Bridging loans, a form of short-term financing typically utilised in property transactions, are known for their speed and convenience. However, a common question amongst borrowers is whether these loans necessitate credit checks.

Firstly, it’s essential to grasp what bridging loans are. These are short-term loans designed to ‘bridge’ a gap in financing, usually in real estate transactions. They are often used when a property buyer needs to complete a purchase before selling their existing property. Due to the nature of these loans, they tend to be for relatively large sums and are secured against property.

The key question is: do bridging loan providers conduct credit checks? The answer is not straightforward. Unlike traditional loans, bridging loans are primarily secured against the value of the property involved in the transaction. This means the lender’s main concern is the equity in the property and the viability of the exit strategy – how the borrower plans to repay the loan. Therefore, some bridging loan providers might not prioritise credit checks as stringently as conventional lenders.

However, it’s crucial to note that many lenders will still perform a credit check. This is part of their due diligence process. A credit check helps the lender understand the borrower’s financial history and assess the risk involved. Borrowers with a poor credit history or past financial difficulties might find it challenging to secure a bridging loan from certain lenders, or they might be offered less favourable terms.

It’s also worth mentioning that the regulatory environment plays a role. Regulated bridging loans, which are those secured against a property that the borrower or their family will inhabit, tend to have stricter requirements, including credit checks. This is because they fall under the purview of the Financial Conduct Authority (FCA), which mandates responsible lending practices.

For unregulated loans, which are typically for commercial properties or investment properties not intended for personal use, lenders might be more flexible regarding credit checks. Nevertheless, they will still assess the loan’s viability and the borrower’s ability to repay.

While not all bridging loan providers require credit checks, many do as part of their risk assessment process. Potential borrowers should be prepared for a credit evaluation, especially for regulated bridging loans. However, the primary focus of bridging loan providers is the value of the property and the proposed exit strategy. Borrowers with less-than-perfect credit may still be able to secure a bridging loan, but they should anticipate potentially higher rates or more stringent terms. Contact our property finance team for the best option for your needs!