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Bridging Property Loans to Buy a Residential House / Flat

Bridging loan for house /flat purchase explained:
Bridging loans are short-term loans that are fast, flexible and can be used for providing funding solutions for any legal purpose.

For this page, we are going to concentrate on how a bridging loan can help secure a residential property that a person intends to live in. This is referred to in the mortgage industry as regulated bridging loans. 

The market for these regulated bridging loans is smaller than standard bridging loans and as such, it is important that the firm that arranges the loan and provides the advice is well-established in this sector.

Key Features: Residential Bridging Loans
  • Residential Bridging Loans from £50,000 to £5 million; subject to affordability and credit criteria
  • Loan to values up to 75% (100% with additional security, subject to underwriting checks)
  • Mortgage Term: 1 month to 1 year
  • Payments: interest rolled or retained (no monthly payments)
  • Purchases
  • No minimum outside income / All income types
  • No max of number of rooms / units
  • All credit histories: High Net Worth to Credit Repair
  • All applicant types: Individuals / Corporate (Ltd Co’s) / SSAS etc
  • All tenures: Freehold / Leasehold

Is a Bridging loan right for me?

People use bridging loans when buying their residential home for two main reasons. They want to secure the purchase of the property when they haven’t sold their current property; they use the bridging loan to secure the purchase.

You can move very fast and purchase the property within 4 weeks and often secure a bigger discount for being able to complete quickly.

However, short-term loans like Bridging can also be attractive to people who are downsizing, buying from auction, renovating or looking to buy their retirement home.

What is Chain-Break finance?

Essentially, this is another term for a Bridging loan. Sometimes a sale of a property is agreed but there is a chain of buyers and sellers that need to complete at the same time. On the odd occasion the chain breaks and puts the whole chain of purchases in jeopardy; a bridging loan can replace the chain and allow purchases to continue without the sale of the property.

Credit approval in 4 hours and receive funds within weeks

Accessing the right Bridging loan lenders can mean they can operate very fast, with credit decisions within 4 hours being possible. This provides credit backed terms; meaning you can use this with a vendor or Estate Agent that you have the funding approved and can move as fast as a cash buyer.

Our Bridging loan lenders have specialist departments dedicated to these loans; they operate to fast service levels and ensure that funds can be ready in weeks.

FAQs

High Street Banks can provide Bridging loans, but we tend to find that their processes can be slow and one of the advantages of bridging loans is the speed they can complete from application to funds being released.

We have access to a number of Banks that operate solely through advisers such as Advocate Finance and these Banks have a specialised bridging loan product; we can obtain approval within 4 hours and the banks can be fast to complete. 

The typical fees are

  1. The lender’s arrangement fee is typically 1.95% – 2.00% of the loan amount. This fee is added to the loan.
  2. Valuations fees – This is the fee a surveyor charges to value the properties for the Bank. This can range from £150 but increases as the value of the property increases. In some cases, an automatic valuation or desktop valuation can be used which is free of charge.
  3. Solicitors fees – You will need to pay the fees for your solicitor to undertake the conveyance and also the lender’s solicitors fees for the security documentation.

A bespoke illustration will be provided for your individual circumstances to provide clarity on all fees and charges prior to commencing the process. This is free of charge

For bridging loans that are secured on a residential property that will be occupied by the applicant, the maximum term offered by lenders is 12 months. 

There is no minimum term but some lenders do have a minimum interest charge of 1 month, so you can settle the loan at any point but pay 1 month of interest.

Bridging loans completing within 4 weeks is not uncommon. Advocate Finance and the lenders we work with are very fast so the completion timings are done to the speed of the solicitors, this is why it is important to instruct a solicitor that can work efficiently and you explain to them the deadlines upfront before agreeing to work with them. 

Bridging loans can be from £50,000 to £5 million.

A 25% deposit is typically required but normally this would come from the equity in the property being sold, so no cash deposit is necessary.

Example: Bridging Loan
House being purchased: £450,000
House being sold: £750,000 with a £150,000 mortgage outstanding

The bank will take a charge over both properties as security for a £450,000 Bridging loan to purchase the property.
When the house is sold, it repays the existing mortgage and also the bridging loan; the surplus funds are sent to the owner.

The interest rates depend on the amount of the loan and the loan to value (LTV) being requested.

The loan to value represents the risk to the lender; the lower this is, the lower the interest rates. 

The interest of the loan is compounded month on month and added to the total facility. You only pay interest on the months you have the loan for.

The repayment of the loan can be by any funds that can be raised.  The normal situation is that the sale proceeds from the house being sold are used to repay the bridging loan, plus any interest accrued in that time.

A Bridging loan will affect your credit file in the same manner as other loans.
In this situation, the lender makes the payments (as there are no monthly payments from yourself), this will show on your report as paid each month; it will not negatively impact your report.

If you have a current residential mortgage and you are planning on using the equity in this property to repay the bridging loans when the property is sold, then the Bridging lenders will take an additional/second charge behind your current mortgage lender.

This is a practice mortgage lenders are familiar with and allow; we have not incurred any issues with it. 

The lender will take a first legal charge on the property you are buying and a second charge on the property you are selling, which has the current mortgage secured on the property. When the property is sold, the loan is repaid fully or partially repaid from the proceeds of the sale.

Our advisers offer a free consultation, so please give us a call or use the “Get in Touch With Us” form at the end of this page

Advantages of Bridging Loans

  • The fastest most flexible loan on the market.
  • Secure your next home without needing to sell your current home.
  • Ideal for people to downsize properties in later life.
  • It is possible to borrow very large sums of money.
  • It allows you to spread the loan over more than 1 property securing 100% funding.
  • You will be able to negotiate the best property deals due to the speed at which you can buy.
  • Puts yourself in the same position as a “cash” buyer
  • Break a property chain (Bridge the gap)
  • No early repayment charges

Disadvantages of Bridging Loans

  • Higher interest rates as you are paying for the convenience of fast, flexible finance.
  • These loans are short term; they should not be used as long-term solutions.

How can YOU benefit from our advice?

  • If speed is essential to the transaction, our advisers will prioritise your case to ensure deadlines are met.
  • Together with the lender, we carefully consider the exit/repayment strategy for the loan to ensure it is feasible to be repaid fully within 12 months.
  • Our Advisers have expert knowledge when it comes to Bridging Loans for a House Purchase.
  • We offer a FREE assessment and have a no upfront fee policy. Our typical fee for 99% of our clients is capped at £395
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