is never the whole story when it comes to an assessment of your eligibility for a bridging loan. Lenders assess bridging loan applications on the overall perceived level of risk, of which your credit profile is only one part. They will also look into your income, outgoings, existing commitments and level of assets you currently hold in property, among other things.
While many lenders will generally not adopt a ‘credit score’ based ‘computer says no’ approach, they will take your credit profile into account when deciding whether to lend to you or not, and the interest rates they are willing to offer on the loan. Your credit profile is made up of all your borrowing habits and transactions, so patterns of ‘good’ or ‘bad’ money management are possible to discern, which will matter more to the lender than the simple numerical score obtained from a credit check.
A low credit score might be seen as a minor setback when applying for a bridging loan, but it is by no means a huge issue, and it is definitely possible for you to get a bridging loan with a low credit score. It’ll be a matter of presenting your application as thoroughly as you can, in order to make a lending decision as easy as possible for the provider.
It’s worth bearing in mind that a low credit score still puts you in a far better position than if you had a poor credit score, with adverse credit items on your records, or no credit history at all, and simply shows that you have thus far perhaps made little use of lines of credit or borrowing. Lenders will view this as you not having had much financial experience, rather than being an outright default risk, and will take this into account when making an assessment of your creditworthiness and deciding what interest rate to offer you on a bridging loan.
It’s rare to find lenders using an automated process or computer algorithm when making decisions on bridging loans. Lenders will typically make an assessment of your application through a manual underwriting process, which means they will also look into a number of factors aside from your borrowing history or credit score. This can include any other relevant experience you have, your plan for how you will use the bridging funds and your exit strategy, as well your income, outgoings and other financial commitments.
The exit strategy can be a key aspect to any bridging loan application – with the loan being comparatively short-term, the lender will usually be most concerned with your plan to repay the money, and for this to be as straightforward as possible. In the case of a house purchase, the exit strategy is usually the funds you receive from the sale of an existing property, covering the funds you needed to borrow to finance the purchase of a new home.
So, a low credit score does not rule you out from acquiring a bridging loan. Our expert advisers can answer any questions upfront and help you find the most appropriate bridging loan lender for your individual circumstances.
If you require a bridging loan and have bad credit then there are a few things you can do that can help towards securing a loan approval from a lender. These are as follows.
- A good size deposit will help as the risk exposure to the lender is reduced
- An exit strategy that is both viable and achievable
- Demonstrating experience in previous property development projects
- If your bridging loan is for a property development project then a good project plan will also help
- If your bridging loan is for commercial purposes then a solid business plan will be helpful
When trying to acquire a bridging loan it is important that your case is packaged and presented to the lender in the best possible light. It is therefore important to seek the help of a professional adviser who will not only package your case but also deal with any subsequent queries from the lender in the most appropriate manner.
Speak to us at IMC Mortgage Brokers today to see how we can help.
