Bridging Loans Purchasing a Home

A bridging loan is a form of short-term loan taken out against one’s property.

Bridging finance is suitable for solving a variety of short-term funding needs, such as:

• Property purchases before selling one’s current home.
• Chain breaks.
• Downsizing.
• Rejections due to adverse credit or low income.
• Properties where a mortgage is not possible.
• 2nd-charge purchases.
• Investment properties.

Bridge loans can be taken out for up to 12 months on regulated bridging loans or from 18 to 36 months 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 loan is 12 months. The maximum loan-to-value is up to 75%.

An unregulated bridging loan is on properties where you have no intentions of living, e.g., buying a property that you intend to refurbish or convert, then sell on or rent out. An unregulated loan can last up to 36 months. The maximum loan-to-value is 75%.

Key features of the bridging loans we offer

You are not tied to 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 daily, 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 or rolled over. You pay the whole amount (the 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, the sale of your current property, the sale of refurbished or converted property, or refinancing it with a buy-to-let mortgage or development finance.

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 plans to convert it into two houses, or they could extend it to the top or 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, you could be purchasing a property at auction that 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, you may want to purchase a property with planning permission for an extension. You need funds for 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 and 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).

You 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, 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 a single.
• Conversion of commercial properties into residential.
• Property requiring a change of use.
• Funds can be available in drawdowns or stage payments.

Please note that the rates will vary according to the loan value and the work involved.

As everyone’s circumstances vary, the decision to borrow any money must be made after careful consideration. Please note that your property can be at risk of being repossessed if the loan is not repaid within the agreed-upon time frame.