What is Bridging Finance?

Bridging Finance offers you an alternative source of finance that is quick to arrange and can step in when standard mortgage finance isn’t an option.

Bridging Finance offers a short-term (2 weeks to 3 years) borrowing solution for customers who need to facilitate a purchase or raise capital against a home or investment property. Over recent years, the interest rates on Bridging finance have reduced dramatically which makes it a much more viable option for borrowers.

Why would I use a bridging loan?

Homeowners
Will want to use a bridging loan to complete on a new purchase prior to selling their existing home. This could be because you have just lost your buyer and need to complete on your new home before you lose it, or that your new home isn’t mortgageable so you need to raise the funds to refurbish the property prior to obtaining a standard mortgage and moving in.

Investors
Will often use a bridging loan to purchase properties in order to grow their portfolio. As an investor, you might want to purchase at auction which requires you to complete within 21 to 28 days from the auction. These short timescales make bridging ideal.

You
Might also want to purchase a property that isn’t currently lettable due to the condition of the property, or onerous lease terms that need to be dealt with prior to obtaining a normal buy-to-let mortgage.

Bridging Finance can be used for almost any reason including business purposes.

A key question your bridging finance lender will want to know is, when and how they are likely to be repaid. For example, if I were to borrow money to purchase a cheap property in need of refurbishment, I would repay the bridge by getting the property to a habitable state and then applying for a new mortgage (at cheaper rates) to repay the bridging company.

How much does bridging finance cost?

Rates have come down significantly over the past few years and we are now able to offer rates as low as 0.45% a month (the equivalent of 5.4% over a 12 month period). Many bridges are repaid well within 12 months and you will only pay interest for the time you have the loan.

Example:

Should you wish to borrow £100,000 at an interest rate of 0.45% a month.

Your interest costs would equate to £450 a month which are normally added to the debt until the bridging loan is repaid by way of either a sale of the property or a remortgage to a new mortgage lender.

In addition to the interest, other costs include:

• Arrangement fees commonly 2% of the loan

• Valuation fee – varies depending on value of property used for security

• Solicitors fees - as the bridging company are likely to instruct their own solicitors to act for them

Traditionally, regulated bridges are used for chain breaks. The bridging lender will often take security on both the existing and new property but when there is sufficient equity to only take one property for security, they are happy to.

The homeowner bridges are often used for:

• Downsizing chain breaks

• Upsizing chain breaks

• Securing a property for an un-mortgageable new home

• Converting a barn / retail building back into residential to live in

• Accessing cash without any income (often prior to selling)

For investors/landlords/developers, bridging deals are non-regulated which means you aren’t afforded FCA protection as it assumes this is a business transaction and the FCA is there to protect the consumer.

Non-Regulated Bridging Finance can be used for almost any purpose.

• Purchasing a property at auction

• Looking to expand a property portfolio

• Capital raising for business purposes without an income

• Purchasing a property not immediately lettable

• To aid a quick completion

• Conversion of an HMO or commercial premises

• Refurbishment / Development

How do I get a quote on a bridging loan?

You can either complete our contact form or email me directly at michael@homeofmortgages.co.uk to discuss your enquiry.