Non-status & Bad Credit Bridging Loans

By Georgia Galloway | Thursday 5th January | 15 minute read

Can non-status or bad credit affect your ability to get a bridging loan? Find out why it's still possible to get short-term bridge finance, how it could even help improve your credit rating in the future, and our quick guide to securing the funds you need.

Bad Credit Bridging Loans

Can bad credit affect your ability to get a bridging loan?

Even when a borrower has a bad credit history they can still qualify for a bridging loan providing the following three key conditions are met.

Firstly they'll need to own a property as the majority of bridging loans are secured against this type of asset. Whilst the property could be located outside of the UK, there are more lenders willing to lend on UK property than overseas.

Secondly, that property will also need to have enough available equity in it to achieve a loan-to-value (LTV) ratio that fits within the bridging loan lender's LTV limits.

Lastly, the borrower must have a realistic exit strategy. Unlike mortgages, there are typically no monthly repayments with a bridge loan, instead the full repayment is made at the end of the loan term in one lump sum. As such the lender will expect the borrower to have a reliable method of repaying the debt when the loan ends to avoid default.

So yes, even where a borrower has already been turned down for a mortgage or credit card due to bad credit, this doesn't mean they won't be able to obtain a bridging loan.

Will a bridging loan lender perform credit checks?

Your credit report's main objective is to provide lenders with information about how you handle borrowing. Whilst having bad credit may reduce your chances of getting approved for a bridging loan with certain UK lenders, there are several lenders who look at each case on its own merits.

The lender will typically focus on whether the property's available equity being used as security is adequate for underwriting the loan being sought. It's because of this many bridging loan lenders do not perform credit checks but instead ask for the borrower to supply their own credit report, which is easily obtained from online credit companies such as Experian. That doesn't mean the lender won't ask about a borrower's poor credit score. The lender will want to understand what type of bad credit the borrower has and why it occurred.

The type of bad credit, and the explanation of why it occurred, is likely to influence the decision on whether the loan gets approved. So, if you're a borrower with bad credit seeking a bridging loan make sure you have your credit report to hand and expect the lender to ask questions about the circumstances of your bad credit. Always be truthful and transparent as lenders will definitely not lend to someone who they think is being deceitful.

What types of adverse credit will bridging lenders likely accept?

Lenders will still consider a bridging loan for a borrower who has the following previous credit problems:

  • County court judgements (CCJs)
  • Defaulting on loans
  • Debt management plan (DMP)
  • Debt relief order (DRO)
  • Individual voluntary arrangements (IVA)
  • Payday loan use
  • Payments arrears
  • Previous bankruptcy
  • Property repossession

Whilst the adverse credit problems listed are not grounds for immediate disqualification, the borrower will still need to meet the lender's other criteria, such as having a robust exit strategy to repay the loan and the adequate security for the loan.

Can you get a bridging loan with bad credit?

In short, yes, provided you've got enough equity in the property you'll be using to secure the loan against.

Why are bridging lenders increasingly accepting of bad credit?

Obtaining a mortgage whilst having bad credit is a challenge and certainly more difficult than getting a bridging loan. There are several reasons for this.

A traditional mortgage is typically long-term, that is to have a duration of 25 years. A bridge loan is short-term, typically with terms of up to 12 months. Lenders take significantly less risk when approving short-term loans due to the fact that bridging loans are often fully repaid within a year. Mortgages, on the other hand, are often paid on a monthly basis for a term that can last decades.

Fewer things usually can go wrong within a shorter time frame. We say usually because the UK economy in the last three years has been anything other than 'usual'. Whereas throughout a tenure of ten or twenty years, a lot will happen.

The fact that loans will be repaid much more quickly is an incentive for lenders to agree bridging loans to borrowers with less-than-perfect credit.

Will I end up paying more for bridging finance because of bad credit?

In short, yes. It's likely that the bridging finance costs for a borrower who has bad credit will be higher than for those with good, clean credit. The costs associated with bridging finance are largely based on risk, so the higher the risk the higher the interest rate given.

What checks will the bridging finance lender carry out?

From a credit viewpoint the lender will want to see your current credit report which is available from several online credit companies. Other checks that will need to be completed will be Anti Money Laundering (AML) check, Know Your Client (KYC) check, identity check, assets and liabilities check and a property survey to obtain a valuation report.

