Whether it’s time to move home or you’re looking to buy into an investment property such as a buy-to-let or commercial property, you may be short of the necessary funds to acquire your desired property because your existing home or other property is not yet sold. Bridging loans are designed for times when a borrower needs money over a short period of time to finance their new home purchase or property investment, whilst the sale of their current property completes, or additional finance is raised or to raise funds on a property not fit for a standard mortgage. Selling a house whilst purchasing another can be a tricky process. You may find yourself in a position where your existing house is still on the market unsold and you come across a property too good to pass up. It is when you are faced with this situation that you may want to consider a bridging loan.
A bridging loan is a way to raise short term finance quickly which will be repaid when additional finances are raised or a property is sold. They are based primarily on equity and exit strategy, so a bridging loan may allow you to secure a property where more traditional funds may not.
For someone wanting to purchase commercial premises, bridging loans could be used to finance the buyer’s immediate needs to secure a property. The main difference between granting a bridging loan for a commercial property rather than a residential property is simply the lender may have slightly different criteria. The loan to value (the percentage of the property that can be financed) may vary also with restrictions in place for certain types of premises or land. For property developers, a bridging loan could be used to purchase a property at auction with the intention of renovation and refurbishment over a few months, which they can then sell on for a profit or refinance with a more traditional buy to let mortgage. The bridging loan should be completely repaid from the sale or re-finance. It’s worth noting that unlike a standard mortgage, a bridging loan will not require the building to be in a habitable state at time of purchase, which is a definite plus for developers, another plus point for this type of loan is that you should usually get a quick decision. Quite often your approval will be the same day with funds released within a couple of weeks, which can be helpful when you have seen a property you really like and you don’t want it to slip through your fingers. Before you could be offered a bridging loan, a lender would usually need to see proof that the security property (if it’s not the property your purchasing) is on the market, or have a decision in principle in place for refinancing, although with a property that is uninhabitable this may not be needed.
As long as you have enough equity or deposit and a viable exit strategy, then the whole process should be pretty straight forward. The amount of money you are able to apply for will depend both on the amount of collateral you can offer, and your exit strategy. Depending on certain factors such as the equity / deposit and how it will be repaid, a lender could lend anything between £25,000 and £10,000,000 although there is no upper limit. Bear in mind that these sorts of loans are for the short term only and most bridging loans would usually be repaid within 12 months.
As long as the exit strategy is sound you could still apply for this type of loan, although any credit issues may affect the interest rate and loan to value available. you would usually require more equity or deposit.
The first steps to obtaining a bridging loan would typically be to speak to a bridging loan adviser. Finding a broker that understands the market and can relate to your needs is key.