The Legal Process - Bridging Loans

Bridging loans are quickly becoming more and more popular with the boom in property developing influencers and availability of courses and videos online, so this is a guide to the legal process when taking a bridging loan. The legal process will differ somewhat from the process you may already know of, when taking a mortgage or purchasing a property in cash.

Bridging Loan Legal Process - The 2 types of conveyancing

There are 2 types of conveyancing you can take when taking out a bridging loan, dual representation, which may also be called joint representation, and separate representation.

• Dual Representation: This is where there is one conveyancer acting on behalf of both you and the lender.

• Separate Representation: This is where both you and the lender have your own conveyancer.

Pros and Cons

When taking a bridging loan, the client (taking the bridging loan) will be the party covering the costs of all conveyancing. This means that if you are going to take separate representation, you will have 2 sets of legal fees to pay, one for each conveyancer.

Another drawback of taking separate representation as compared to dual representation is that there are more cogs to the machine. The legal process works along a timeline in some cases, meaning that one conveyancer has to sometimes wait on the other conveyancer before they can move forward to the next point.

So with the above, you would be right in thinking that the preference is generally to take dual representation, but this isn't always available or best. First and foremost, not all lenders offer dual representation, meaning that if you are being offered a product which is so much more cost effective than the next available dual representation product, you will be better off taking the 'sep rep' product.

There are also some situations where you may be forced into taking separate representation and may even need more than two conveyancers, for example, using a bridging loan to sell your home in England, to purchase a new home in Scotland, or vice-versa. Conveyancers usually only cover England or Scotland as the law works differently in both countries. In this scenario, you will most likely need FOUR conveyancers, one each in England and one in Scotland for both you and the lender.

When are the legals instructed?

Unlike a mortgage, bridging finance completions can be incredibly quick, usually down to how flexible lenders are and the nature of bridging loans being taking a problematic scenario to a scenario which no longer has a problem.

Bridging lenders often use title indemnity insurance, which means that the lender is protected against defects with the title of the security property. I imagine in the past you have heard of someone's property purchase falling through or dragging on and on through legals as there was some sort of defect with the boundaries, or the title deeds were missing? This is what title insurance protects the lender against, so the bridging lender can complete on the purchase with the full comfort that they are protected against such issues.

What does this actually mean? This means that as the legal process is simplified dramatically, there is no longer as much for a conveyancer to do from a legal perspective, so a lender will actually only instruct their conveyancer once they OFFER you the bridging loan.

There is even a lender so confident in their underwriting process that they have an internal legal team, meaning that as soon as they offer you the loan and you accept, there is no need for conveyancers and they send you the funds directly.

Roadmap of the process

1. Conveyancer instructed - if you are taking 'dual rep' this will most likely be when the lender formally offers you the bridging loan.

2. Client Due Diligence - Almost like the underwriting process of the loan itself

3. Loan Review - The solicitor checks and explains the loan to the borrower

4. Property Due Diligence and Redemption of Existing Charges if applicable - A lot of this can be skipped if title insurance is being used as per above.

5. Legal Documentation - Loan Agreement, Deed of Charge and Certificate of Title (COT)

6. Pre-Completion - Check and sign everything and plan a date for completion

7. Completion - HOORAY!

If you would like to compare some bridging finance products to see if they work for you, please click here.

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