Looking for a bridging loan?
We are specialists in Bridging Finance
We can secure your bridging loan with a fast and reliable service, expert knowledge, and long-standing lender relationships.
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What’s covered in this page
What is a Bridging Loan?
Bridging loans are used to ‘bridge’ the gap until the main finance is available, this could be a traditional mortgage, or the property is sold, following say a renovation.
For example, you might be selling your main home and buying a new one, but then the buyer of your property withdraws, and you do not want to lose your dream home. A bridging loan could be the solution, as you can raise the funds across both properties, to secure the purchase of your new home. Once your current property is sold you repay some or all of the bridging finance from the proceeds of sale and then by using a traditional mortgage on the new property to repay any remaining balance if required. This is often referred to as ‘saving a chain break’. You are then in the home you wanted to be, with a traditional mortgage if you needed it.
Other uses are auction purchases, where traditionally property investors are looking for below market value properties or properties with a potential to sell for a profit once a refurbishment has been completed, often called ‘Buy to Sell mortgages’. Some may even be looking for a property to purchase to keep as a residential home.
A bridge can also help with ‘un-mortgageable’ properties (Structural issues, refurbishment, reconfiguration or change of use). These are unlikely to qualify for a traditional mortgage, a bridge allows you to buy the property, renovate it to a standard acceptable for a traditional mortgage, you may plan to live in it, rent it out or sell it.
Why a bridging loan?
A bridging loan is multipurpose and has a variety of uses, with lending mainly based on the property, borrowers experience and plan for the property, it means that whilst lenders will carry out a credit check, they don’t tend to be overly concern about a low or bad credit profle. Although it’s important to note, if a traditional mortgage is required on exit, that is likely subject to full lender credit and affordability checks.
Most popular uses of a bridging loan
- Securing a new property before completing the sale of your existing property
- 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
- Un-mortgageable properties, for example if there’s no kitchen or bathroom
- Refurbishment projects to sell or let
- Change of use – if changing the purpose of a building
Will I qualify for a bridging loan?
The loan amount is based on the loan to value ratio (LTV) from properties current or estimated future value, if renovating. Most bridge lenders will lend up to 75% of the value, but there are some that will stretch this to 85% if the purpose is to renovate and sell the property for profit, after the costs of works.
Key factors considered by lenders are the:
- Subject property
- Project plans
- Exit plan (how you will repay the loan, such as traditional mortgage, sale or other capital)
What are the charges on a bridging loan?
The usual fees are a valuation fee, legal fees and a lender application or arrangement fee to cover the costs of setting up the loan. There can also be fees if you need to extend the term of the bridge. Its therefore very important that you fully plan your project to avoid unnecessary fees. A specialist like Clever Lending, will also charge a fee and can help you to ensure you have the correct finance in place for the correct time period.
What interest is payable?
Bridging loan interest rates are set by considering the property value, size of loan, loan to value (LTV), use of property, condition and location and are usually chargeable on a month basis, instead of the traditional mortgage annual rate.
Due to the slight increase in risk with bridging and the short-term nature, lenders charge slightly higher rates compared to a traditional mortgage.
How can I repay a bridging loan?
With bridging loans, interest and payments can be retained, rolled up or serviced, the difference being retained and rolled up, means you make no payments each month and instead they are deducted from the original loan balance.
With serviced, you make the interest payments each month and therefore the remaining balance on exit is the original amount borrowed.
The beauty of a bridge is you can have no monthly payments, using those funds as cash flow during the project and reap the benefits with a quicker sale or say, rental income.
At the end of the bridge finance term, you will need to repay the capital, any added interest and fees in full.
The customer wanted to purchase a new property, having seen a refurbishment project going to auction, they needed to arrange the finance quickly before selling their current house. The auction house would need a 1-month completion.
We discussed the case with a lender that would accept a security over both properties, this allowed the customer to purchase at auction. The current property was put on the market and when sold, the funds will be used to repay the bridge. If the customer needed a traditional mortgage, then this can be arranged.
Buy to Sell Mortgages
Buy to sell mortgages are a type of bridging loan, whereby your plan is to buy a property, normally at lower than market value, carry out light to heavy refurbishment and sell the property for a profit, after taking into account the costs to buy, renovate and sales costs.
You would not be looking to live in this property, use it as a second home or rent it out.
Why might you require a Buy to Sell mortgage
Property investors use buy to sell mortgages to build capital lump sums, they will be looking for below market value properties or properties that can be refurbished and sold for a profit.
As long as you plan well, do your research, have money for the deposit and have the additional funds to invest into the renovation, then buy to sell properties can be good investments.
Buy to sell mortgage what you need to consider
You will need to be able to put down a larger deposit in comparison to traditional mortgage types. This is typically a minimum of 25%, however with buy to sell mortgages 15% deposits are possible, with you needing the additional funds to complete the renovation work.
With renovation costs it’s a good idea to also have a contingency for those unforeseen works, its advisable to build a contingency of at least 15% for the cost of work.
Having said that, some lenders will consider lending 100% of the refurbishment costs. The first release of funds is based on a percentage to buy the property with the rest coming from your deposit. The second release of funds would be after the work is completed and a valuer has inspected the property. This means the actual total loan to value is based on the guaranteed value after works are completed. Talk to Clever Lending for more details on refurbishment projects
In summary, you still need the funds to pay upfront for works but have the knowledge the lender will lend this back to you, thus increasing the mortgage balance.
Why use a specialist?
Gone are the days of a ‘computer says no’ process when it comes to lending.
What should I do next?
You can call us today on 0800 316 2224, option 1 or complete the contact form
One of our experts will give you a call to find out more about your situation – We have experts in commercial and residential lending, who focus solely on helping customers save money
We do all the hard work for you – We search the market for the trusted lender that’s right for you
Our expert will get back in touch – We can guide you every step of the way, and we’ll always keep you up to date with progress
Why use Clever Lending?
We are specialist in finding solutions for bridging finance, talking to an industry expert will mean you are getting the right information for your requirements. With a personal service and outside the box thinking, if there is a solution out there, we will find it.
6 Great Reasons to Choose Clever Lending for a bridging loan
In-house regulated bridging advice
We have a dedicated team of qualified specialists who are ready to discuss your regulated bridging advice enquiries
Competitive rates on bridging loans with 100% LTV available with added security
Hundreds of products
First, second and third charge bridging loans available from £25,000 with terms from 1 month to 24 months
Staged release on development
Borrowers can secure renovation funds for various stages of their property renovations
No exit or legal fees
We can offer bridging loans with no exit fees for flexibility of the investment plan
Manage all enquiries online
Manage all bridging enquiries at any time from any device using Clever+