Fast-Track Your Home Purchase with Our Bridging Loan Solutions
Fast funding: Within 7 working days.
Short-term: Up to 24 months.
High LTV ratio available.
Flexible repayment options.
Can be secured against property.
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A bridging loan for house purchase is a type of short-term finance designed to ‘bridge’ the gap between the sale of your current property and the purchase of a new one. This kind of loan can be particularly useful when you need to secure a property quickly or when you’re buying a property at auction. Bridging loans are also popular among property investors who need to renovate a property before securing a traditional mortgage.
What’s different about a bridging loan?
Unlike traditional mortgages, bridging loans are typically short-term, lasting from a few weeks to a couple of years. They are designed to provide quick access to funds and are usually interest-only, meaning you only pay the interest each month and repay the principal at the end of the loan term. Bridging loans also tend to have higher interest rates compared to regular mortgages due to their short-term nature and the risk involved for the lender.
Key differences of bridging loans:
TERM LENGTH: Short-term (weeks to 2 years).
REPAYMENT STRUCTURE: Interest-only payments.
INTEREST RATES: Higher than traditional mortgages.
SPEED OF ACCESS: Faster than conventional mortgage processes.
How bridging loans work for house purchases?
Bridging loans are short-term loans designed to help you purchase a property quickly when traditional mortgage financing isn’t an option or isn’t available in time.
Here’s how a bridging loan for house purchase can work:
FAST ACCESS TO FUNDS: Bridging loans can be arranged quickly, allowing you to act as a cash buyer and potentially secure your desired property before others.
FLEXIBILITY: Lenders often consider borrowers with less-than-perfect credit histories, as the loan is secured against the value of the property you want to buy.
BRIDGING THE GAP: A bridging loan can be used to cover the deposit for a house purchase, or to bridge the gap between selling your current home and buying a new one.
VARIETY OF USES: Bridging loans can be used for various property purchases, including buying at auction, purchasing a property needing renovation, or securing a buy-to-let investment.
Key considerations of having a bridging loan:
LOAN TERM: Bridging loans typically have shorter terms than mortgages, often ranging from a few months to a year.
LOAN INTEREST RATES: Bridging loan interest rates are generally higher than mortgage rates due to the short-term nature of the loan.
LOAN-TO-VALUE (LTV): The amount you can borrow is typically a percentage of the property’s value.
REPAYMENTS: You’ll need a plan to repay the loan at the end of the term, often through the sale of your existing property or refinancing.
Repayment options
There are several ways to repay a bridging loan:
Selling a property.
Refinancing to a mortgage.
Paying monthly interest (servicing the loan).
Rolling up interest to be repaid at the end along with the capital.
Using funds from an inheritance or selling a business.
Types of bridging loans for house purchase
Bridging loans are a popular financing option for house purchases, particularly when there is a need to act quickly or when traditional mortgage options are not feasible. There are several types of bridging loans that cater to different situations and requirements. Here, we will discuss the main types of bridging loans for house purchases in the UK:
01 First charge bridging loans
These are the most common types of bridging loans used for house purchases. They are secured against the property being purchased and are typically used when the buyer needs to complete the purchase quickly, such as in a competitive market or when the sale of their current property is pending. First charge bridging loans are usually more expensive than second charge loans but offer more flexibility in terms of repayment.
02 Second charge bridging loans
These loans are secured against a property that the borrower already owns, typically when they need to raise additional funds for the purchase of another property. Second charge bridging loans are usually more expensive than first charge loans and require permission from the first charge lender before the loan can be taken out.
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Before taking out a bridging loan, it is crucial to carefully consider your financial situation and the specific needs of your property purchase. Here are some essential steps to follow:
Step 1: Assess your situation
EVALUATE YOUR FINANCIAL STABILITY: Ensure you have a stable financial situation, including a steady income and manageable debt levels. This will help you navigate the repayment process and avoid potential financial risks.
UNDERSTAND YOUR PROPERTY GOALS: Clearly define your property goals, including the type of property you want to buy, the location, and the timeline for the purchase. This will help you determine whether a bridging loan is the best option for your situation.
CONSIDER ALTERNATIVE OPTIONS: Explore alternative financing options, such as traditional mortgages, to determine whether they are more suitable for your needs. This will help you make an informed decision about whether to use a bridging loan.
Step 2: Mesure your budget and risk tolerance
ANALYSE YOUR BUDGET: Assess your budget to determine how much you can afford to repay the loan, including the interest rate and any fees associated with the loan.
EVALUATE YOUR RISK TOLERANCE: Consider your risk tolerance and whether you are comfortable with the potential risks associated with a bridging loan, such as higher interest rates and the need for a well-defined exit strategy.
Step 3: Research and compare your options
RESEARCH DIFFERENT LENDERS: Research different lenders that offer bridging loans and compare their interest rates, fees, and terms to find the best option for your situation.
UNDERSTAND THE LOAN TERMS: Carefully review the loan terms, including the interest rate, repayment period, and any fees associated with the loan, to ensure you understand the full cost of the loan.
Step 4: Plan your exit strategy
DEVELOP A CLEAR EXIT STRATEGY: Develop a clear exit strategy for repaying the loan, including a plan for selling your current property or refinancing the loan.
