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If you are a homeowner who is in the property market, chances are you have come across the ideal future home. The problem is that you cannot afford to make an offer until your current property is sold. That is where a bridging loan for house purchase can help. It allows you to access a large sum of money fast so you can secure the property you want to buy.
There are several advantages to bridging loans for house purpose. You can act like a cash buyer in the market without having sold your home or ported your mortgage.
Most property loans are designed for the long term. They have deposits and interest rates to suit 25 to 30-year loan terms, but bridging loans are different. These loans are made for the short term, usually up to 12 months, and are secured against a property.
A typical mortgage loan can take weeks or months to arrange as the borrowers wait for valuations and other processes. With a bridging loan, the finance is secured against an existing property, making the loan far quicker to organise.
Bridging loans also allows you to 'roll-up' the interest to be paid at the end of the term. This is different from mortgages and other loan types that may charge an exit fee. It means that the majority of the loan can be used for the new property instead of interest payments.
Flexible Hybrid Lending is a recent product available to higher-income owner-occupiers. Primarily concerned with residential properties, the product allows you to borrow under the same regulatory terms as an ordinary bridging loan and extend the term from 12 to 24 months. This is very useful for people who need funds for renovations under difficult circumstances.
This service is available to those with incomes over £100K and who wish to borrow more than £500K. There are, however, some differences to the conventional bridging loan. The interest will have to be paid on a per-month basis and cannot be ‘rolled-up.’
A lender will only agree to offer you a bridging loan for house purchase if you can provide a reliable exit strategy. This proves to the lender you know exactly what the money’s for, and you have a planned strategy for paying it back. This might be the final sale of your house, a mortgage agreement.
Three months from the end of your exit strategy, your lender may get in touch to check that everything is proceeding as planned. They may give you some marketing advice to aid the sale of the property or arrange for a short extension to facilitate the sale’s appropriate price.
With the more common, longer-term property finance options like a mortgage, there is often a fee to make an early repayment.
However, bridging loans for house purchase are different. They are optimised for the short term, so they benefit borrowers looking to turn a loan around quickly. For instance, if you borrow for 12 months but only use the loan for 6 months, you will only pay interest for the 6 months, there will be no exit fees to settle. This also encourages borrowers to pay back the money sooner and save on some of the interest..
Some properties are deemed to be unmortgageable because they are valued under £50,000 or have underlying structural issues. Sometimes even a lack of a kitchen or bathroom will prevent a mortgage loan. Bridging loans are far more flexible in this regard. They are designed for property renovation, among other things. If your new property needs renovation or to be prepared for the market, a bridging loan is your best financing option.
FCA disclaimer
Based on our research, the content contained on this website is accurate as of most recent time of writing. Lending criteria and policies may change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information.
The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice.
Some types of buy to let, commercial, bridging, mortgages are not regulated by the FCA.
Please think carefully before securing other debts against your home or releasing equity from a property you own. As a mortgage is generally secured against your home or your investment property, it may be repossessed if you do not keep up with repayments on your mortgage.
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