There are two main types of property bridge finance, firstly the regulated residential bridge finance and secondly the non-regulated property bridge finance.
Click the below link to find out how Everest Financial Services can assist in getting a regulated residential bridge loan.
The regulated residential bridge finance is for owner occupied residential property, which needs to be purchased before the current Residence is sold. This can be either a closed bridge (buyer of property found and price agreed) or open bridge (buyer yet to be found).
The non-regulated property bridge finance is for commercial property or residential property for business not owner occupied i.e. buy to let or Home in Multiple Occupation (HMO) or Multi Unit Freehold block (MUFB).
Click link to find out how Everest Financial services can help you with commercial or business Bridge Finance.
What are bridging loans?
Bridging loans are a way to borrow money in the short term. They can be used to ‘bridge the gap’ if you need to buy one property before selling another. Unlike mortgages, bridging loans can be arranged quickly if speed is important, usually from specialist lender’s within 48 hours in exceptional circumstances.
Here are some examples of when you may consider using a bridging loan:
- You are in a property that has collapsed and you don’t want to lose your dream home.
- You are buying at auction and need to raise funds quickly.
- When buying a property that is unmortgageable. Your plan is to make it habitable or lettable so a traditional mortgage can be arranged. Example when refurbished hard or soft is required.
Bridging loans are a secured loan, meaning that you have to secure an asset against them, usually a property or properties. As there is a risk of losing your asset, bridging loans are sometimes considered as a loan of last resort.
A bridging loan, unlike a mortgage, is not directly linked to your income. Its linked to the expected exit value either proceeds of sale or refinance.
The bridging loan is repaid either by the sale of the property or by raising finance through long-term refinancing.
What are the pros and cons of a bridging loan?
Make sure you balance up the pros and cons before you apply for a bridging loan.
Pros of bridging loans
- You can quickly borrow the money to keep your property transaction on track.
- It is possible to borrow very large sums of money.
- The repayment terms can be flexible to fit in with your plans.
- It is possible to secure lending on properties where high street lenders may not.
Cons of bridging loans
- Bridging loans are a secured form of borrowing, so you’ll need to put up an asset against the loan. This means you risk losing that asset, for example a property, if you can’t repay the bridging loan.
- You pay for the convenience of fast, flexible finance with a higher interest rate.
- Bridging loans can come with a range of fees that add to their expense.
Example of Bridge loan and cost involved.
| Retained Interest: | Yes |
| Monthly Interest Rate: | 0.64% (Annual APR – 9%) |
| Interest Amount: | £40,602.01 (Assumes full term of 12-months, calculated daily) |
| Gross Loan Amount: | £550,922.01 |
| Net Loan Amount: | £500,000.00 |
| Loan Term (Months): | 12 |
| Loan to Value: | 63.25% |
Costs
| Valuation Fee (Inc. VAT): | £860.00 |
| Arrangement fee Fee: | £10,000.00 (Added to loan) |
| Telegraphic Transfer Fee: | £25.00 (Added to loan) |
| Administration Fee: | £295.00 (Added to loan) |
| Broker fee: | £5,000 |
How much can be borrowed?
How much you can borrow with a bridging loan will depend on the value of your properties and your personal finances. The maximum loan, including any retained or rolled up interest is normally limited to 75% loan to value (this can be over multiple properties in case of a portfolio property investor), it could be as high as 100% of the build cost if a hard refurbishment which will enhance the gross developed value of the property significantly.
The bridging loan may also be limited depending on the condition of the property, your credit history, any essential works required at the property or the level of finance available to refinance.
How do I get a bridging loan?
You can apply to a specialised broker or direct to the lender for a bridging loan. There are several things lenders will assess when deciding whether or not to approve your application.
The lender will usually require at least one property to be used as security against the loan. This will likely need to be another property to the one you are selling, so you may need to own more than one property to secure a bridging loan.
The lender will also want your exit plan. That is how you will repay the loan and by when. If you need to take out a traditional residential or buy-to-let mortgage, for instance on the property that has been renovated or the property you are buying, you will need to show the lender proof that the mortgage will be forthcoming. They will undertake affordability checks as standard with normal mortgage lending or look at the rental income you will be generating. This is to satisfy the lender that you will be able to secure a mortgage and you can afford any repayments required on the new loan.
As these are unregulated products on offer, we advise that you go via a specialised credit broker, such as Everest Financial Services who can scour the market for you and advise you on all bridging loan options.