Bridging Loans2023-09-15T10:13:08+00:00

Bridging Loans

We are seeing more and more homeowners seeking advice after being mis-sold bridging loans as a way to “stop repossession”, especially unregulated loans. A bridge loan merely offers short-term financial relief to those facing eviction and is not designed to stop home repossession.

HMS will work with you and stop your mortgage lender directly or through the courts to help ensure that you and your family remain in your home.

Bridging Loans

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Why Avoid a Bridging Loan?

Huge fees

In addition to repaying the loan, there are a number of fees that you will need to cover. These include arrangement fees, broker fees, and sometimes even exit fees, all of which can add up and become overwhelming very quickly.

High interest

Compound interest added upfront and an even steeper default interest rate that comes into play after expiry will be built into your bridging loan. This interest accrues on a monthly basis and will make your loan harder to repay as more time passes.

It will delay and then worsen your financial problems

Especially if you are already struggling financially, extortionate added fees and interest will leave you with an overall amount to repay that you almost certainly won’t be able to cover. You will probably lose your house in order to fund the loan repayment, the very thing that the bridging loan company promised that it would help prevent. All that you will have done is delay the process.

The Repossession Process
Financial Stress

Bridging Loans: a Flawed Short-term Solution

Bridging finance is a temporary form of financing that is becoming increasingly popular. Although bridging loans were initially designed as a way to help “bridge” the gap between a home sale and purchase, they are now often used outside this original intended purpose.

Many homeowners facing eviction are currently taking out bridging loans for temporary financial relief. The problem, however, is that they are viewing these loans as a solution to their financial problems when they will often make their circumstances much worse.

Every client we have helped with a bridging loan confirms they wish they’d never accepted it.

A bridge loan is a short-term loan that allows individuals to borrow money pending the arrangement of longer-term financing or sale of the property. 

 There are two types of bridging loans:

  • A regulated bridge loan: a company has provided the loan under the regulation of the Financial Conduct Authority (FCA), secured against the property which the borrower currently occupies (or intends to occupy, if the loan is used for its original intended purpose).
  • An unregulated bridge loan (or commercial bridge loan): the loan being taken is not protected or regulated by the FCA, and is secured against a property that the borrower has or will never reside in. 

Unregulated bridge loans should be especially avoided. Your broker or lender may encourage you to sign forms to say that the loan is for “business (or commercial) purposes” in order to set up an unregulated loan. Some may even convince potential borrowers to set up a limited company to avoid regulation! 

Any loan that sits as the first charge on your residential property HAS to be regulated. Therefore, the bridging company will have to follow FCA regulations in the administration of your loan. A regulated loan is likely to take longer to arrange; however, it is likely to be less expensive and will take longer to evict you from your home when it expires. Importantly, the result is ultimately the same.

The main issue with a bridge loan is its short-term nature. You will not be evicted for mortgage arrears, but you instead will face eviction because the term has expired on the loan and the WHOLE debt needs to be repaid and you have failed to repay it. This makes the lenders’ position against you far stronger.

The difference between an expired bridge loan and a normal expired mortgage is the costs and the aggression involved. Whilst a normal mortgage provider will give you time to seek a proposal to resolve the case, a bridging loan company will act swiftly and ruthlessly to get their money. In fact, they will often escalate cases to the high court to expedite the eviction process.

You have ask yourself “what is in it for the bridging loan company?” and “what is in it for the broker?”. The broker is looking to make the most amount of money for the least amount of work. A lot of the other companies that claim to help with repossession are simply unregulated loan brokers

In the example below, you will see that the lender charges a huge amount of interest and pays the broker a handsome introducer fee for securing the client for them. We typically see broker fees of 3% added to the loan, as well as a further introducer fee of 1%. In the example below, it is equivalent to £8,000 and will likely be more if they have to create a delay to court action. 

Homeowners are currently being convinced that they should take out a bridge loan for 12 months and then remortgage back to a normal mortgage in 12 months’ time. In most cases we see, refinancing after the proposed 12 months period is simply not feasible and the bridging loan company and the broker has misled the homeowner. When companies refer to a bridging loan as a way to stop repossession, this is not the reality. A bridging loan typically results in you selling your house!

Bridging loans are also very expensive, and most have clauses for a “Default Interest Rate” which comes into force upon expiry. This interest rate is typically double the original rate and is charged to your account monthly. Bridging loans rise in terms of balance very quickly.

Below is an example of how a bridge loan works and why it will not prevent the repossession of your home:

You own a property worth £400,000 but you owe £200,000 on your mortgage that is in £20,000 mortgage arrears.

You seek advice and are told that a bridging loan is the answer. A loan is offered to repay the £200,000 to your mortgage lender.

The loan is actually made up of compound interest added upfront at 1% per month for 12 months, and there are further administration costs and a substantial broker fee added to the loan. This equates to a loan of approximately £245,000 after 12 months.

This is equal to £3,750 a month, which is about £3,000 a month MORE than your original mortgage.

After a short 12 months, you are probably not in a position to secure a normal mortgage that is almost 25% higher than the last one you could not afford.

Following this 12 month period, it is also unlikely that you are ready to move and you will be charged a default fee of 3% followed by a 3% per month default interest rate.

Therefore by 18 months, your outstanding balance will be a staggering £296,450.

That will put you beyond most forms of being able to refinance the property and it will have to be sold.

By the time you accept the property has to be sold, it will take several months to coordinate, all the while now costing you over £7,000 per month.

The increasing cost will soon outstrip your equity and – this is the ideal scenario and design of the lender all along – if you don’t manage a sale, they will repossess you.

This process is worryingly a license to print money and that is why they will try to force you down an unregulated route.

How to Stop Repossession

Make sure you talk to your lender

1. Don’t take emergency finance

Other companies may have misled you into believing that a bridging loan or short-term finance is your best or even only choice. That’s not true. The temporary relief will be short-lived when you are facing repossession for a much higher sum.

Try not panic and stay calm

2. Don’t accept a quick sale

In desperate situations, you may be tempted to accept a below-market-value “instant cash” offer on your home. Avoid quick sale companies at all costs—they profit from your misfortune. We can provide better options.

 Review household expenditure

3. Get us to help

We can help you navigate through your options. We will force your lender to give you time to make a decision that suits you. Our first step is to assess affordability for you to keep the property long-term. If this is not an option, then we will ensure you speak to regulated finance professionals or have time to sell your property on the open market.

What People Say

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  • I contacted HMS to stop my repossession by my mortgage lender. David at HMS worked with me closely and supported me through the whole process. Today I had a Court... read more

    Matt Stokes Avatar Matt Stokes

    Richard gave us more than we hoped for as we had an expired mortgage term and worried about the looming repossession. We just didn’t know what to do... read more

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    I will do my best to express how thrilled I am with how Richard handled my case! I had a ridiculously small debt threatening repossession and some free advice from... read more

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    Kelvin Baines Avatar Kelvin Baines

    A big thanks to HMS, Your professional advice and guidance stopped the repossession of my property. I received an eviction notice from my mortgage provider and didn’t know what to... read more

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    I am going to write this about this company Richard and Ben before all this happen with my house I was going through a difficult times I buried my head... read more

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  • These guys reached out to me and, by giving me good advice, helped to ease my worries at a very vulnerable time. I would not hesitate to use them if... read more

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    Just to add it was q very professional and clear advice from Richard of Homeowner management regarding my issues With an excellent feedback and assistance in every way Thank you... read more

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