Bridging Loans For House Purchase
A bridging loan is a short-term loan taken out against ones property. A Bridging Loan is suitable for solving a variety of short term finance needs such as:
- Property purchases prior to selling one’s current home
- Chain breaks
- Rejections due to adverse credit or low income
- Properties where a mortgage is not possible
- 2nd charge purchases
- Investment properties
Bridging loans can be taken out for up to 12 months on regulated bridging loan and up to 18-36 month on unregulated bridging loans.
A regulated bridging loan is a loan secured against one’s current property, it could be a property you have lived in or intend to live in. The maximum term for a regulated bridging loan is 12 months. Maximum loan to value is up to 75%.
An unregulated bridging loan is on properties where you have no intentions of living in e.g. buying a property that you intend to refurbish/convert then sell on or rent out. An unregulated bridging loan can go up to 36 months. Maximum loan to value is 75%.
Key Features of the Bridging loans we offer
- with our bridging loans you are not tied into the term of the loan and can exit the loan as soon as the exit route becomes viable for example if the property sells
- There are no penalties for repaying early
- After the first month, interest is calculated on a daily basis and you only pay interest up to the day that you use the facility, for example if you keep the loan for 7 months and 5 days that’s all you would pay for
- You are usually not required to make any monthly payments and interest is compounded/rolled over and you pay the whole amount (amount borrowed plus accrued interest) at the end of the term or when you repay the loan
- Unlike a mortgage which can be repaid over a fixed term, bridging loans need a fixed exit at the start of the loan for example sale of your current property or sale of refurbished property or converted property or refinancing it with a Buy to let mortgage or development finance
- The loan can be taken on a first charge or a 2nd charge basis (rates will vary)
Bridging loans are increasingly being used for development purposes such as refurbishments, conversions and extensions. There are quite a few possibilities when borrowing for development purposes for example one may purchase a house with planning to convert it into two houses or could be extending it to the top or to the side. The lenders will view this as heavy refurbishment and will allow you to purchase the property, do the work and either sell or let that property.
Alternatively, one could be purchasing a property at auction which might need a new kitchen, bathroom, floors and decoration. The lender will view it as part of their standard or light refurbishment bridging loan. Once again, the lender will allow you to purchase the property, carry out the required work and either sell or let that property.
Similarly, one could want to purchase a property with planning permission for an extension. They need funds towards the purchase cost as well as the full renovation costs. The extension can be no more than 50% of the existing property. The lender will give you between 50-60% of the purchase price towards the purchase and 100% of the build cost provided it is within 65% of the final value (GDV – Gross domestic value).
One could also use equity in another property as collateral (this could be on a first or second charge basis) and release more funds towards the purchase or the development or both.
There are numerous possibilities where one could borrow bridging loans for development finance such as:
- Finishing off wind and water tight properties
- Conversion of a single unit into multiple units
- Conversion of multiple units into single
- Conversion of commercial properties into residentials
- Property requiring change of use
Funds can be available in drawdowns or stage payments.
Please note that the rates will vary according to the loan to values and the work involved.
As everyone’s individual circumstances vary, it is very important that the decision to borrow any finance is made after careful consideration. Please note that your property can be at risk of getting repossessed if the loan is not repaid with the agreed time frame.