Bridging Loans – Residential & Commercial Bridging Finance. Short term lending for property development, property refurbishment, auction property and land purchases with or without planning.
Burano Island Canal, Venice
A Guide to Securing a Bridging Loan on Property in the UK.
What is a Bridging Loan?
A Bridging Loan is a short term loan secured against a property or land. A bridging loan is usually granted by the bridging lender for a period of 1 to 24 months. A bridging loan is designed to be used for as short a time as possible due it being more expensive than long term lending.
Examples of When to Use a Bridging Loan
The most common form of bridging is ‘chain breaker bridging finance’. This is where you wish to purchase a new main residence but have not yet sold your property. You can use a bridging loan to purchase the new property and repay the loan when you sell your current property.
Bridging loans are also used for renovation projects. If a property is deemed inhabitable by a surveyor (no working bathroom and/or kitchen) and the standard mortgage lenders will not lend, you can use bridging finance to renovate the property so that it is acceptable.
Bridging loans are used to fund a property for a short period of time with the exit being the sale of the property or refinance to another lender, hence the term ‘bridge’.
Bridging finance can be used for a number of reasons including:
Chain Breaker – Allowing you to finance a purchase without selling
Short lease extensions
Payment of a tax bill
What are the typical terms for Bridging Finance?
Rates starting around 0.4% up to 1.2%pm
100% loan to value possible with additional security
Lenders fee 1% to 2%
valuation and legal costs will apply
No income required
Bridge to let HMO refurbishment
Our clients required a loan of 70% on a tired 3 bedroom property in Windmill Hill, Bristol. Their plan was to spend £30,000 renovating the property and adding a 4th bedroom before refinancing on to an HMO buy to let mortgage.
Fox Davidson placed the lending with one lender that took care of the bridging finance and also the buy to let exit. There could be no issues with the financing as the lender agreed all terms upfront. Th initial valuation took care of the current value and the after works value plus the expected rental amount.
The client completed the works within 3 months and the post works valuation came back as expected and they exited on to a 3 year fixed rate buy to let product and were able to borrow 75% of the post works value, thus taking back some of the money spent on the works to the property.
BVI Ltd company
Our client was a BVI company held in trust to a QROPS. The property was a terraced London property which had been reduced to a shell. The existing lender was calling in the loan. The property was valued at £12m. Our clients needed a loan of £8m to help fund a complete the refurbishment before selling the property once works were complete.
Fox Davidson secured finance at 1.1% per month for a term of 9 months. The client went on to sell the property for £13m 6 months later to an investor who took on the uncompleted refurbishment project.
Residential Chain Breaker
Existing clients approached us needing to move home quicker than they could sell.
Our clients had a property worth £420,000 and had not yet found a buyer for their property. They had, however, found their new dream home which they wished to purchase for £825,000 and before they sold their existing home. They had no mortgage on the existing property.
Our team secured terms on the existing property at 3.2% variable rate with no set up fees. We raised £300,000 on their existing property and £400,000 on the new property at a rate of 2.1% again with little set up costs and with complete flexibility to pay down the mortgage without penalty. Both mortgages were loaned on an interest only basis to keep the monthly commitments low.
On sale of the existing home the clients repaid the £300,000 loan and reduced the lending on the new property.
Contact our commercial team to discuss Bridging Loan requirements in more detail.