How much can I borrow with adverse credit?

This will entirely depend on how much available equity you have in the property asset the borrower will be using as collateral.

Can I get a bridging loan with no credit check?

No, you should expect a credit check when applying for a bridging loan. Bear in mind though, bad credit bridging loans are possible.

What is a non-status bridging loan?

A non-status bridging loan is a short-term finance product available in the UK designed for individuals who may not meet the usual criteria for borrowing from traditional lenders, such as banks and building societies, due to their credit history or lack thereof. These loans are commonly used by property developers, investors and businesses to secure short-term finance for property transactions, investment in businesses and more.

Non-status bridging loans are usually secured against a property or asset and can be used as an alternative if other forms of finance are not available. These loans offer flexible repayment options and can even be repaid with funds that come from the new purchase or other planned investment.

Non-status bridging loans are fast, with funds often available within days of making an application. They're designed to be flexible, with repayment structures tailored to individual needs; and can be used for a variety of purposes, such as purchasing property, investing in businesses and more.

They are often referred to as 'bridging loans' because they can be used to bridge the gap between a current financial situation and a future one that is expected to be more secure.

Do you need proof of income for a bridging loan?

No, borrowers do not typically need proof of income to secure a bridging loan with bad credit because typically there are no monthly payments and the method for repaying the loan will come from the exit plan. That exit plan will typically be the sale or longer-term refinancing of the asset.

Could a bridging loan help my credit history?

Any loan default is bad for your credit score, so it's essential to avoid it if at all possible. On the other hand, having a serviced bridging loan and making your payments on time can improve your credit history profile.

Can I get a bridge to let finance with bad credit?

Yes, it's possible to get a bridge to let finance even if you have bad credit. Bridge-to-let finance, at its most basic, refers to bridging loans that finance the initial purchase of rental properties, typically those that need renovation or refurbishment work. Then as soon as the works have been completed, the loan is refinanced onto a longer-term solution such as a Buy to let mortgage. It can be a practical and affordable choice for landlords or real estate developers embarking on a new project. 

Types of bad credit

What is a County court judgement (CCJ) and what do I need to know?

A County Court Judgement (CCJ) is an official document issued by a county court and can be registered against an individual or business for any unpaid debts. It works as a formal reminder that you owe money to the creditor, and if it remains unpaid then it will be recorded on your credit report. This, in turn, can negatively impact your credit score and make it more difficult for you to obtain further credit in the future.

It's important to be aware of a CCJ and take steps to address any outstanding debts as soon as possible. If you receive notification of a CCJ, then this means that your creditor has taken legal action against you - they have gone to court and a judge has ruled that you must pay the debt. It's highly recommended to start making payments on the outstanding debt immediately or contact your creditor to discuss options for repayment.

If you don't make any effort to clear your CCJ debts then it will stay on your credit report for six years, and this could significantly damage your credit score. Even if you pay off the debt or settle it with your creditor, the CCJ will still stay on your record unless you apply to have it removed – this is known as 'setting aside' a CCJ.

It can be daunting to receive a CCJ, particularly if you are unaware of what this means and how long it will stay on your file. However, don't panic - there are options available to you and steps you can take to help resolve the situation. Make sure that you seek professional advice if necessary and make sure to keep up with all your payments.

Defaulting on loans

Loan defaults refer to when a borrower fails to make payments on their loan in the agreed-upon time and manner. In the UK, loan defaults are usually reported by credit reference agencies such as Experian and Equifax whenever this occurs.

When someone has defaulted on a loan, it's likely that they will be unable to borrow from other financial institutions and lenders, as the credit reference agencies will report them as a ‘risky borrower’. This can make it difficult for them to obtain further credit in the future.

Defaults stay on an individual's credit file for six years, so it's important to remember that any defaults made in the past will still be visible to lenders, even if the loan has been paid off since then.

It's therefore important for borrowers to make sure they are able to meet their repayment commitments in the agreed-upon time and manner. This can help ensure that any defaults made do not remain on an individual’s credit file for too long and potentially hinder their ability to access future credit.

