Your home or property may be repossessed if you do not keep up repayments on your mortgage or any loan securred on it.
A sharp intake of breath
This is often the response to anyone who mentions bridging as a means of financing property purchases usually followed by the words ‘That sounds expensive!’
If planning to use it to buy a main residence, that may be right, but as a means of financing various property investment strategies it could allow you to earn a profit that you would not otherwise have access to.
All bridging lenders are not equal. Some would lend on purchase price but not all. What if you could get a great below-market-value property and borrow against its full value.
If you talk to our team of experts you’ll get the bridging loan that gives you the best possible outcome and rather than draining your bank account, you could find it growing faster than other investors who are reliant on saving the next deposit before they can make a new purchase.
Why a bridging loan?
Having the ability to purchase a property quickly can have advantages such as negotiating a good price when buying the property and beating competitors to the deal, but many people aren’t in a position where they are able to get quick access to their cash, especially if it’s tied up in assets such as another property.
A regulated bridging loan can be a good option for those who have found their dream home and have yet to sell their current property. They can also help those who are buying at auction, as they will need to put down a deposit straight away.
Unregulated bridging loans can work well for people who are looking to purchase a buy to let, refurbish and sell on or for the purchase of a commercial property.
What is a bridging loan?
A bridging loan is a short-term funding option which ‘bridges’ the financial gap during a property transaction. If you or your business need to borrow money quickly for an interim period for a property transaction, then a bridging loan might be a suitable option.
A bridging loan can either be open or closed depending on your situation. A closed loan has a fixed repayment date and is usually for those who have already exchanged contracts. Open loans are more flexible with no set repayment date, but will usually last for no more than 12 months.
In some circumstances, loans can be arranged that have similar characteristics to short term bridging loans but can last up to five years with various repayment options.
Lenders will want to see proof of how you will repay the loan. The most common ways of repaying are by selling on the security, possibly the sale of another property, or by taking out a mortgage as refinance to repay the loan when the works have been completed. We sometimes refer to this as “buy refurb sell” or “buy refurb refinance”
A bridging loan should only act as a cash injection for the buyer and should not be a replacement for a long-term solution.
Bridging loans are typically for:
- Broken sale chains– bridging the gap between purchases
- Auction purchases– quick completion timescales
- Renovation– a traditional mortgage may not be available until the works are complete
- Below Market Value– enabling you to possibly take advantage of the Open Market Value of the property
- Unmortgageable properties– if there is no kitchen or bathroom for example
- Change of use– if changing the purpose of a building
- Buy to Let – purchase to let
Loans can be a 1st, 2nd or 3rd charge on the property.
Who are bridging loans aimed at?
Landlords, developers and investors most commonly use bridging loans as a way of building property portfolios quickly by taking advantage of market conditions. But bridging loans can also help fund commercial and residential purchases.
It’s important to remember that a bridging loan is not an alternative to mainstream lending and should only be considered when other lending options are not suitable. You should always seek professional advice from a specialist broker before applying for this type of finance.
How much is a bridging loan likely to cost?
Additional costs to the loan may include a valuation fee, legal fees, administration and possibly, broker fees, some may need to be paid upfront and some added to the loan. The cost of these will vary depending on the lender, the type of arrangement and the property value or purchase price. On top of this, many lenders will also charge an arrangement fee typically 2% of the loan advance.
As bridging finance is more expensive than other mortgage funding options, a clear repayment and exit strategy should be in place before taking out the loan. This will help you to successfully avoid paying additional charges or high penalty interest rates. It can also help to avoid the potential repossession of the property if the loan is not redeemed within the agreed timescale.
Lenders will also want to see evidence of the property you are buying even if you are securing the loan on another property, how you plan to pay for it and what you are doing to sell your current property if this is the plan.
Our bridging loans features
- 100% LTV available with additional security
- Additional lending to assist with the costs of the work
- Market leading rates from 0.45%
- Terms from 1 month to 60 months
- Loans usually from £25k
- Lower loans may be considered
- No exit fees on some loans
- Staged release on development
- Auction purchases
- 1st, 2nd and 3rd Charge
- Free Legals with some lenders
- Residential and commercial
- interest rolled up/retained or serviced
If you want to arrange finance or just have questions about bridging loans, please give us a call on 01206 586586 or email us at firstname.lastname@example.org
Most Bridging Loans are not regulated by the Financial Conduct Autority (FCA)
This article (Bridging Loans) is intended to provide a general appreciation of the topic and it is not advice.