Understand bridging loans key terms and jargon

Fast reference

It is everywhere. For better or worse, jargon is part of every industry. But it does not have to be a source of confusion. You can find definitions of the most common terms here for fast reference, whether you are a beginner or need to refresh your knowledge.

Bridging loan terminology

Buy-to-let

A property that the owner has bought in order to rent out to tenants.

Completion

The finalised sale and purchase of a property and at which point you become the owner.

County Court Judgment (CCJ)

A court order made against a person who has failed to pay a debt.

Decision in principle

An application likely to be accepted given the information received. It is not legally binding and may change when further information is disclosed.

Exit / exit strategy

In this context, the plan and approach to repaying the loan i.e. the capital at the end of the term. For example by sale or remortgage of the property which is given as security.

Fixed rate

A rate of interest which remains fixed for the entire period of the loan.

First charge

A charge in a first lien position on a property. A first charge generally has priority over all other liens or claims on a property in the event of default.

Intermediary

A broker or advisor who locates the most appropriate funds for a borrower, and makes the arrangements on the borrower’s behalf.

Loan to Value (LTV)

The ratio of how much is borrowed compared to the value of the property. For a home worth £1,000,000, a £900,000 loan would be expressed as £900,000/£1,000,000 or 90% LTV.

New build  

Newly built properties. These can be either single homes or entire estates.

No bathroom no kitchen

A property in which there is no bathroom or kitchen. Usually such properties are   not eligible for high street mortgages but can be financed via bridging / short term-finance.

Retained monthly payments

To assist in meeting monthly interest payments, an amount can be retained from the loan representing a number of monthly interest payments. The retained interest is still part of the capital sum of the loan so interest will be charged on this amount.

Splitting title / title splitting

A legal process which involves in the case of registered land generally creating two title numbers. For example: A house and its surrounding land may be on one title number – splitting the title would involve putting the house on one title number and the land on another title number.

Self-build

A property built by its owner to live in.

Second charge

Similar to but ranking behind a first charge. Typically, it secures a second loan to any remaining value in the property after the first charge. For example: if a £100,000 home has a £50,000 first charge, a second charge may be secured against some of the remaining £50,000.

Staged facilities

A loan facility that allows a borrower to use the money at different times, as and when funds are required. For example in the case of a borrower building a property – the funds will be required at the various stages of the build.

Term

The period of time over which you take the loan.

Title deeds

A property’s legal documents which show proof of ownership.

Valuation

A check of the property to assess its worth and suitability for lending.

Variable rate

An interest rate on a loan which fluctuates over time.

Valuation fee

The fee for the person or body which assesses the value of a property.

What next?

Now that you understand the above terms you are equipped with the basic knowledge to understand the essential communications in the industry. But if you have further questions about bridging loans, let us explain.

If you are looking for fast funding of between £10,000 to £2 million for your project, Affirmative can step in and help. To find out more call our Manchester office on 08000 44 84 84.