20 key steps, important terminology and metrics to secure bridging finance in the UK. A helpful guide for property investors by Blueray Capital.

1. 20 steps to bridging nance success
Bridging
Finance
Guide
www.blueraycapital.co.uk

2. Bridging Finance Guide
Page 1
Introduction
The bridging finance market is a large, important and competitive area of the UK
property sector. Its 50+ lenders are responsible for lending almost £6bn,
according to the EY UK Bridging Market Study 2021.
Bridging finance is an interim lending solution, used by companies and individuals,
secured on a property for an agreed term, to solidify their position until a long-term
financing option can be arranged.
The UK bridging market may be divided into regulated and unregulated lending
with unregulated typically having a larger market share at ~60% than regulated
bridging loans at ~40%, according to .
Bridging Trends quarterly infographic
A regulated bridging loan is one secured against a property that is currently
occupied, or will imminently be occupied, by either the borrower or an immediate
family member. The Financial Conduct Authority (FCA) offers additional protection
to consumers by making sure they have clear information and advice from the
lender or finance broker about the loan before they take it out. Regulated bridging
loans can be either first or second charge and must abide by the same regulations
that are applied to residential mortgages. They usually have a maximum term of
12 months, rolled up interest options and an exit strategy based on either the sale
of a property or refinancing.
Unregulated bridging loans are those that do not involve the personal dwelling of
the borrower, or an immediate family member. While many of the issues relating to
bridging finance apply to both segments, this guide is aimed at the unregulated
bridging finance borrower as this is the market segment in which Blueray Capital
operates.
The is designed to help those who are
considering taking out a short-term loan secured on a residential or commercial
property. It is not meant to be definitive but covers most of the elements involved
in the unregulated bridging finance process and introduces important terminology.
Blueray Capital Bridging Finance Guide

3. Bridging Finance Guide
Page 2
20 Steps to Bridging Finance Success
1. Reasons to bridge
There are several reasons why a borrower may require bridging finance on a
property:
Purchasing an investment property
Financing a chain-break
Mortgage delays
Refurbishment
Re-finance
Business purposes
Perhaps unsurprisingly the most popular reason, accounting for around 25% of
bridging loans, is purchasing an investment property for buy-to-let (BTL)
investment purposes.
2. Asset quality
The quality of the property asset is a key element of the lender’s underwriting
decision. Lenders have defined criteria regarding geography, property type,
location, minimum (and maximum) value, loan to value % and liquidity. The better
the quality of the property asset, the more interesting it will be to bridging lenders.
3. Not all properties are equal
Many lenders are truly agnostic when it comes to the property type but the list of
properties not considered by some lenders includes pubs, hotels, catteries,
nursing homes, charities and farms.

4. Bridging Finance Guide
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4. Exit route
Equally important to the lender is the strength and certainty of the exit route or re-
finance plan. This typically takes the form of a BTL mortgage on the asset, the
sale of the asset, the sale of another asset or additional investor-led funding. The
lender will require comfort on the likelihood of the re-finance being delivered at the
quantum required and, in the timescale agreed. If it’s a BTL mortgage then a
decision in principle (DiP) from the lender is normally required.
5. 1st, 2 (or 3 !) charge
nd rd
Most bridging lenders look for an unencumbered property on which they will take a
1 charge. Some lenders are prepared to consider a 2 charge position and a
handful may consider a 3 charge. Moving away from a 1 charge position will
reduce lender options and the loan amount & increase the cost.
st nd
rd st
6. Loan term
The majority of bridging finance lenders will lend up to 18 or 24 months with a few
offerings up to 36 months. There is very little incentive for a lender to invest the
effort for anything less than 3 to 6 months interest, although there are some niche
lenders who offer smaller loans for very short terms.
7. The key metric
Introducing LTV
, or loan-to-value, the main decision metric lenders use to
determine the gross loan amount. It’s the key metric in property finance.
Borrowers usually want to borrow as much as possible on the strength of the
asset value but lenders have strict minimum and maximum guidelines, normally in
the 50% to 75% LTV range. LTVs for commercial properties are usually lower than
residential (and interest rates are higher).

