As a short-term loan, you need to be ready to repay a bridging loan when the term ends. But what happens if something unexpected occurs that jeopardises your plans and means that you need more time? Can you extend a bridging loan?
Why might you need to extend your bridging loan?
When you apply for a bridging loan, the lender needs to know what your exit strategy is, which is how you intend to repay the loan. This can be to sell the property and repay the loan from the proceeds, for example. Or you may decide to refinance to a mortgage or to release equity from another property or asset.
However, when dealing with property, issues invariably crop up, which can derail even the best laid plans. Some examples of circumstances that may lead to you needing a bridging loan extension include:
- The planning permission is taking longer than expected.
- It’s taking longer than anticipated to sell the property.
- The market has turned and your property’s value has fallen.
- There have been delays in the refurbishment, renovation or development aspect of your project.
Can you extend a bridging loan?
As unexpected delays can often occur with property transactions, most lenders consider bridging loan extensions. This is determined on a case-by-case basis and the lender will take into account the reason for needing more time, the current status of your project and your revised exit strategy.
If you think you’re going to experience issues with repaying your loan on time, don’t just leave it. Talk to your lender to discuss your options. If you don’t take action and just miss your repayment date, you’ll incur significantly higher interest rate charges and hefty penalty fees. The lender can take legal action to recover their debt and, in a worst-case scenario, may repossess your property. Your credit score will also be damaged and this can make it difficult for you to borrow again in the future.
Requesting a bridging loan extension
It’s important to contact your lender as soon as possible if you think you’re going to need an extension. You’re more likely to get a positive response if you’ve demonstrated good communication with the lender throughout your project, can show that your project is still viable and show professionalism by contacting them as soon as you experience delays.
Not all lenders agree to extend bridging loans. Therefore, by approaching yours as early as possible, it gives you enough time to find an alternative way to repay your loan if need be.
To be approved for an extension, your lender will need to be convinced that it’s a genuine reason for delay, such as experiencing construction issues or a delayed property sale. You’ll need to provide them with evidence to this effect. You’ll also need to prove that your project is still on track and provide any supporting documentation to help your case. Examples of this include a new property valuation, proof of the progress made on your project and details of your revised exit strategy.
What to be aware of when extending a bridging loan
If your lender does agree to extend your bridging loan, there will be additional costs you need to be aware of. An extension fee is usually charged, which is typically 1–2% of the loan amount. A new property valuation is often required and extra legal work may need to be carried out. As well as those costs, the interest charged for the extension period is likely to be higher than that for the original loan term.
Get expert guidance on your bridging loan options
When arranging your bridging loan, our mortgage brokers will check your exit strategy carefully to ensure that it is solid. Providing ongoing support throughout the term of your loan, they’ll help to keep you on track with your repayment schedule. Should any issues be experienced that may delay this, they can speak to the lender on your behalf to negotiate an extension. They can also discuss alternative options with you and find a solution that suits both you and the lender.
Get in touch with us on 01322 907 000 to discuss your property plans and the bridging loan options available to you. As specialist financial experts, we can find the best product to suit your circumstances and meet your property goals.