Bridging Loan for Property Purchase
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Bridging Loan for Property Purchase
While a mortgage is the most common way to finance the purchase of property, there are other options that suit certain situations. If you need to move fast, it sometimes makes sense to take out a bridging loan. We can help you explore the options and find a solution that works for your circumstances.
What is a Bridging Loan?
Also known as a bridge loan, this type of finance is a short term, high value loan. Its purpose is to ‘bridge’ the gap between buying a property and getting long-term funding in place to pay for it. It is a secured loan – which means the lender can repossess your property if you fail to repay the debt.
When would you use a Bridging Loan?
Typical situations where you might seek bridging finance include:
- When you need to move fast to make sure you get the property you want – because mortgages can take several weeks to complete.
- If it’s taking too long to sell your existing home – you can complete the purchase and repay the loan once you sell your previous property.
- To become a ‘cash buyer’ which makes you a more appealing purchaser.
- To buy property at auction – you often need to pay in full within 28 days.
- To buy a property for renovation – you could use a bridging loan to finance a major renovation project, especially if the property can’t be mortgaged in its current state
- Bridging loans are often useful for downsizing – allowing you to make the most of the equity you have in your current home ahead of purchasing one that may have a lower value.
Bridging loans can be taken out to buy residential property or as commercial borrowing.
What are the features of a Bridging Loan?
A bridging loan is high value, short term finance. Typically, this type of product has a maximum loan term of 12 months.
Bridging loans are also fast to arrange; you can get approval and receive the funds in just a few days.
Other important features include:
- Deferred interest – You can wait until the end of the loan term to pay the interest that is due. You can also include the interest in your overall borrowing.
- Limited Loan to Value – Most lenders limit borrowing to 75% of the property value.
- You can sometimes borrow more by securing the loan against both the property you’re buying plus existing property you already own.
- Exit strategy – lenders offering bridging loans will expect you to have a clear plan of how and when you will repay the debt.
Speak To An Expert
We provide professional, friendly and accessible advice and support throughout the mortgage application process, and are able to offer recommendations and referrals to trusted conveyancing and estate agent colleagues too.
How much would a Bridging Loan cost?
The total cost will depend on how much you want to borrow, the interest rate and the arrangement fee. Property valuation fees may also apply.
Here’s an example: to buy a property at £400,000 with a 75% bridging loan you would borrow £300,000. A 2% arrangement fee would equal £6,000. If the loan lasted six months at an interest rate of 0.5% per month, the total interest would be £9,000. So the total cost of borrowing, once you have repaid the debt, would be £15,000. You will also need £100,000 to put down as cash towards the property.
Fee and loan totals can vary depending on how you set up the loan. A ‘first charge’ bridging loan means that the loan lender has top priority on your home should it be repossessed, while with a ‘second charge’ loan, another lender be first to receive the proceeds from the sale.
How can we help?
There is a lot to explore and consider when planning to buy a house, and we’re here to make it easier for you to make informed decisions. We’ve helped many clients buy their dream home with mortgages, Bridging Loans and other financial solutions. Our experience in the property world and financial services expertise makes us the perfect partner.
We’ll look at your specific situation and your property goals to find the most suitable options – and we can even help you liaise with surveyors, solicitors and estate agents along the way.
We are fully authorised and regulated by the Financial Conduct Authority through us being Appointed Representatives of the Openwork Partnership.
Contact us today for an initial chat about how we could help you with a bridging loan or any property finance.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage. Some Bridging Finance is not regulated by the Financial Conduct Authority.