5. Bridging Finance Guide
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8. Valuation
During the turbulence of the last 2 years lender valuation requirements have
adapted to accommodate travel restrictions and the shift to working from home.
The preferred option is a valuation report by a RICS qualified surveyor. This
involves a property visit, measurements & photographs resulting in a detailed
report on the asset, its rental income potential and local sales comparisons.
Lenders use a panel of surveyors usually offering 3 choices to the borrower who
will need to pay the survey cost prior to instruction. Some lenders have begun to
use desktop valuations and automated valuation models, especially for lower
value assets or specific types of property. There can be surprises in the valuation
outcome and so borrowers are advised to incorporate conservative values in their
plans.
9. Interest rate
The rate charged is normally expressed as a % rate such as 0.65%/month or
0.8%/month. The range offered currently is from 0.4% to 1.2%/month. The lower
the LTV the lower the risk to the lender and therefore the lower the rate offered.
While all borrowers want to pay the least amount there is value in speed,
certainty, flexibility and efficiency, all of which influence the price a borrower may
be willing to pay.
There are 3 interest re-payment methods: retained, serviced or rolled-up. Most
lenders will offer a choice of retained or serviced with fewer lenders offering
rolled-up, which is more common in development finance.
10. Retained interest
Retained interest is the preferred lender model as it reduces their risk. The total
interest charge for the whole term is deducted from the loan facility. On the basis
the facility goes to term, just the principal, and any exit fee, will need to be paid.
The benefit to the borrower of a retained interest approach is usually a higher LTV
and a lower interest rate compared to the other two methods.

6. Bridging Finance Guide
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11. Serviced interest
With the service interest approach the borrower pays interest that accumulates
monthly, leaving the principal amount and any exit fee to be settled at the end of
the term, or once the property exit plan is completed.
12. Rolled-up interest
The borrower does not make any monthly interest payments during the loan term.
Instead, interest is ‘rolled up’ and paid as a lump sum at the end of the loan term
with the principal and any exit fee. This can result in interest being compounded
and repayments at the end of the loan being larger than if interest was spread
across the loan term.
13. Arrangement fee
A bridging finance provider makes its return on the margin of interest received
over its cost of capital. It covers some of its application process costs through an
arrangement fee, normally 1% to 2% of the gross loan amount. This fee is
deducted from the gross loan amount and usually shared with the commercial
finance adviser, or broker, who has introduced the transaction and supported the
client through the process.
This is a preferred approach for borrowers who do not have regular cashflow, and
therefore cannot cover regular interest costs. The lender will want to see a high
quality property asset, good borrower standing and a robust exit strategy. This
approach offers the lowest LTV and highest rate in comparison to the other two
repayment methods.

7. Bridging Finance Guide
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15. Gross Loan
The gross loan is the amount the borrower will need to repay at the end of the
term. It is derived from the property value (as confirmed in the valuation report) x
the lender’s LTV %.
16. Net loan
The net loan, often referred to as Day 1 proceeds, or the draw down amount, is
the amount the borrower will receive on completion of the legal documentation.
Assuming a retained interest bridging loan, the net loan is the gross loan less the
arrangement fee, administration/monitoring fee and the retained interest for the full
term.
Bridging finance lenders have different pricing policies but other costs can
include:
Administration fee
Monitoring or loan management fee
Exit fee
Early repayment charge (ERC)
Surveyor fee
Legal costs
14. Other costs and fees
At this point in the process there may be a small, but non-refundable, commitment
fee which is deducted from the administration fee on completion. Most lenders do
not require this as the borrower is showing commitment to the process by
instructing and paying for the surveyor to produce the valuation report.
All costs are detailed on the bridging finance quote, indicative offer or term sheet
before proceeding to the valuation and legal stage.

