Broker Guide- Bridging fees explained

16 April 2014

Bridging loans may be subject to a wide variety of fees and charges; B&C outlines those which all intermediaries should be aware of.
Bridging Fees:

Arrangement Fee:
 A fee for the lender providing the loan – which is often described as an arrangement fee, application fee or completion fee. Some loans have both an application/arrangement fee and a completion fee. The fee(s) may be payable at the time of the application or at the time the loan is advanced. A completion fee, and sometimes the arrangement fee, is generally payable when the loan is advanced. Sometimes the fee is added to the loan required and then deducted from the money advanced when the loan completes.

Valuation Fee
: A borrower will normally have to pay for a survey to be carried out on the property that is to be mortgages. The borrower’s intermediary will advise the client of the cost and this will have to be paid at the outset. Some lenders require the payment to the surveyor directly.

In some cases a lender may consider accepting a recent survey that has already been carried out, providing the surveyor is acceptable to them and the surveyor is willing to re-address the survey to them. The surveyor will usually charge a fee for this but it will be less than the cost of a new survey.

Legal Fees: The lender’s legal costs are usually payable by the borrower. These are normally on a set scale according to the value of the property, and with some lenders now, the value of the loan. If more than one property or title is being used as security then the costs will increase. The borrower may be required to cover the costs at the outset –this is often done by giving funds to the solicitor who will undertake to pay them to the lender’s solicitor as required. Some lenders provide a joint legal representation option, which may be cheaper. Some lenders arrange for their legal costs to be deducted from the loan amount when the loan completes. A borrower will have their own solicitor’s costs to pay. Bridging lenders generally require borrowers to use their own solicitors to ensure they have independent legal advice on the nature and the risks of the transaction.

Telegraphic Transfer Fee: 
Some lenders charge a fee for transmitting the loan electronically to your solicitor’s bank account.

Mortgage Administration Repayment Charge: This can also be known as a redemption fee or deeds release fee. This is to cover the lender’s cost in dealing with the repayment of the loan.

Exit Fee: Sometimes called a loan repayment fee or redemption charge. This is a fee charged to the lender as part of the cost of the loan. It is often expressed as a percentage of the loan amount borrowed or a number of months’ interest payments. It is payable when the loan is repaid.

Arrears Fees
: These are payable if the borrower fails to make payments due under the loan on time. This may be a set monthly charge, an amount per missed payment or an amount for each month the loan is in arrears. Another basis of charging is for each action on the borrower’s account – e.g. a telephone call to chase payment, writing a letter, bounced debits etc.

Many short term lenders charge fees for extending the term or for failure to repay on time. It is also possible for a lender to increase the interest rate when this occurs.

Interest will still be added to the borrower’s account and they may be charged interest on the missed payments as well as any fees or charges incurred.

If the lender has to instruct solicitors, take a borrower to court or repossess a property all costs incurred will be added to the loan.

Some lenders charge fees for providing additional statements, dealing with requests for redemptions, providing information to other lenders on a borrower’s request etc.

If a borrower is having their loan advanced in stages to cover a building project they may be liable to pay additional re-inspection fees to check on the work completed so far and current value of the property. These are generally lower than the initial valuation fee

Facility Fee: Some lenders have a facility fee included in their product terms. This is usually set at a rate of interest per month. This fee is generally waived by the lender if the account is maintained in good order throughout the term of the loan.

Other Fees:

Intermediary Fee: 
An intermediary may charge a fee which may be payable at the outset to cover the cost of the work one does. It may be payable only when an offer is made by the lender, or when the loan completes. In some cases there may be a fee payable at more than one time.

Some lenders allow the intermediary’s fee to be added to the loan and pay it to the intermediary when the loan starts.

Indemnity Insurance
: Many lenders require insurance to be effected to protect them from a defect in the title to the property (title indemnity) or other specific risks. This also helps to speed up the process. The cost of this is often passed on to the borrower via the legal costs incurred and is deducted from the loan at completion, but the cover is for the lender only.

Valuation Insurance: Some lenders insist on valuation insurance cover. This covers the lender and any difference between sale price (in repossession) and original valuation. This is cover for the lender only.

Legal fees on redemption:
 The borrower will generally be responsible for paying the lender’s legal fees for redeeming the loan. This is usually based on a set scale.

Borrowers’ legal fees: Brokers’ solicitor will charge you for the legal work which they carry out. They should provide information on the cost and how it is worked out when they are instructed.