Why use Construction Supermarket?
We use a specialist finance broker providing outstanding mortgage and short term finance solutions to UK and International clients.
Our service offers:
- We can help make your property transaction happen!
- We can access some of the best rates in the market from 0.44% pm
- Need to move quickly – We can help get you fast bridging finance
- Excellent customer service
- Where longer term funding is required to replace bridging finance we can help put this in place for you
What are bridging loans?
Bridging loans are a specialist kind of short term loan designed solely to provide a temporary cash flow solution which allows you to “bridge the gap’ before additional permanent finance becomes available.
The method for obtaining a bridging loan is straightforward and really versatile with a more flexible set of criteria than is usually required by most high street banks and mortgage lenders. Like a mortgage, a bridging loan is secured against your property.
With bridging a realistic and viable exit will be required by the lender.
How do bridging loans work?
Bridging loans are frequently utilized as an answer to a temporary cash flow problem.
A common example of this type of situation is when a person wishes to buy a property but still needs to sell their existing home. A bridging loan can, in these circumstances, provide a solution by offering short-term funding. In this situation a loan could be secured on both the existing property and the property to be purchased – this can keep the cost of the borrowing down as by providing two securities a lender will be able to offer a more beneficial rate of interest.
As part of the due diligence in assessing whether bridging finance is right for you, an assessment will need to be made of how the loan will be repaid. For residential purchases this will typically be from the sale of the existing home, and if this is not enough to cover the balance then a standard residential mortgage will be need to be put in place – a decision in principle from a mortgage lender taking into account income and credit history will need to be arranged to ensure that an exit can be facilitated and the long term mortgage is affordable.
Bridging funding may be offered in loan amounts ranging from £25,000, depending on your circumstances and which bridging lenders you approach.
What are the costs of a bridging loan?
By its nature short term finance is more expensive than longer term finance (mortgage).
It is important to see bridging finance as a means to an end providing a solution for a short term funding gap.
There will be a lender arrangement fee which is typically 2% of the loan. This fee is usually added to the loan. Interest is calculated monthly and the rate you pay will depend on the loan to value (LTV) although for non regulated bridging other factors such as location, property type, and how the exit is to be achieved will also be variables in determining how much interest you will pay. For some unregulated bridging loans a lender depending on the situation may charge an exit fee which could range from 1% to 2%.
With bridge finance interest payments are accrued monthly but in most cases only paid back at the end of the loan term. So the good news is that you do not have to service the monthly interest rate payments. As bridging is secured lending there will be administration fees – solicitors will need to get involved in ensuring that the legal conveyancing is done correctly – legal costs will be similar to what you would pay for a mortgage. There will also be valuation fees carried out by an independent surveyor.
For bridging loan lenders we work with you only pay interest for the time you use the loan facility. So if you take out a 12 month bridge loan but because your existing home is sold after 6 months and the loan is repaid off at that point, you will only pay interest for the 6 month term.
For a bespoke quote it is important that you speak to a specialist broker to assess your situation in full. Fill out our simple request form for more information and to speak with one of our specialists.
Regulated Bridging Loans
Typically this is where you require short term finance for a property that you are going to live in or where the security property is your existing home. This type of finance has a maximum 12 month term.
Examples of this include:
- Purchasing a residential property before selling your current home – Downsizing or upsizing property where you need to move quickly is a common scenario where proof of funds to purchase is required by the vendor or their agent. Where speed is often the key to winning the deal a bridge loan which can be arranged quickly can make all the difference.
- Breaking a mortgage chain – If you are stuck in a mortgage chain with no resolution in sight bridging finance can provide a solution if the person you are buying from starts to get impatient – We can provide a same day decision in principle to lend.
- Buying a residential property at auction – Typically you have 28 days to come up with funds when buying a residential property at auction. Bridging finance is perfect for this type of timescale.
Unregulated Bridging Loans
Typically this is where the security property is an investment property & where there is no intention to reside in the property (ies) in question. The period of time on which funding can be arranged can range from 1 month with some bridge lenders offering open ended funding with no set repayment term.
There are a variety of scenarios where you may require funding for an investment property including;
Light Refurbishment Loans
Where bridging finance is required for properties where no planning permission or building regulations are required. Or where there is no change to the overall use or nature of the premises. Examples of this include:
- Uninhabitable property – Where standard mortgage companies will not lend on a property that is uninhabitable a bridge loan can be a good way of providing the light refurbishment required to allow long term finance to be put in place
- Under “Permitted Development Rules” – light refurb or renovation short term finance can provide the funding required to allow a change of use e.g. offices into residential flats
- Wind and watertight – Can provide finance that allows properties that are “wind and watertight” to be taken through to completion
- Internal redecoration – Funding for internal refurbishment to finance redecoration and fitting a new kitchen, bathroom etc
Being able to move quickly is often the difference in securing a property. A bridging loan can make the difference. Call our team to discuss what finance you need.
Heavy Refurbishment Loans
Where bridge loan finance is required for properties where planning and or building regulations are required. Or where there is a change of use in the nature of the building premises.
Examples of this type of finance include:
- Basement excavations/digs – Work of this nature often has structural implications but can add significant value to a property.
- Loft conversions – In the search for more space many developers are converting loft space to get more value out of property.
- Property extensions – Increasingly a simple way to add value
- Single unit to multi unit – conversion to flats or HMO
- Multi unit to single unit – will depend on property
- Barn conversions – bespoke deals for unusual properties
- Commercial to residential use – a growing area for developers, particularly converting light commercial property
Business Bridging Loans
Where a property or land is being purchased for business purposes bridging finance can be a useful tool if speed is of the essence. A lender may be happy to either lend on the asset in question or on the strength of the business balance sheet. Situations where short term finance may be necessary include:
- Acquisition of a building or land e.g. a farming business might have a short term opportunity to buy additional land due to a distressed sale and where speed of funding can make the difference
- VAT funding
- Short term trading funding requirement
Second Charge Bridging
A second charge bridge loan could be on a regulated on unregulated basis.
Where property has an existing mortgage (first charge) capital can be raised for;
- Home improvements – e.g. Extensions, loft conversions
- Deposit for second property purchase – e.g. investment property such as a buy to let
- Business purposes – e.g. funding new business property
- Tax Bill – e.g. Inland Revenue bill for CGT
- Purchasing land or development finance – To add additional property onto existing plot
To investigate your bridging loan options fill in our call back form.