Many bridging finance lenders have a limit on the loan-to-value (LTV) of 75%, which means that they will lend up to 75% of a property’s value, with the borrower expected to provide the other 25%. Some financial experts have speculated that the LTV could be raised to 85%.
The website BridgingAndCommercial.co.uk, surveyed financial professionals in June 2017 and found that 73% thought that 85% LTV bridging loans were too risky for lenders, with just 27% saying that they were not risky. Those against high LTV loans argue that if property prices were to fall, there is a possibility that all lenders could lose money, with higher LTV lenders losing the most.
Some experts feel that with the financial uncertainty over Brexit, now is a time for lenders to be cautious and not raise LTV.
There are a small number of lenders providing bridging loans at 80% LTV. Many of these high LTV bridging loans are for refurbishment work that increases the value of the property and subsequently reduces the LTV.
A lender could offer a higher LTV rate than their competitors in order to attract business, but this could be from borrowers who are overstretched on their finances and increases the risk of borrowers defaulting on payments.
High 85% LTV loans may be available in the future, but they will be the exception rather than the rule. Lenders carry out rigorous risk assessments and will only lend high LTV loans if they regard the deal as low risk.