Regulated Bridging Loans
Bridging Loans are a useful way to buy a home or commercial property. They bridge the gap between buying a property and selling your existing one.
They are particularly useful for buying property at auction. That’s because you need money quickly to secure the sale, something a mortgage cannot offer. It’s why Bridging Loans are becoming more popular.
If you would like to arrange a Bridging Loan to buy a house or for any other property or land purchase, we can help.
So, contact our expert team today to guide you through the process.
What is a Bridging Loan?
A Bridging Loan is a way to borrow money over a short period of time. These loans are useful if you need to complete the purchase of a property before you sell your current one. As the name suggests, they bridge the gap until you can secure a mortgage.
They can be used by a range of borrowers including individuals, companies, trusts and the self-employed. A survey by consultancy firm EY shows refurbishments are the main reason people take out bridging loans.
The loans are often used by property investors, developers and landlords.
Bridging Loans can be used for a range of property purchases. That includes:
• Buying a residential property
• Purchasing commercial buildings or land
• Buying at auction
• Funding light refurbishment work
• Fixing a broken property chain after a sale falls through
How do Bridging Loans work?
Bridging Loans are a ‘secured loan’. That means you will need some kind of security, such as a property, before you are eligible for a loan. You can use your current property or the one you’re buying as security.
Like a mortgage, your home could be at risk if you fail to make repayments on your Bridging Loan.
There are two types of Bridging Loan. These are:
• Closed Bridging Loans: With these loans, there is a fixed repayment date. This is the type of loan you will be offered if you have exchanged contracts but are waiting to complete your property sale.
• Open Bridging Loans: There is no fixed repayment date with these loans. But you will be expected to pay off the loan within one or two years. Remember, they are a short-term solution.
Regardless of which loan is offered, lenders will want to see a clear repayment plan before agreeing the loan. This includes whether you’re using equity from a property sale or taking out a mortgage to repay the loan.
They also require evidence of the new property you’re buying as well as the price you’re planning to pay. If you’re using a Bridging Loan to buy a house, you’ll also need to provide proof of what you’re doing to sell your current property.
There are also Regulated and Unregulated Bridging Loans.
How much can I borrow?
Lenders might be willing to let you borrow anything from £25,000 to £30million! But, just like when you’re taking out a mortgage, it all depends on your personal circumstances.
You are usually only allowed to borrow a maximum loan-to-value ratio (LTV) of 75% of the property’s value. For example, if you’re buying a property worth £200,000, you’ll need to have £50,000 (called a deposit when it’s a mortgage) to start with.
How much do Bridging Loans cost?
As these loans are used for a short period of time, they tend to be priced monthly rather than annually. As a result, they’re more expensive than residential mortgages. That’s why they are only a short-term solution.
The annual percentage rate, or APR, is far higher than mortgages, too. They can reach 20%. Interest charges are ‘rolled up’ into a lump sum at the end.
Where do I start?
Do you think a Bridging Loan could help you? Then you can talk to our team for a chat about your situation. Contact us today to help you.