Bridging finance is often used by property developers and investors in various situations, for example, where investors are buying a new property while waiting for the sale of another property or waiting for a refinance on another property. Before obtaining bridging finance it is worthwhile considering your exit strategies and understanding the consequences in the event that you default on the loan.
Failing to repay a bridging loan on time can have serious consequences. Bridging loans are designed for short-term borrowing, with most bridging lenders requiring the loan to be fully repaid within the agreed timeframe.
It’s crucial to carefully review the terms of your bridging loan, as they will likely outline the consequences of breaching the agreement. Failure to repay the loan by the end of the term will almost certainly constitute a breach of your lending terms.
Default Interest
If you default on your loan—such as by failing to repay it by the end of the term—the lender may impose a higher rate of interest. The terms concerning default interest are usually specified in the original loan agreement, which you would have signed before taking out the loan.
For further information on whether a lender’s default interest rate may constitute an unenforceable penalty, you can read our article here: “Bridging Lender’s Default Interest Rate: High Court Deems 4% Default Interest an Unenforceable Penalty Charge”.
Additional Fees
In the event of a default on your bridging loan, the lender may seek to impose additional fees. The lender’s right to do so will depend on the terms of the original loan agreement. Some lenders may add a late payment charge, typically a relatively modest amount, while others may impose ‘account review fees,’ which could be significantly higher.
Calling in the Loan / Possession Proceedings
Should you default by not repaying the loan by the end of the term, the lender may, depending on the loan terms, demand immediate repayment of the full amount.
If you are unable to repay the loan when immediate repayment is demanded, the lender may seek to repossess the property over which the loan is secured.
If the loan remains unpaid, bridging lenders are likely to have several legal options at their disposal. These may include issuing a claim to obtain a County Court Judgement, serving statutory demands, and / or presenting a winding-up or bankruptcy petition.
If the bridging loan was taken out by a company, the lender may appoint liquidators to wind up the borrowing company and realise its assets, including any property, to repay the loan.
Credit history / credit score
Borrowers should bear in mind that defaulting on your bridging loan may well have an adverse impact on your credit history / credit score.
Extending the Loan
Depending on the circumstances, the lender may be willing to extend the loan term, although you may be required to pay renewal fees, which can be substantial with some lenders. Please note that some bridging lenders may be prepared to extend the loan term on the basis that you start to make monthly interest payments rather than allowing you to continue to roll up the interest on your loan.
Maintaining communication with your lender is crucial. If you can demonstrate to the lender that you have an exit strategy—or multiple strategies—such as selling a property or refinancing, which will allow you to repay the loan within a reasonable timeframe, the lender may agree to extend the term.
If you are able to take steps to expedite any exit, such as speeding up any sale or refinance, this is likely to improve your prospects of reaching an amicable resolution to any default situation.
Bridging Loan Default Solicitors: Contact Us
David Burns, Senior Litigation Partner at Ronald Fletcher Baker LLP, has extensive experience in handling issues related to defaults on bridging loans. For inquiries on this topic, please contact David Burns via email at D.Burns@rfblegal.co.uk or by phone at 07762318409.
David Burns
Senior Litigation Partner
