All about Bridging the gap

A bridging loan is a property backed short-term loan, usually funded to bridge the gap. Reasons why you might use a bridging loan is when you’re at an auction and you need to purchase a property in auction and you need speed, or it might be that you’re waiting for another event to occur i.e you’re moving from your home to another home and you don’t want to be in a chain, or you might have found an under-valued property and you don’t have a deposit to hand so you want 100% finance. That is all available through a bridging loan.??

Property is a great investment and over time houses prices have risen. The UK is currently not building enough homes so house prices are predicted to rise over the long term.

How to get a Bridging Loan?

There are three main key factors involved in the success of your application for a bridging loan:

• The first one is a profile of the applicant; so your assets and your liabilities
• The second major factor is the property that’s offered as the security
• The third and most important one is your exit strategy

Are Bridging loans worth it?

Yes, bridging loans are worth it if it’s short-term finance you need and if you are waiting for another event to happen. For example: If you are purchasing a property which is in need of refurbishment it may be difficult to obtain an ordinary mortgage as the property may be un habitable . In this case you would obtain a short-term bridging loan to complete the refurbishment and bring the property up to standard. You would then exit the bridging finance by either selling the property at a higher value or re-financing onto an ordinary buy to let mortgage.

What is the interest rate for Bridging finance?

The interest rate payable on a bridging loan can depend on many factors. The loan amount against the value of the property, the work needed to the property, the type of property and many other factors. Interest rates are usually charged monthly whilst you are in the short-term loan. The interest rates usually start at 0.5% to upwards of 1% per month. Again, this depends on the scenario. There are also other costs to factor in. We are able negotiate products with lenders on your behalf so contact us now and we would be most happy to guide you through the process.

100% Loan To Value Bridging Loans

Some bridging finance lenders can lend up to 100% of the property you are purchasing or refinancing. Some examples of this are if you have other properties in the background, you could offer those as security to the lender to obtain 100% finance. Another example would be getting a bridging loan on the actual value of the property as opposed to the purchase price. What that means is if you are buying a property below market value because it needs a lot of work, you could get finance on using the value of the property once the works are done.

Bridging loans for renovations

If you are looking to purchase a property and do a renovation then you might need a refurbishment bridging products. These products may allow you to borrow additional funds to help you with the refurbishment over and above helping you already with purchasing the property. The main thing to consider here is what the end value of the property will be. Some lenders cap the total loan against the end value by no more than 65% and some lenders can do more.

It’s a good idea to discuss this with your broker before entering and committing to any property purchases.

Bridging loans for property development

Most experienced property developers use bridging loans in order to acquire a property and add value by refurbishment or converting the property.?

Property developers tend to exit the bridging loan through re finance onto a buy to let mortgage over a long term period or they sell the property for a profit.

Developers who do ground up developments may find they need development finance instead of bridging finance.?

2nd charge Bridging loans

A second charge loan is essentially a second lender who has a charge against your property. This means that in the event of you being unable to pay your mortgage and the property had to be repossessed then the first charge lender would look to satisfy their charge first and whatever is left after the sale would satisfy the second lender.

If you have property that has a mortgage currently on it and it may prove too costly to exit that mortgage you can apply for a second charge mortgage. You would still make monthly payments to the first charge lender and a separate payment to the second charge lender.?

An example of a scenario where you may need a second charge bridge: Let’s say you have a mortgage on a property where you have 5 years left on your current mortgage. It’s too expensive for you to exit the mortgage with the current lender. You need funds to do a refurbishment. If the first lender is unable to provide extra cash then you could possibly go for a second charge loan.?

Before making any decisions it’s wise to speak to a mortgage broker to evaluate your circumstances fully and advice and make a recommendation on the most suitable product for your needs.

Bridging loan for property auction

Bridging loans are designed to be short-term, interest-only loans that provide necessary credit to a buyer before they secure their main source of funding. These types of loans are granted much faster than other lines of credit, however, they have a higher interest rate and require proof of an exit strategy.

A broker who is savvy in auction finance and bridging loans can help you get your paperwork and exit strategy in order for a quick approval. There are many ways that lenders repay their debt, including selling the property, refinancing the property, or paying off the debt with cash. Please click here to find out more about auction finance.