ENSURE YOU HAVE A SUITABLE PROPERTY: Ensure the property you are purchasing is suitable for a bridging loan, considering factors such as its value, condition, and potential for future development.
By following these steps, you can ensure you are well-prepared to take out a bridging loan and successfully navigate the process of using a bridge loan to buy a house.
How to apply for a bridging loan for house purchase?
Applying for a bridging loan for house purchase typically involves the following steps:
INITIAL CONSULTATION: Contact a specialist bridging loan broker or lender to discuss your requirements. Provide details about the property you want to buy, the loan amount needed, and your financial situation.
INDICATIVE TERMS: The broker or lender will provide an initial assessment and outline potential loan terms, including interest rates, fees, and loan-to-value (LTV) ratios.
APPLICATION SUBMISSIOn: Complete a formal bridging loan application, providing detailed financial information, property details, and supporting documentation.
VALUATION: The lender will arrange for a professional surveyor to value the property you intend to purchase.
CREDIT CHECK: The lender will conduct a credit check to assess your creditworthiness.
DECISION IN PRINCIPLE: If your application is deemed suitable, the lender will issue a Decision in Principle, confirming their willingness to lend subject to final checks.
LEGAL DUE DILIGENCE: Solicitors will be instructed to review legal documentation and ensure all aspects of the loan agreement are in order.
LOAN OFFER: Once all checks are complete, the lender will issue a formal loan offer outlining the final terms and conditions.
FUNDS DISBURSEMENT: Upon signing the loan agreement and meeting any remaining conditions, the bridging loan funds will be disbursed to you.
How expert mortgage brokers can help?
When you’re looking to get a bridging loan for buying a house, we’re here to be super helpful. We use our knowledge and connections to get you a great deal. Here’s how we do it:
UNDERSTANDING THE MARKET: We know the loan market well and find the best loan for your situation.
ASSESSING YOUR FINANCES: We look at your financial situation and work out the best loan structure for you.
CONNECTIONS: We have contacts with many lenders, including some you might not know about. This helps us get better loan terms for you.
SMOOTHER PROCESS: We help fill in the paperwork and guide you through the loan process, making things faster and easier.
BETTER APPROVAL CHANCES: We know how to make your application look good, advising on the best time to apply for optimal loan conditions.
In short, choosing us as your finanance adviser can save you time, money, and stress when getting a bridging loan.
When considering a bridging loan, it is essential to understand the costs involved. Bridging finance can be a valuable tool for securing funds quickly, but it is crucial to factor in the fees and interest rates associated with the loan.
Here are some key points to consider:
Interest rates
Interest rates for bridging loans vary depending on the lender and the specific terms of the loan. Typically, rates range from 0.4% to 1.5% per month. This translates to an annual rate of around 8% to 18%.
The interest rate is usually compounded monthly, meaning the interest is added to the outstanding balance, resulting in a growing balance over time.
Fees and other costs
In addition to interest rates, bridging loans often come with various fees. These can include:
ARRANGEMENT FEES: These fees are typically a percentage of the loan amount and are used to cover the costs of processing the loan.
VALUATION FEES: These fees are associated with the valuation of the property or asset used as collateral for the loan.
LEGAL FEES: Borrowers are responsible for covering legal fees associated with drafting and reviewing loan documents.
DRAWDOWN FEES: Some lenders charge drawdown fees each time the borrower accesses funds from the loan.
MARKET VALUE ASSESSMENT COSTS: Borrowers may need to cover the costs of assessing the market value of the property securing the loan.
Total cost
The total cost of a bridging loan includes both the interest rate and the fees. To get a comprehensive understanding of the costs involved, it is recommended to use a bridging loan calculator or consult with a financial advisor.
This will help you determine the total cost of the loan and ensure you are prepared for the financial commitment.
Alternatives to bridging loans for house purchases in the UK
While bridging loans can provide a flexible solution for house purchases, there are several alternative financing options to consider in the UK market:
REMORTGAGING:Remortgaging your existing property can provide access to additional funds to purchase a new home before selling your current one. This allows you to maintain your existing mortgage terms and interest rate.
UNSECURED PERSONAL LOANS: Unsecured personal loans can be used to bridge the gap between buying a new property and selling your current home. These loans are not secured against any assets, but typically have lower interest rates than bridging loans.
MORTGAGE WITH SHORT-TERM TENANCY: Some mortgage lenders may allow you to take out a mortgage on a new property while renting out your existing home on a short-term basis. This can provide the funds needed to purchase before selling.
EQUITY RELEASE: Equity release schemes allow homeowners aged 55 and over to access the value tied up in their property without having to sell. This can provide funds for a new home purchase.
SECOND CHARGE MORTGAGES: A second charge mortgage is a loan secured against the equity in your home, which can be used to fund a new property purchase while keeping your existing mortgage in place.
When considering alternatives to bridging loans, it’s important to carefully evaluate the costs, repayment terms, and suitability of each option based on your specific circumstances and financial goals.
At Expert Mortgage Brokers, we specialise in speedy bridging loans. Whether it’s for an auction, renovation, or a hot property you can’t miss, we’ll find the right loan for you.
Don’t miss out on your dream property. Give us a ring today and let’s get you moving.