It's also important for any borrower to remember that loan defaults can have serious consequences and should be avoided if possible. Making sure you understand the terms and conditions of any loan agreement is essential in order to make sure you are able to meet your responsibilities and avoid any potential long-term damage to your credit rating.

If you are worried that your past loan defaults may affect your ability to access further credit, it's important not to panic, as there are specialist services available which can help assess your current financial situation and suggest ways in which you could improve your credit score. It's also possible to dispute any incorrect information held on a credit file and to request a ‘notice of correction’, which can help explain any defaults to potential lenders.

Overall, loan defaults are something which should be avoided if possible as they can lead to difficulties in obtaining further credit. However, there are services available which can provide support and guidance in order to help people improve their financial situation and credit score.

What is a Debt management plan (DMP)

A Debt Management Plan (DMP) is a method of debt restructuring offered to individuals or businesses in the UK who are struggling with their finances. A DMP works by consolidating all creditors into one plan, allowing you to make payments in one convenient place. It also helps reduce interest rates and set up manageable payment plans that fit your budget.

DMPs can be set up with the help of a financial advisor or through a debt management company. Once the plan has been agreed upon, you will make one single payment to the company each month and they will distribute the payments among your creditors according to the terms of your agreement. The goal is to reduce monthly payments so that debt can be paid off over a period of time.

When setting up a DMP, it's important to ensure that all creditors agree and understand the terms of the agreement. A good debt management plan should also include a budgeting element, so you are able to keep track of your finances in order to prevent further financial difficulties in the future.

What is a Debt Relief Order (DRO)

A Debt Relief Order (DRO) is a form of insolvency designed to help people with relatively low income and few assets who live in England, Wales or Northern Ireland. It's an alternative to bankruptcy and can be beneficial if you do not have enough money to pay your debts. Once the DRO is approved, it will freeze your debts for a year and stop creditors from taking any legal action against you during this period. At the end of the 12-month period, your debts are written off permanently unless your circumstances have changed so that you can pay them. In order to be eligible for a DRO, you must meet certain criteria:

  1. Your debts must be under £20,000
  2. You must have less than £1,000 in savings or assets
  3. Your disposable income must be less than £50 a month
  4. You must live in England, Wales or Northern Ireland
  5. You cannot have been the subject of a DRO in the last six years
  6. You must not have taken part in any other formal insolvency procedure in the last six years.

If you do meet these criteria, then you can apply for a DRO via an approved intermediary. They will help to assess your situation and advise whether or not a DRO is appropriate for your particular circumstances. Once the application is approved and the DRO is in place, you will no longer have to make payments to your creditors or contact them. At the end of the 12-month period, all unsecured debts included in the DRO are legally written off by law and creditors can no longer pursue any money owed. It should be noted that not all types of debts are included in a DRO; these include child maintenance arrears, student loan debts, court fines and secured debt. It's also important to be aware that having a DRO on your credit reference file will affect your ability to get credit or loans from most lenders for six years after the date it's approved.

What are Individual Voluntary arrangements (IVA)?

An Individual Voluntary Arrangement (IVA) is a legal agreement between an individual and their creditors to repay part or all of the debts owed over a fixed period of time. It provides an alternative to bankruptcy and allows people in debt to come up with a repayment plan that is both affordable and realistic for them. An IVA can be used to consolidate a range of debt types, including credit card and loan debts.

When entering into an IVA, the individual is protected from their creditors and can no longer be pursued for payment. The agreed repayment plan will last typically between five and seven years, during which time interest and additional charges are frozen. After this period, any remaining debts are written off. In order to qualify for an IVA, the individual must meet certain criteria. This includes having unsecured debt of at least £5,000 and being able to afford a monthly repayment towards their debt. The IVA provider will carry out a full assessment of the individual's financial situation before recommending an IVA. The individual must also be able to prove their income and expenditure for the last three months, and agree to keep up repayments for the duration of the IVA.

In addition, any assets such as property or vehicles may have to be used as security. Once the IVA is in place, creditors are legally bound by it and must abide by the terms of the agreement. The IVA will be supervised by an Insolvency Practitioner, who is responsible for ensuring that creditors and debtors comply with the terms of the agreement. In most cases, payments are made to a single person or company (the 'Nominee') who then distributes the payments amongst creditors.

