Bridging loans provide quick financial solutions for property buyers and investors, offering short-term funding to cover gaps in property transactions.
These loans typically require a substantial deposit, but many borrowers ask: is it possible to get a bridging loan without putting any money down?
The short answer is yes, but it’s not always straightforward.
While most bridging lenders require a deposit, there are scenarios where 100% financing might be available. This article explores the realities of no-deposit bridging loans, alternatives to consider, and how to boost your chances of securing high loan-to-value (LTV) bridging finance.
Understanding Bridging Loan Deposits
Before we explore no-deposit options, let’s look at how deposits work in bridging finance.
The deposit is your stake in the property, expressed as a percentage of its value. This percentage determines the loan-to-value ratio, a key factor in bridging loan applications.
Most bridging lenders offer loans up to 70-80% LTV, meaning you’d need to provide a 20-30% deposit.
For example, if you’re buying a £200,000 property, a 75% LTV loan would provide £150,000, requiring a £50,000 deposit from you, as cash.
Deposits serve a vital purpose: they reduce the lender’s risk.
By investing your own funds, you demonstrate commitment and share the financial responsibility. It’s like having a stake in the game – the more you invest upfront, the more confident lenders feel about your commitment to repay the loan.
The Reality of 100% LTV Bridging Loans
While 100% LTV bridging loans exist, they’re uncommon and come with strict conditions.
Most lenders avoid these high-risk loans, as they leave no margin for error if property values change or the borrower defaults.
However, some specialist lenders do consider 100% LTV loans in specific circumstances.
These usually involve additional security or below-market-value purchases. If you’re seeking a no-deposit bridging loan, you’ll need to bring something else to the table to offset the lender’s risk.
Consider this:
Do you own other properties with significant equity? Do you have valuable assets that could serve as additional security?
Your answers to these questions could open doors to higher LTV options.
Let’s talk bridging loans!
Additional Security for 100% LTV Loans
One way to secure a bridging loan without a deposit is by offering additional security.
This commonly involves using equity in other properties you own.
For instance, if you’re buying a £200,000 property and own another worth £300,000 with no mortgage, a lender might consider a 100% LTV loan for 200K secured against both properties.
In this scenario, while you’re borrowing 100% of the new property’s value, the lender’s overall risk is lower because they have a charge on both properties.
From the lender’s perspective, the loan-to-value ratio across all security is much more favourable.
Lenders will carefully assess the combined value and risk of all securities offered. They’ll consider factors such as location, property type, and current market conditions.
Remember, offering additional security means putting more of your assets at risk if you can’t repay the loan.
Below Market Value (BMV) Purchases
Another route to 100% financing is through below market value purchases.
These are properties bought for less than their actual market worth, often due to the seller’s need for a quick sale or other circumstances.
For example, if you negotiate to buy a property valued at £200,000 for only £150,000, some lenders might offer a loan for the full purchase price of £150,000.
They do this on the basis that the property is worth £200,000.
From their perspective, they’re still only lending 75% of the property’s true value, even though it covers 100% of your purchase price.
BMV opportunities often arise in off market or distressed sales.
While they can lead to substantial profits, they also carry risks. Make sure you understand why the property is priced below market value and factor in any necessary repairs or legal issues.
Alternatives to 100% LTV Bridging Loans
If a 100% LTV bridging loan isn’t feasible, consider these alternatives:
Higher LTV options
Some lenders offer bridging loans up to 85% or even 90% LTV, reducing your deposit requirement.
Mezzanine finance
This involves taking out a second loan to cover part of the deposit. While it can help you reach 100% financing, it comes with higher interest rates.
Second charge loans
If you have equity in your home, you might secure a second charge loan to fund your deposit.
Each option has its advantages and disadvantages.
Higher LTV loans will have higher interest rates. Mezzanine finance can be costly and complex. Second charge loans put your home at risk. Weigh these factors carefully against your financial situation and investment goals.
Costs and Considerations
High LTV bridging loans, whether 100% or close to it, do come with higher costs.
Expect to pay higher interest rates and additional fees may also apply.
These can include arrangement fees (often 2% of the loan amount), valuation fees, legal fees, and potentially exit fees. For a £200,000 loan, these could add up to £5,000-£10,000 or more.
Moreover, high LTV loans can affect your exit strategy. With little or no equity in the property, you may find it harder to refinance or sell quickly if needed. Always have a solid plan for repaying the loan at the end of its term.
How to Improve Your Chances of Success
To enhance your prospects of obtaining a bridging loan without a deposit:
Strengthen your exit strategy
Have a clear, viable plan for repaying the loan. This could be through sale, refinance, or another source of funds.
Improve your credit score
While bridging lenders focus more on the property and exit strategy, a good credit score can help. Check your score with UK credit reference agencies and take steps to improve it if needed.
Build a strong relationship with a broker
Experienced brokers have access to a wide range of lenders and can match you with those most likely to consider your application.
Prepare a comprehensive application
Include detailed information about the property, your experience, and your exit strategy. The more thorough your application, the more confidence you’ll inspire in lenders.
The Importance of Expert Advice
Seeking expert advice for a high loan to value bridge loan is essential.
A specialist bridging loan broker can:
- Access a wider range of lenders, including specialist providers
- Help you structure your application for the best chance of success
- Advise on the most suitable options for your circumstances
- Potentially negotiate better terms on your behalf
While it’s possible to get a bridging loan without a deposit in certain circumstances, it’s not common and requires additional security or special conditions.
Always consider the costs, risks, and alternatives before pursuing a 100% LTV bridging loan. With careful planning, expert advice, and a solid exit strategy, you can find the right bridging finance solution for your needs.
Need some help?
If you need a high loan to value bridging loan then a specialist broker is a good place to start. You will get expert help and advice along with a wide range of lenders to choose from.
To get matched with a specialist broker, please call us on 0330 030 5050.
FAQ
Yes. As long as the property security is good enough.
Timeframes vary, but many lenders can complete within 2-4 weeks, sometimes faster for urgent cases.
Most lenders will want to know the loan’s purpose, but there are few restrictions.
Yes, but only if you own another property with adequate equity.
Most lenders will assess your credit status, how this affects your application will depend how severe or recent the credit issues are.
There are lenders who offer bad credit bridging loans, and a few that provide non-status bridging finance, where your credit history is not looked at.
Without other assets or security, our maximum LTV is 90%.
Depending on your situation and asset base, it could be possible to have more than one bridging loan. A lot of this will depend on the equity you have.
