Do these bridging loan rates seem excessive?

Legacy_user
Legacy_user Posts: 0 Newbie
edited 11 November 2018 at 4:15PM in Loans
This was sent to me from a local broker who told me he does over 400 buy to let mortgages per year therefore I regard him as "experienced and knowledgeable in this area" I also understand that bridging is essentially the same thing as a short term mortgage

This was presented to me as the "best option" and virtually only option because I've not got any income.

Bridging Illustration
The example below is on a deducted interest basis for the initial 12 months i.e. the interest is funded from the total £Gross Loan” and therefore you have no payments to make during the duration of the loan.
If the loan redeems early then a rebate of non-utilised interest will be calculated
The loan term is 12 months deducted with a 12 month period thereafter with serviced interest = Total 24 months
Paid Up Front

Net Loan Amount: 30,000.00 Monthly Interest Rate: 0.75%

Lender Fee: 600.00 No Loan Term (Months): 12m + 12m

Valuation Fee: 294.00 Yes Lender Fee: 2.00%
Legal Fee: 500.00 No Broker Fee: 0.00%
Broker Fee: 3,000.00 No Completion Date: 30/09/2018
Title Insurance Fee: 150.00 No First Mortgage: -
Security Release Fee: 195.00 Property Valuation: 300,000
Gross Loan Amount: 34,250.00
Total Charge for Credit: 7,588.54
Total Amount Payable: 37,639.54
Total Interest: 3,194.54

Additional Costs
£495.00 Acceptance Fee
£350.00 Valuation Fee
£750.00 + VAT Lender Legal Fees
£TBC Clients Legals
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Comments

  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    Bridging loan isn't a short term mortgage. It's finance to bridge an interval between 2 transactions. Often for property but not necessarily.

    Expensive because the costs of arrangement aren't recouped through the interest alone. Plus the additional risk involved.
  • CakeCrusader
    CakeCrusader Posts: 1,118 Forumite
    As above, these are supposed to be short term loans to bridge a gap in a purchase or a mortgage (say you're close to completing on a house purchase but your cash is tied in a long term account and can't be released until after you've completed. Losing your deposit could cost you tens of thousands and paying the seller's interest/charges could cost you thousands so it can be the cheaper option). This isn't a loan for the long term.
  • DCFC79
    DCFC79 Posts: 40,598 Forumite
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    CakeCrusader wrote: »
    As above, these are supposed to be short term loans to bridge a gap in a purchase or a mortgage (say you're close to completing on a house purchase but your cash is tied in a long term account and can't be released until after you've completed. Losing your deposit could cost you tens of thousands and paying the seller's interest/charges could cost you thousands so it can be the cheaper option). This isn't a loan for the long term.


    Maybe Ive read it wrong but you have contradicted what "Thrugelmir" has said, Thrugel says a bridging loan isn't a short term mortgage and look at your last sentence.
  • CakeCrusader
    CakeCrusader Posts: 1,118 Forumite
    edited 8 November 2018 at 9:05PM
    DCFC79 wrote: »
    Maybe Ive read it wrong but you have contradicted what "Thrugelmir" has said, Thrugel says a bridging loan isn't a short term mortgage and look at your last sentence.


    A bridging loan isn't a mortgage, it's a loan used for a short term purpose, like if there's a time delay between completing a house purchase and having the funds to pay for the house purchase. It acts like a cash til pay day loan. It's a short term loan, often used until the mortgage funds can be transferred to the vendor. A bridging loan isn't supposed to be used in the long term, it's not a mortgage, it's a loan. Does this help?
  • Brock_and_Roll
    Brock_and_Roll Posts: 1,207 Forumite
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    Its £3k because in a nutshell the lender only has 6 months to earn any money to recoup (the significant) costs and earn a profit as opposed to 25 years.

    If it makes the OP feel any better the last time I had an open bridge in addition to paying a £3,500 fee, I ended up with two bridging loans from GE Capital at 7.5% - squeezed the very life out of me.

    IMHO bridging loans are very risky and highly stressful - despite the best laid plans, something can always go wrong and you can be left up to your neck in it.

    So I would not recommend unless in exceptional circumstances and if you have good nerves!
  • foxy-stoat
    foxy-stoat Posts: 6,879 Forumite
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    edited 9 November 2018 at 10:20AM
    beanfarmer wrote: »
    This was presented to me as the "best option" and virtually only option because I've not got any income.

    Based on that alone - it is a very good offer - PLEASE dont that it and find another way to get your £30,000 with £0.00 income for your property empire !

    https://forums.moneysavingexpert.com/showthread.php?t=5921477
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    beanfarmer wrote: »
    The loan is for £30,000 but yet the broker sees fit to charge £3000?

    Makes no difference to the broker how much you borrow. It's the time involved that costs them the money.
  • CakeCrusader
    CakeCrusader Posts: 1,118 Forumite
    You're paying them to find a deal for you and they can pretty much charge what they like.
  • Lungboy
    Lungboy Posts: 1,953 Forumite
    First Anniversary First Post
    How are you intending to service this loan with no income?
  • financegeek
    financegeek Posts: 140 Forumite
    Lungboy wrote: »
    How are you intending to service this loan with no income?

    there aren't any repayments which is why a bridge was probably seen as the 'best' option.

    The interest for the term of the loan is calculated at the start and added on to the balance. when the loan is cleared by whichever method OP is using, the original borrowing + repayments + interest will need to be repaid in full.
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