If you are purchasing a property, sometimes you may have a new mortgage deal in mind only to realise it will not go through in time to buy the property you want.
It could also be that your current property will not sell in time to buy the new one, leaving you without those much-needed funds. This can often be the case when buying at auction for example.
A bridging loan, sometimes referred to as a bridging mortgage, can be used in these circumstances (and others) to pay for the property during this time period.
What is a bridging loan?
You may have heard of bridging loans before but could now be wondering exactly what are bridging loans when it comes to mortgages.
A bridging mortgage or ‘bridge’ mortgage refers to when a bridging loan is used alongside a mortgage to buy a property. This can be extremely useful for buyers in certain situations but can be complicated to arrange unless you have the right advice.
It is worth speaking to an experienced broker who is familiar with how bridging loans work and the best bridge lenders to approach for them.
Our team has years of expertise when it comes to bridging loans and will be able to offer expert advice to help you with your property purchase.
If you need a bridge loan, it will be because you need funds quickly so we can make sure you don’t waste any time applying to lenders who are likely to decline the application. There will be some lenders more suitable than others when it comes to bridging finance.
Reasons to take out a mortgage bridging loan
Common reasons a buyer may need to use a bridging loan include:
- Buying at auction where funds are needed quickly for the purchase
- If you need to renovate a property but do not have the funds yet
- To avoid a remortgage or second mortgage on a property
- If you are having trouble selling a current property and wish to buy a new one
- If you have been declined for a mortgage due to your income but are due to get a newer job or other income source soon
- If the property you wish to buy is badly damaged and mortgage providers will not approve a mortgage for it
How much are bridging loans?
As bridge loans are only intended to be used for short periods of time the cost of a bridging loan can be higher than the repayments on a mortgage deal would be.
The cost of bridging loan repayments is something you need to consider before taking one out. It is best to have a solid exit strategy (such as a new mortgage deal) in place so you pay off the loan quickly and avoid increasing fees.
It is also important to remember to budget for additional costs such as property valuations, legal fees and brokers fees. These may also need to be covered by the loan when buying your new home or property investment.
Bridging loan interest rate
Often the interest rates on bridging loans can be higher than with a typical mortgage deal. This is because these loans are intended as short-term solutions and aren’t designed to be paid off long term over many years in the same way a mortgage is.
A bridging loan term can start from 3 months and range to around 24 months maximum with most lenders and the interest rate is calculated on a monthly rather than yearly basis. As with a mortgage, there can be varying interest rate types for these loans including fixed rates or variable rates.
Exact bridging loan interest rates will vary depending on the lender the loan has been taken out through. Lenders can adjust their interest rates at their own discretion so your bridging loan cost can vary over the course of your repayments.
100 bridging loan
Often with bridging loans you will only be able to get a loan that covers at most 75% of the property value (75% loan to value or ‘LTV’). This can be fine if you can get a significant amount together for your deposit.
It can in some cases be possible to take out a bridging loan that is worth 100% of the property’s value, known as a 100% LTV bridging loan. This option will usually only be available if you can for example secure the loan against another property or investment such as stocks.
There are only a few lenders that will offer this loan amount, so it is a good idea to get guidance from an experienced broker who knows exactly where to look.
Can you get a bridging loan with bad credit?
It can be more difficult to find a bad credit bridging loan. Financial factors such as having a low credit score or having defaults, CCJs, IVAs or other forms of adverse credit, can complicate your application. This is why it is wise to consult with a broker who knows the right lenders to approach.
We have spent time putting together a specially chosen panel of excellent UK lenders, including several that specialise in lending to those with credit issues. We can check which ones are most likely to lend to you.
If you need a new mortgage deal to take over from the loan, it is worth checking the rates available with the same lender. You can have a bridging loan and a mortgage with two separate lenders, but it can be simpler to take out both through the same loan provider.
Learn more about how we can help you find a great mortgage with a poor credit history.
Bridging loan property development
You can use a bridging loan to buy a property, but you can also get a bridging loan for property development purposes.
This can be particularly useful for property developers or landlords, who intend to resell the property at a profit or benefit from rental income.
Lenders will often ask what a loan of a significant amount is being used for. There will be certain lenders more willing to lend based on renovations or home improvements, whether for a standard mortgage or remortgage deal or for bridging loans.
We have access to exclusive rates with over 50 of the UK’s top lenders, meaning we can help you find the right bridging loan to suit your needs with the best rates available. We are authorised and regulated by the Financial Conduct Authority, and our specialists have years of expertise when it comes to bridging loans.