Bridging loan lenders have a lot more flexibility with deposits when compared to standard mortgages.
Most bridging loans require a deposit but the amount – and sometimes even if you need one at all – depends on many factors.
Here’s what you need to know about bridging loan deposits.
What’s a standard deposit for a bridging loan?
Most bridging lenders ask for a deposit of 20-30% of the property value. For residential properties our lenders will accept 20% and for commercial properties 30%.
For example on a £2m residential property purchase you might need £400,000-£500,000 as a deposit. But these are guidelines, not hard and fast rules.
Through our lending connections, including private banks and individuals who lend their own money, we often get better terms for our clients.
The deposit amount varies depending on the property use and condition. A straightforward residential purchase will need a lower deposit than a development project. An experienced developer with a good track record will get better terms than a first time investor.
Factors That Affect Your Deposit Requirements
Property Type and Condition
The type of property you have affects deposit requirements.
Modern properties in prime locations need lower deposits than those that need renovation or are in less established areas. A modern building in Mayfair might need 25% deposit, a Victorian warehouse needing renovation might need 40%.
Different properties have different risk profiles for lenders. For example:
Prime residential in Central London get the best deposit terms, sometimes as low as 10-20%. Mixed use properties with commercial and residential elements need 25-30%. Heavy refurbishment projects need 35-45% because of the extra complexity and risk.
Related reading: What is a Bridging Loan Secured Against?
Your Exit Strategy
A good bridging loan exit strategy matters more than the initial deposit. Your exit plan explains in detail how you will pay the loan back.
When you can show a clear and well planned route to repayment many lenders will give you better terms.
A recent client purchased a £3m property for renovation. Their plans included planning permission already in place, contractors ready to start, market analysis showing a £4.5m post renovation value and two estate agents confirming sale price and timeframe. This preparation meant they got a lower deposit requirement despite the complexity of the project.
Strong exit strategies might include:
- Sale of the project once completed with evidence of market demand
- Refinance onto a standard mortgage with terms already agreed
- Rental income with pre-arranged tenants
- Forward sale agreements with buyers already in place
Property Location and Value
Location and value affect deposit requirements.
Prime London gets better terms. High value properties especially those above £1m will get lower deposit requirements when dealing with private banks and specialist lenders.
Properties in established areas with good market liquidity get better terms.
For example a property in Knightsbridge or Mayfair will get a lower deposit requirement than an identical property in a less established area.
Can You Get a Bridging Loan Without a Deposit?
Yes – but not in the sense of walking into a bank and asking for 100% finance.
There are several ways to get bridging finance without a cash deposit.
Using Additional Security
Many clients use equity in other properties as security instead of cash deposits.
For example if you own a £2m property with a £500,000 mortgage that’s £1.5m in equity available as security.
This often means no additional cash deposit is required. You can ‘bring’ this equity over to a new deal that needs financing.
The key is the quality and liquidity of the assets. Prime properties in good locations make great security.
Some lenders will also accept other assets including:
- Investment portfolios with mainstream stocks and bonds
- Commercial property with strong tenant covenants
- Development sites with planning permission
- Other tangible assets with clear value
100% Bridging Loan Options
Some lenders offer 100% bridging loans with additional security or guarantees.
These are often suited to experienced property professionals or high net worth individuals with plenty of assets but limited liquid capital.
When we talk about getting 100% finance, it means borrowing 100% of the purchase price of a new property.
A typical 100% deal would see 75% of the loan secured against the property to be purchases, with the remaining 25% secured against other property or assets.
Our lenders will offer one loan that is secured against two (or more) properties. This is a cross-charge bridging loan.
To get 100% finance lenders will look for compensating factors such as:
- Exceptional exit strategy
- Strong track record in similar projects
- Additional security beyond the primary property
- Personal guarantees from financially strong individuals
- Experience in the property sector
How to Reduce Your Deposit Requirements
Experience and track record have a big impact on deposit requirements. Professional developers with a good track record will get bridging loans with 20-25% deposit, new investors will get 35-40% for similar projects.
Strong applications have comprehensive project plans, professional team appointments and clear financials. These help the lender understand and support your vision.
Working with Specialist Lenders
Different lenders have different risk appetites.
High street banks require larger deposits, specialist lenders are more flexible. Private banks especially for high value deals often offer the best terms.
Some lenders specialise in specific property types or locations. Their expertise in those areas means better terms. A lender that specialises in prime London commercial property will offer better terms for Canary Wharf office buildings than a general bridging lender.
Private banks take a wider view of their clients’ overall finances.
They will consider:
- Overall asset position
- Investment track record
- Business interests
- Banking relationship potential
- Future lending opportunities
Next Steps: Getting Your Bridging Loan
Start by assessing your position – available deposit, additional security options and exit strategy. Bridging finance requires specialist expertise especially for high value transactions.
At Bridging Finance London we specialise in arranging finance for loans above £150,000 and have particular expertise in £1m+ transactions.
We have a large network of private banks and high net worth individuals who lend their own funds so we can structure solutions outside of traditional lending parameters.
Every bridging loan is different.
We often get terms that are not available elsewhere. Get in touch to see what we can do for you, whether you have a big deposit or need to explore other options. We specialise in tricky cases and high value transactions and can create solutions for you.
