Risks Associated with Lending
Understanding bridging loan risks
It’s vital to fully grasp the risks associated with lending before entering into a legally binding agreement.
Falling into arrears
Missed payments will result in further fees and charges from your lender:
- Standard arrears Fees
- Increasing Missed Payment Fees
- Monthly Fixed Arrear Charge
Lenders can take you to court if agreed payment terms are not met and they have to chase you or a cheque payment you make is returned unpaid.
Failure of exit strategy
By understanding bridging loan risks, you’ll better equipped to evaluate your exit strategy and plan to mitigate loan risk as much as possible. Breaching the loan agreement by failing to repay the bridging loan or interest on time or by letting the property without consent, for example, may result in your property being repossessed.
An eviction order can be obtained, meaning you would have to vacate the property. It can then be sold to redeem the outstanding debt and any additional costs and charges your lender may apply.
If the funds raised exceed this, the remainder would be due to you. However, if the funds raised do not cover your debt, you will be subject to legal action to pursue the debt from any other assets you may own. Any asset can be seized and sold to repay the bridging loan, including real estate.
If seized real estate can’t be sold within acceptable timescales due to a slump in the market, for example, your lender may appoint a Law of Property Act (LPA) Receiver to manage the property on their behalf. Any income from this will go to the Lender.