What is a bridging loan?
Bridging loans are usually seen as a temporary way to alleviate cash problems when outlaying large amounts of money and waiting for other sources of finance.
Bridging loans can come in handy in all sorts of situations, whether buying a property, extending a property or buying a business.
Bridging loans refer to a type of loan taken out to solve temporary cash problems. For instance, if you own a house but are upsizing to a more expensive property, a bridging loan could cover you to buy the house you want before you have sold the first one.
A bridging loan is a loan usually taken out as an immediate source of a large sum of money, often to cover the costs of purchasing a property. Bridging loans are usually repaid within half a year of being taken out, though it is often less.
Similarly, if you are buying a property at auction, you may need to put down a deposit or pay the balance on a house quickly – before a mortgage lender can arrange finance.
Depending on the lender, a bridging loan can often be taken out by people who usually find it more difficult to get loans and mortgages. This includes people with bad credit ratings and the self-employed.
How quick can get a decision?
Normally a bridging loan can be arranged and completed within a couple of days with a decision on a loan made within a couple of hours of making its request.
Is a bridging loan like a very short mortgage?
Not quite. Because of the extra risks, bridging loans will be more expensive, and they should only be considered as an option if you think you can repay relatively quickly. The key to bridging loans is to move fast: a short-term bridging loan can be an ideal financial solution.
How much do bridging loans cost?
Bridging loans are generally set at a fixed interest rate, usually a percentage of the overall value per month. Usually, with this type of loan, it is necessary to move quickly, and borrowers don’t shop around for the best rate. However, in theory, variations in rates will be available from different lenders. Like normal mortgages, a bad credit history will mean you have to pay more.
Getting a bridging loan for a property auction
When buying a house from a property auction, be it to occupy or rent out, it is necessary to complete the on the deal within 28 days. Some companies offer a specific service to cover this, providing non-status loans, especially for auction transactions. These companies often have no minimum loan period and no early redemption penalties, but interest rates can be higher.
Where do I get a bridging loan?
Some high-street banks offer bridging loans, although it can be faster to choose a specialist bridging loan lender. They can deal with the request quickly, often within a week or so, depending on other aspects of the process.
The point of bridging finance is its rapidity. The entire process should take no longer than 10 days, but it could even be quicker if there are no problems at any stage.
Getting a bridging loan?
It is important to have the property your loan will be secured against valued quickly. The lender will conduct this valuation, and as soon as it has been paid for, the process will begin. As the borrower, it is up to you to convince your solicitor or conveyancer to carry out all the conveyancing tasks as fast as possible (for more information please see our conveyancing section).
For more information about bridging loans and to get a bridging loans quote, please use our Mortgage Enquiry Form and one of our experts will contact you for further assistance.
Alternatively, you can give us a call at Charlton Financial Services on 0141 941 3255 for further assistance with residential, buy-to-let or commercial bridging loans.
Bridging loans can be an essential tool for the expat when buying property in the UK. If properly used they can make the difference between owning a property and being unable to purchase. Bridging loans are not cheap and interest rates will generally be higher than for a conventional mortgage however they are intended as a temporary or short-term solution that will allow a property purchase to go ahead.
Expat bridging loan applications
Bridging loans have many uses and we have listed below some of the more common ones.
- Expat bridging for residential purposes – When you need to raise money from property or land you currently own, a residential bridging loan can help with;
- Buying before you sell – If you are considering changing your residential home for another and you see the property you ideally want to purchase but haven’t the funds to buy without selling your current home a bridging loan can help. What would happen is that provided you have sufficient to cover the bridging loan, the bridging lender will advance the capital you need to complete the purchase until you sell your existing property and repay the loan.
- Buying property at auction – Property auctions have become a mecca for landlords to acquire good property at below market value. These are usually intended as rental properties and may form part of a landlord portfolio. Rules at auction generally require a down payment on the day of about 10% with the balance becoming due in thirty days. This timescale generally precludes an expat from being able to arrange a mortgage so a bridging loan which can be quickly arranged can solve this problem for the period until a proper expat mortgage can be arranged.
- Property chains – in England it is common for a chain to exist with property transactions. This is where selling your property is dependent on the buyer selling theirs. With a chain, there could be a lot of buyers and sellers who all need to settle at the same time. If one fails they all fail. In this situation, using a bridging loan will enable you to make your new purchase while awaiting the sale of your existing property.
- Release funds from your property – should you urgently need to obtain funds from your property but don’t want to re-mortgage your property then a quickly arranged temporary bridging loan may be the answer.
- Expat bridging for commercial (BTL) purposes – Is your business or property portfolio is in desperate need of short-term finance, a commercial bridging loan can help. Here are some of the common uses.
- Raise capital for business growth – Where short-term funding is required and raising a bank loan is problematic, a quickly arranged bridging loan may be a solution.
- Solving financial difficulties – providing your business or property portfolio has sufficient security value a temporary bridging loan may solve the problem.
- Fund a business opportunity – depending on the security value of your business a temporary bridging loan could allow you to take advantage of that business opportunity.
- Fund property purchases at auction – this application is similar to that mentioned above in residential bridging purposes.
- Expat bridging for development purposes – This is a more difficult area but nevertheless an important one. Often an opportunity will arise to purchase a property cheaply but it may at the time be in such poor condition that won’t qualify for a mortgage. Provided you have ascertained that after development and revaluation the property can be mortgaged then a short-term bridging loan could allow the project to go ahead.
Expat bridging loans terms
Although bridging loans are similar to mortgages the terms that apply are quite different and we have shown some of the common differences below.
- Time to get a decision – Often a bridging loan can be arranged and completed within a matter of days with a decision on a loan being made within hours of making a request.
- Like a mortgage – Not quite. Because of the extra risks involved in bridging loans, it will be more expensive due to higher interest rates being applied. Due to this, they should only be considered as an option if you think you can repay the loan relatively quickly. Bridging loans allow you to move fast and take advantage of opportunities that would otherwise be missed.
- How they work – normally the bridging lender will calculate the loan amount based on the value of the properties involved less the value of any existing mortgages or other debts secured on the property. A maximum loan amount of £500,000 is typical for most bridging lenders but some lenders will go higher.
- Costs of bridging – Bridging loans are generally set at a fixed interest rate, usually a percentage of the overall loan value per month. Because of this higher monthly cost borrowers will want to repay the bridging loan as quickly as possible usually via a new mortgage. Note that as for normal mortgages if you have a bad credit history your Bridging loan will cost you more.
- Bridging lenders – some high street banks offer bridging loans although it can be faster and easier to use one of the many specialists bridging loan lenders who are skilled at arranging loans quickly with minimal fuss. Remember that the whole point of bridging finance is its rapidity and under normal situations, the entire process should take no longer than 10 days.
- Getting a bridging loan – it is important to have the property your loan will be secured against valued quickly. The lender will arrange this valuation and as soon as it established the process will begin.
- Legal matters – as the borrower, it is up to you to arrange with your solicitor to carry out all the conveyancing tasks as fast as possible.