Bridging Loans UK
A bridging loan, also called a bridge loan, is a form of short-term secured loan.
These loans are used by property buyers to bridge the gap between buying a property and getting a mortgage, selling new property, and waiting for capital to be released from an existing property
Do you need a bridging loan uk?
You should consider taking out a bridging loan if you:
- Are looking to move home and want to buy a new property fast but are struggling to sell your current property
- Lost your buyer but want to proceed with the purchase
- Want to purchase a property that is currently uninhabitable and can’t be mortgaged
- Want to convert or refurbish an existing property
- Want to purchase a property at auction
- Want to purchase land to build your own property
- Want funding without monthly repayments
How do bridging loans work?
Bridging loans are suitable for many occasions. They are flexible products that give people finance they might not have access to otherwise.
Here’s everything you need to know about how bridge loans work:
You must pay a deposit
Bridging loans come with a minimum deposit of around 25%.
They have high-interest rates
Bridging loans are typically short-term loans. As such, they are riskier for lenders and are offered at higher interest rates of between 0.5% and 1.5% per month.
Bridging loans are short term
Bridging loans have a term period of up to 12 months when regulated or up to 24 months on non-regulated loans.
Regulated bridging loans are best for residential purchases while non-regulated loans are suited for commercial properties and buy-to-let purchases.
You need to provide evidence you can repay the loan
The lender will ask you for proof of your repayment/exit strategy for the loan. You’ll need proof of how you plan to pay the loan back at the end of the loan term.
If you plan to repay the loan with money from a property sale, the lender won’t necessarily have to assess your income to approve the loan.
On the other hand, if you plan to repay the loan by remortgaging into a new product, such as a new buy-to-let mortgage or residential mortgage, then the lender will consider your personal income.
Bridging loans don’t have monthly repayments
Instead of making monthly payments, the interest is rolled over and added to the total for the loan repayment. This means you don’t need to pay monthly payments and the loan is paid in full at the end of the term.
Please note that the interest payments that add up do also have interest charged on them as well as the principal amount. You can choose to make monthly payments to prevent the total from growing too much.
There may be extra costs to pay
Much like standard mortgages, a bridging loan comes with fees such as a product fee, solicitors fee, and valuation fee.
The bridging loan process
1. Initial consultation
When you contact us, you can arrange a face-to-face meeting or a phone appointment with an adviser. Your adviser asks some questions and searches for the best finance option for you.
They will get back to you when they have what they feel is the best bridging loan for you. If your loan was to purchase an auction property, you would generally talk to us before making your offer on the property.
2. Decision in principle
When you’re satisfied with the recommendation, the adviser works on securing the Decision in Principle (DIP).
The Decision in Principle is basically an agreement from the lender that they will loan you the money on the condition that the information you give them is correct and subject to a property valuation.
3. Make an offer
You’ll be in an excellent position to make an offer or pursue a refinancing when you have the Decision in Principle in place.
You might want to make a deposit of around 10% if you want to purchase property at auction. Most auction houses give you 28 days to complete the purchase after placing a deposit on a property.
4. Pre-application and submission
Our advisers send you information that explains all the documents we need to submit to your chosen lender.
You are assigned a client relationship manager who will keep track of certified copies of your documents, check them, and submit them to the lender. This person is the point of contact for both you and the lender.
When the application is finished, it is submitted by the adviser.
5. Lender underwriting and valuation
The lender underwrites the application after receiving it. This means that they verify the information you provide them is all correct.
They also review your documents themselves. The lender also obtains a valuation of the property in question for their purposes. This valuation ensures there are no problems with the property.
It also ensures the property is worth how much you are asking to borrow to buy it.
6. Loan offer
When lenders are happy with all the details, applications, and documents, they send an offer. They also send us a copy of the offer for our records.
This is where the legal proceedings – known as conveyancing – begin. This is the phase where conveyancers/solicitors draw up contracts and organize the legal purchase or refinancing of the property.
This is also where you arrange buildings insurance, ensuring insurance is in place from the exchange.
8. Exchange and completion
When purchasing property, the conveyancer/solicitor on your side exchanges contracts with the conveyance/solicitor representing the seller.
This is when you put down your deposit and become legally bound to the property. Your purchase is completed when the money is transferred on an agreed-upon date.
When refinancing a property, your conveyancer/solicitor sets a date to withdraw funds and pay off existing lenders when the mortgage is released.
Why use bridging loan directory?
Bridging Loan Directory is your best option for bridging loans. This is because we provide a directory of different bridging loan brokers to enable you to find a bridging loan that is right for you.
We’ve seen everything during our time in the business. We can help you save time by having a directory of brokers for you to choose from.
We always recommend trying a few different providers to get the best possible deal on your bridging loan from wherever in the U.K. If you would like help with calculating fees, then use our bridging loan calculator.