8. Bridging Finance Guide
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(all figures are illustrative)
(75% LTV)
Loan term 12 months (Minimum period: 3 months)
less
Retained interest £ 54,000 (.6%/month)
Arrangement fee £ 15,000 (2% fee)
Administration fee £ 1,000
Monitoring fee £ 0 (No fee)
Exit fee £ 0 (No fee)
T
otal deductions £ 70,000
(funds to be received by borrower)
Other costs:
Commitment Fee £ 500 (due on acceptance. A non-refundable cost paid to the
lender, deducted from the administration fee)
Valuation report £ 1,750 (due on acceptance. Paid to the surveyor firm once
instructed)
Lender Legal Costs £ 1,500 (due once the valuation report is received and the
lender has confirmed the offer. Usually based on a sliding % scale)
Bridging Finance Quote
Gross Loan: £750,000
Net Loan £680,000
A serviced interest loan would include a similar set of figures except the interest
cost would show the monthly interest to be paid, rather than the total deducted for
the whole term. Also, the LTV % would be lower and the interest rate higher,
reflecting additional lender risk of this repayment model.
A DiP
, Quotation or T
erm Sheet details all the costs and terms of the bridging
finance lender. Let’s assume a borrower requires bridging finance over 12 months
secured on a £1m property. Assuming the property location and type meet the
lender’s criteria and the lender is satisfied with the standing of the borrower, a
retained interest bridging quote might detail the following:
17. Decision in principle

9. Bridging Finance Guide
Page 8
Commonly referred to as KYC, this is a security process all lenders are required
to complete for fraud prevention purposes. By gathering full identification details
and completing various credit checks they can ensure the borrower is legitimate
with sufficient credit status and not on any sanctions list. Some lenders are
moving to electronic systems which are online and automated while others require
certified copies of a driving licence or passport and a recent utility bill. The
process is normally completed after the valuation report once a credit-backed final
offer is received, and the legal process is underway.
19. Redemption statement
T
o settle the bridging loan obligation the borrower will need to activate the
designated exit route as described in Point 4 above so that the required funds are
available to repay the gross loan amount. At this point the lender will create a
redemption account showing any additional costs (exit fee/penalties) or
reimbursements (refund of retained interest). Once the lender is fully satisfied the
loan is settled, the charge on the property may be released. Note it is prudent for
the borrower to confirm release of the legal charge.
20. Timescales
Bridging lenders compete across all the lending criteria and time to complete is
one of the important differentiators. Due to the sequential nature of the process
(enquiry-quote-valuation-final offer-legals), the number of firms involved (lender,
surveyor, solicitor, borrower and borrower’s solicitor) the process normally takes
between 2-4 weeks. However, for certain bridging transactions these timescales
may be compressed into days.
18. Know your client

10. Bridging Finance Guide
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Why use Blueray Capital?
1. We have relationships with all the leading bridging lenders. We know their
lending criteria and application process requirements and provide prompt
response on appetite and indicative terms.
2. We make the process easier for the lender and they trust us. Applications
introduced by advisers have greater chance of success than a direct
approach. We will have done due diligence on the client, established the
transaction is robust, prepared relevant information and will present it in a
lender-friendly format.
3. For good quality deals it’s likely that multiple lenders will express interest
which provides the client with more choice and potentially enhanced terms. A
key adviser role is to establish lender appetite quickly and help achieve
optimum terms.
4. Our fees are paid by the lender as part of their arrangement fee and so our
service does not represent an additional cost to the borrower.
As outlined in this guide, there are numerous aspects to bridging finance and
navigating them effectively will increase your chances of success with bridging
lenders. There are good reasons to use a specialist advisory firm, such as
Blueray Capital, to achieve this success:

11. Blueray Capital
A commercial financial specialist, regulated by the FCA, Blueray Capital is well-
positioned to help with all your bridging finance requirements.
The bridging finance process usually starts with a conversation with us. We can
efficiently assess the options available and usually provide indicative terms in
minutes. We will then work with you exclusively to submit the application to
selected bridging finance partners and guide you through the process to a
successful and prompt completion.
Email: enquiries@blueraycapital.co.uk
Call: 0203 393 8864
Visit: www.blueraycapital.co.uk