Updated: April 06, 2022

Bad Credit Bridging Loans

Need a bridging loan but worried about your bad credit? It can be done! Find out exactly what you need to get this finance in these circumstances in our guide.

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No impact on your credit score

Pete Mugleston

Author: Pete Mugleston - Mortgage Expert

Updated: April 06, 2022

Bridging loans are one of the few funding solutions where your income and even your credit score will be less of an issue than with more traditional forms of property finance, but that doesn’t mean they’re easy to come by.

This guide will tell you everything you need to know about the impact bad credit can have on a  bridging loan application, and importantly, how to still secure the deal that’s right for you.

Does bad credit affect getting a bridging loan?

Surprisingly, no! Or at least, not always. Having a poor credit score is generally a drawback to securing mainstream property finance, but not so when it comes to bridging loans. This is because the lender is more focused on the security and exit strategy, rather than your financial status, and with everything being decided on a case-by-case basis there’s a lot more flexibility.

You’ll likely be offered a closed bridging loan in this situation, which is where you have a pre-planned exit strategy and are confident you’ll have a source of funding to repay the loan by the end of the term. An open bridging loan – where you don’t have a repayment vehicle planned – will be far less likely.

It’s worth pointing out that you’ll still have to undergo a credit check, it’s just the result won’t have such a stark impact as with other loan types. That said, a low score can still make it more difficult to be approved and can result in less favourable terms, which is why it’s recommended to seek professional advice to stand the best chance of finding a loan to suit.

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What types of credit issues will lenders accept?

Bridging lenders may be able to accept the following credit issues:

  • Poor credit score
  • No credit history
  • Payday loans
  • Late payments and arrears
  • Mortgage defaults
  • CCJs
  • IVAs
  • Debt management schemes
  • Bankruptcy
  • Repossession

Of course, there may be some lenders who won’t consider all of these credit issues – or indeed any of them – and if you need a bridging loan for residential purposes, criteria will likely be stricter. A broker will be able to help you narrow down the lenders who can accommodate your precise needs.

How a broker can help

Poor credit may not lock you out of bridging loans completely, but that doesn’t mean it’s advisable to go it alone. In fact, working with a broker who specialises in arranging bridging loans for people with a bad credit history can make all the difference to your application.

Here’s how they can help.

  • They’ll know the lenders most likely to accept your credit profile, saving you a lot of time and energy.
  • Understanding the importance of the exit strategy and will work with you to make sure yours is acceptable.
  • Guiding you through the application process, which may be more complex if you’ve got a poor credit history.
  • Using their network of contacts and experience in the sector to negotiate with lenders on your behalf, boosting your chances of being able to secure a decent rate.

The brokers we work with can help ensure you get accepted the first time – preventing a rejection from damaging your credit score even further – and will be able to source the best deal possible for your circumstances. If you want to see for yourself, get in touch.

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Why does the exit strategy matter?

The exit strategy is absolutely key when it comes to bridge loans where bad credit has been identified, and if yours isn’t watertight, your chance of being accepted is dramatically reduced.

This is because the lender needs to be confident that they’ll get their money back, something that’s even more of a concern if you’re deemed a credit risk. Given that bridging loans are designed to provide short-term funding only – typically maxing out at around 12 months – you need to be certain you’ve got your repayment method in place and can prove it ahead of time.

In reality, this can be the biggest holdup for someone with poor credit, and means selling the property will be the most typical repayment plan. You’ll need to make sure that the property is highly sellable, thereby showing the lender that it will raise the necessary amount to repay the loan and offsetting some of the risk.

Many lenders won’t accept non-standard strategies, such as investment returns or an inheritance, and it may be trickier to offer a remortgage as the exit plan as traditional lenders will be less likely to offer finance to those with bad credit.

If this is the route you want to go down, be prepared for extra scrutiny during your application – lenders will need proof of your eligibility for the remortgage, and ideally an agreement in principle as well.

What are the rates like?

Rates for bridging loans are typically charged monthly, and are higher than for more traditional forms of property finance – a monthly rate of 0.70% isn’t uncommon, which works out to an annual equivalent rate of approximately 8.7% – and they’ll likely be even higher if you’ve got a poor credit history to account for the additional risk the lender is taking on.

How you can improve your chances of getting the best deals

There’s a number of things you can do to improve the rates you’re offered, such as having a higher deposit. Bridging lenders typically expect a minimum deposit of 25% – there are exceptions, but higher loan-to-value (LTV) products are few and far between – and the more you’re able to put down, the lower your rate will be.

The deposit becomes even more important for those with bad credit, so aim for at least 40% if you can, with the best rates kicking in at 60% LTV.

Other things that can affect the rate and your eligibility as a whole include:

  • The saleability of the property (a property in a high-value/in-demand location will be more likely to repay the debt and therefore reduce the risk the lender is taking on).
  • Your experience in property development, if applicable.
  • Your business plan, if the bridge/property has a commercial element to it.

What is a non-status bridging loan?

Non-status bridging loans could be another option for those with poor credit, with such loans secured against an asset and your personal income not coming into it at all. You’ll still need an acceptable exit strategy, however, and the loan you’ll be offered will typically be based on the value of the asset you’re using as security (usually a property, and not necessarily the one you’re bridging).

Get matched with an expert in bad credit bridging loans

The key to securing the loan that’s perfect for your needs is having the right expertise on your side, and thanks to our unique broker matching service, we can put you in touch with the expert who can help.

We’ll simply ask for a few details and will scour our records to find you a broker who specialises in bridge loans for bad credit. They’ll use their knowledge, contacts and experience in the sector to work tirelessly on your behalf to find the loan that can offer the property finance you need, even if your credit score is less than perfect. To get started, make an enquiry or call us on 0808 189 0463 for a free, no obligation chat.

FAQs

What credit score do I need for a bridge loan?

There’s no set rule for this, and as discussed, a low score doesn’t mean you won’t be eligible for a bridge loan. That said, a higher credit score will certainly boost your profile in the eyes of lenders, so it’s worth spending time improving things beforehand.

Can I get a second or third-charge bridge loan if I’ve got bad credit?

Rarely. A second charge loan is already a specialist product, and if you’ve got bad credit, you’re adding another risk factor into the mix. This means lenders will be more inclined to steer clear, and are even less likely to agree to a third charge bridge under these circumstances. 

That said, given that this sector is wholly bespoke there may be occasions where this will be acceptable; speak to a broker to find out if there are any lenders to suit.

Can a bridging loan improve my credit score?

If you manage the agreement effectively – that is, you keep up with the payments and repay the  loan on time – then yes, a bridging loan has the potential to improve your credit score, much like with all forms of well-managed credit. Yet the opposite can also be true if you breach the terms, so make sure to stay on top of things.

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Pete Mugleston

Pete Mugleston

Mortgage Expert

About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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