Loan Amounts for Bridging Loans

Wednesday 4th January 2023 | 4 minute read

The principal amount of money borrowed for the bridging loan is known as the Loan Amount.

The loan amount is one of the most important factors to consider with bridging loan. It reflects the amount of money that a borrower will be taking out from a lender, and it is a key factor in determining the total cost of the loan. As such, borrowers should ensure that they take the time to understand the loan amount and what factors could influence it. 

Lots of wooden rectangular blocks side by side. One has the words Value written on it.

When it comes to bridging loans, the loan amount will typically be tied to the value of the asset being used as security or collateral.

This could be the market value of the property involved which would be determined by a  RICS qualified surveyor's valuation report or in some circumstances via an automated valuation, or any other asset that is being used as collateral. In many cases, the loan amount may be up to 80% of the value of the asset, although this can vary depending on the lender and the loan-to-value ratio (LTV) available for the property type. 

In addition to the value of the collateral, other factors can influence the loan amount as well.

Principally, these include the interest rate of the loan and the fees associated to the bridging loan. The total loan amount that a borrower can borrow will include the interest and fees. Therefore, the higher the interest rate and the higher the fee costs of the loan, the smaller the net loan available is to the borrower.

Understanding the difference between Net Loans and Gross Loans when it comes to bridging loans is important for borrowers, but its not the only factor that affects how much can be borrowed with a bridging loan. 

A borrower’s credit history and their ability to repay the loan will also be factored into the loan decision, as the lender will consider them when assessing a borrower’s risk and determining how much money to lend.

When it comes to taking out a loan, it is important to carefully consider the loan amount and be sure that it matches one’s needs and financial situation. By doing so, borrowers can ensure that they get a loan that they can afford and that meets their specific needs.

What is a Loan Amount for Bridging Loans?

A loan amount for bridging loans is the total amount borrowed from a lender to fund a bridge loan. A bridge loan is a short-term loan acquired to typically bridge the gap between the purchase of a new property or asset and the sale of the existing property or asset, although they do have many other uses, such as fixing chains in property chain break scenarios, providing auction finance, or resolving mortgage delays

What are the Factors that Affect Loan Amounts for Bridging Loans?

The factors that affect loan amounts for bridging loans include the property or asset being purchased, the market value of the property or asset being sold, the loan-to-value ratio of the loan, and the borrower’s credit history.

Property or Asset Being Purchased

The loan amount for a bridging loan will vary based on the type of property or asset being purchased, where that property is being used as the security for the loan. For example, if the purchase is for a large commercial property, the loan amount may be larger than if the purchase is for a small residential property.

The lender’s criteria

Different lenders have different criteria for loan amounts, which may also be affected by regulation or the lender's risk tolerance. 

Market Value of the Property or Asset Being Sold

The market value of the property or asset being sold may also affect the loan amount, if that is the exit strategy for the bridging loan. If the market valuation report is higher, the loan amount may be adjusted to reflect the difference.

Loan-to-Value Ratio

The LTV of the loan will also affect the loan amount and different types of property attract different LTVs. In general, the higher the LTV, the larger the loan amount. Typically, when the LTV exceeds 80%, lenders will require additional collateral to secure the loan and achieve the best bridging loan amount possible.

Loan term

Typically, the longer the loan term the smaller the net loan amount can be borrowed because of how the interest of a bridging loan is calculated.

The type of bridging loan 

The type of bridging loan (e.g. open-ended vs closed-ended) also affects the loan amount. For example, closed-ended loans typically require a higher loan amount than open-ended loans. 

Borrower’s Credit History

The borrower’s credit history will also be taken into consideration when determining the loan amount, as well as to determine the interest rate. Generally, the riskier the credit history, the higher the interest rate and lower the loan amount that can be achieved.

What are the Advantages of Bridging Loans?

Bridging loans offer several advantages.

First, they can provide access to fast finance funds quickly, allowing borrowers to purchase new properties or assets before existing ones are sold. This can save borrowers money on interest payments, as they are able to use the funds from the sale of the existing property or asset to pay off the bridging loan quickly. Secondly, bridging loans require a smaller down payment and allow for a higher LTV than traditional mortgages.

This means that borrowers may be able to access larger loan amounts than they otherwise would be able to. Finally, bridging loans can accommodate borrowers with lower credit scores and offer flexible repayment terms

Overall, bridging loans can provide borrowers with a cost-effective and convenient way to fund the purchase of a new property or asset while they wait for the sale of an existing one. However, borrowers must be sure to consider the factors that may affect the loan amount of a bridging loan, such as the property or asset being purchased, the market value of the property or asset being sold, the loan-to-value ratio, and the borrower’s credit history.

How to Get the Best Loan Amount

In order to get the best loan amount, borrowers could benefit from using a bridging loan broker to source different lenders' loan amounts and options. 

Borrowers should also research the collateral they plan to use for the bridging loan and its potential market value, as this could influence the size of the loan amount for which they will be eligible. 


Final thoughts

The loan amount is an important factor that needs to be considered when securing a bridging loan. The loan amount is influenced by the borrower's financial situation, the current market value of the collateral, the type of bridging loan, and the lender’s criteria.

In order to get the best loan amount, borrowers could contact a bridging loan broker and benefit from their expertise in sourcing the right lenders for their situation, secure multiple loan offers, research the collateral and its potential market value, and ensure their financial situation meets the lender's criteria.

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