Bridging Loans – Residential & Commercial Bridging Finance. Short term lending for property development, property refurbishment, auction property and land purchases with or without planning.
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A Guide to securing a Bridging Loan on UK Property.
We secure short term finance for clients also known as a Bridging Loan.
From offices in Bristol, Bath & London we secure market leading Bridging loan terms for our clients allowing them to finance property very quickly.
What is a Bridging Loan?
A Bridging Loan is a short term loan secured against a property or land. This type of finance may be secured on residential property or commercial property.
A Bridging Loan is commonly used when a property is not mortgageable via the high street banks, an auction property is a good example of when we will use this type of short term finance. Bridging loans are used to fund a property for a short period of time with the exit being the sale of the property or the refinance, hence the term ‘bridge’.
Other common uses for bridging are where a sale of a main residence is taking longer than expected and funds are needed for an onwards purchase. In this instance the bridging finance may be secured against the existing property and also the new property to allow the purchase to take place and with the bridging loan funds repaid on sale of the existing asset.
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
Who Can Take Out a Bridging Loan?
Individuals – Each case is assessed on its own merits so even a First time buyer Bridging loan is possible.
Ltd company – The finance can be secured in the name of a Ltd company
Pension – A pension such as a SIPP.
Trusts – Trust with the ability to borrow.
What are the typical terms for Bridging Finance?
As a leading Independent Bridging Finance broker we can secure finance on exclusive terms from our funding partners.
Finance can be drawn down day 1 and repaid day 2 if necessary. The term of a bridging finance will depend on the situation and needs of our client. If the funds are being used to fund a property development, then we would look at the planned schedule for the build and add in some contingency and the loan would be granted for that period of time. The norm is for a term of 1 to 24 months.
The loan to value of a bridging loan will depend on the situation:
Residential – If you are looking to break a chain on your residential sale and purchase and need some bridging finance to be able to buy the new property until you sale the existing one then Bridging finance solutions of up to 75% are possible. With additional security this can be taken up to a 100%.
Commercial – Loan to values on commercial bridging finance are increasing and like residential with additional security Fox Davidson can secure 100% of the funding you need to fund a commercial property in need or refurbishment or build. In the case of a refurbishment or a property development we will need to understand that purchase price of the property or land, the cost and schedule of planned work s and the final value (Gross Development Value).
The ultimate loan to value we can secure for clients will depend on their situation including the assets, clients experience and the exit from the agreement. As we can approach the whole of the UK mortgage market we are confident we will secure the best short term mortgage terms possible.
Bridging Finance Rates.
Historically Bridging loans were offered by a few lenders in a very unregulated environment. They all charged around 1.5% to 2% per month with large % fees payable on acceptance and also on the exit of the loan.
Thankfully the market has now become more competitive and challenger banks have brought down the interest rates charged. Average Bridging loan rates have fallen to around 0.6%pm with lower fees on acceptance and some bridging loan lenders will lend with no exit fees for redeeming the loan.
Rates will depend on the security, the borrower, the term and the loan amount required and the exit. If everything is in your favour, then rates as low as around 0.5%pm are possible.
For the right client and in the right situation we are able to secure chain breaking finance on residential property with no early repayment charges on rates as low as 2% per annum and up to 90% loan to value.
For Buy to let short term funding we can secure up to 80% on rates of around 3% with under £500 in set up costs.
Bridging finance does not have to be expensive and using a fully regulated broker such as Fox Davidson allows clients to get a whole of market perspective which more often than not results in a market leading bridging finance terms.
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 per annum 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.
Our thoughts and ideas are not confined to a box! Call or email a broker today to find out more about Bridging Finance.