Overall, an Individual Voluntary Arrangement can be a great solution for people struggling with debt. It's important to remember that it should only be used as a last resort and that it's essential to seek professional advice before entering into an IVA.

What is a Payday loan and why could its use affect my credit?

A payday loan, also known as a cash advance, is a short-term loan that typically covers expenses until the borrower's next payday. The loans are meant to provide temporary financial assistance until the borrower has received their full wages and can pay off the debt. Payday loans are unsecured loans, meaning no collateral is required and the lender relies on the borrower's promise to repay.

Payday loans have been a popular form of credit, especially among people with poor or bad credit scores who may not be able to qualify for traditional bank loans. Whilst they can provide instant access to cash in an emergency they come with high interest rates and other costs and is a high-risk form of credit that should be used with caution.

The costs associated with payday loans can quickly add up, resulting in borrowers being caught in a cycle of debt.

Borrowers should make sure they understand the terms and conditions of the loan before taking out a payday loan and always consider other options before committing to a payday loan. The interest rates associated with payday loans are extremely high, which can leave borrowers struggling to repay the loan and get out of debt. In addition, the repayment period for a payday loan is often very short and missing payments can result in additional fees or penalties. Taking out too many payday loans can damage a borrower's credit score, making it harder to access other forms of credit.

What does the term Payments arrears mean?

Payment arrears is the term used to describe when a person fails to make their scheduled payments on time, such as mortgage payments, credit card bills, loans or utilities. Payment arrears can have serious consequences for an individual’s financial health and can result in late fees and additional penalties imposed by the lender. Payment arrears can have a negative impact on an individual's credit rating, making it more difficult for them to obtain additional credit in the future. It's also possible that missed payments may result in legal action being taken against the individual in order to recover any outstanding debts.

What is bankruptcy?

Bankruptcy is a legal status that can be assigned to individuals or companies who can no longer pay their creditors. It's essentially a way for people and organisations to obtain relief from debts that exceed their ability to repay. Filing for bankruptcy will stop any further action from the creditors, such as phone calls or letters requesting payment.

In the UK, there is a specific process for bankruptcy that must be followed. Individuals or companies may declare themselves bankrupt by filing an application with the court. However, in most cases, creditors will apply for bankruptcy on the debtor's behalf. The official receiver will then be appointed to manage the estate of an individual or company that has been declared bankrupt. The official receiver will collect any available assets and negotiate with creditors to pay off as much of the debt as possible.

Once a bankruptcy order is granted, the individual or company will be subject to certain restrictions on their financial activities for a period of time. This could include being unable to get credit from banks or other lenders, being prohibited from acting as a company director, and having to provide details of income and expenditure for the duration of their bankruptcy.

Bankruptcy can have serious implications for an individual or business in terms of their financial standing, so it's important that anyone facing serious debt problems considers all other options before beginning this process. Advice from experienced professionals should always be sought before making any decisions.

What is property repossession?

Property repossession is the legal process of a lender taking control and ownership of property, usually a home or possessions when the borrower fails to keep up with their financial commitments. It allows lenders to reclaim any outstanding debts owed on a loan secured against those assets.

When it comes to mortgages in the UK, repossession is known as foreclosure and is overseen by the courts. The lender will typically apply to a court of law for an order that allows them to repossess your property when you miss payments on your mortgage.

In England and Wales, the legislation governing repossession is found in Chapter V of the Law of Property Act 1925. This lays out how and when lenders may pursue repossession. Prior to applying for a court order, the lender must provide written notice to the borrower and allow them an opportunity to make their payments up to date.

After a court order is granted, the lender can't legally repossess your property without giving you at least 14 days of warning in writing before any enforcement action.

Under the Consumer Credit Act 1974, secured creditors are allowed to repossess goods you have purchased with a loan or other type of credit agreement if payments on that debt become overdue. In most cases, the lender must give notice of seven days before they can begin taking back the goods.

If your lender does take back your goods, they must either return them to you or sell them in a ‘commercially reasonable’ manner. The lender is then obliged to pay the proceeds of that sale towards any outstanding debt.

It's important to remember that if your possessions are repossessed, any shortfall between the total amount owed on the loan and the sale of your possessions will remain due. This means you may still owe money even after repossession, so it's important to keep up with your payments or seek extra help if you are struggling.

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