What Are Demerit Points In Bridging Loan Finance?
Some property bridging lenders use a point system to assess the risk of a borrower, called demerit points.
A demerit point may be triggered by adverse credit events such as CCJs, loan arrears and defaults.
How the system works
Rather than declining outright on any adverse credit, the lender scores each event and sets a threshold. Below it you are accepted on standard terms. Above it you are declined or moved onto a higher rate and a lower loan to value. The score is weighted by how recent the event is, how large it was and whether it has been satisfied, so a small satisfied CCJ from four years ago counts for much less than a recent unsatisfied one.
Each lender publishes its own matrix to brokers and they differ considerably, which is the practical point. The same borrower can clear one lender’s threshold comfortably and fail another’s, so a decline from one bridging lender on credit grounds tells you very little about the market as a whole.
Because bridging is secured on property and repaid from a defined exit, credit history carries less weight here than it would on unsecured lending. Lenders are more interested in the security, the loan to value and whether the exit is credible. Adverse credit usually affects pricing rather than acceptance, and a strong exit will often outweigh it entirely.
Related terms
See also CCJ, county court judgment, and LTC, loan to cost.
Read more about bridging loans and how lenders assess a borrower, or getting a business loan with a CCJ.
Bolton Business Finance is a whole of market commercial finance broker and we place cases with adverse credit on them regularly. Call 0161 546 9128.
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