Bridging Loans

Can I get a mortgage…? Bridging Finance

What are bridging loans?

Bridging loans are a form of secured finance. They are short term loans typically for no longer than 12 months in length. One of their most popular uses is to help with house purchases, when a person needs to purchase their new property before their current property has sold.

They are a form of secured finance, therefore you will need to own a property in order to be eligible.

Other Typical Uses of Bridging Loans

As well as being a tool to allow a purchase of a new property before an existing property sells, they do have other uses, for example:

  • For landlords and property developers to fund projects.
  • Auction purchases, where you need a high deposit at short notice.
  • Buy to Let refurbishment projects.
  • Property development.

If you are unsure as to whether a Bridging loan is suitable for you, it is always best to discuss it with a qualified mortgage broker so you can fully assess all the options available to you.

Repaying a Bridging Loan

Bridging loans are a form of short-term finance and you must have a clear route to repay the debt at the end of the loan term. This could be for example the sale of a property.

Are they like a mortgage?

Bridging loans to individuals – for personal residential use – are regulated no differently than a standard mortgage by the Financial Conduct Authority; so just like mortgages they are another form of secured finance.

What are the benefits and the drawbacks?

The benefits of bridging finance are that it is usually fast to arrange and can enable you to borrow large amounts of money flexibly and quickly. The potential drawbacks are that it is typically more expensive – in terms of both interest rates and fees – than other types of secured borrowing.

How much can you usually borrow?

Bridging lenders will typically allow you to go to a maximum Loan To Value (LTV) between 60% to 85% on Bridging Finance.

By Loan To Value we mean the total debt you will owe on the property divided by the properties value. E.g. a £50,000 loan against a £100,000 property would be an LTV of 50%.

What are the Repayments?

Typically, there are two common types of bridging finance and options for monthly repayments.

The first is where the lender charges the interest accrued on the loan as a monthly repayment. In this situation, the amount you borrow at the start will remain the same throughout the loan term and at the end of the bridging loan you will need to repay the borrowed balance back.

The second is where the lender ‘rolls up’ or defers the interest. In this situation, you will not make monthly repayments but the interest gets added to the loan each month and at the end of the loan you need to pay back all the money borrowed, as well as all the accrued interest. The amount you owe would increase month on month.

If you have any questions regarding Bridging loans, please get in touch today!