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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 18th February 2021*

We’re asked all the time about bridging finance to buy residential property, and while bridge loans are more commonly associated with developers and landlords, borrowers in the market for a residential property have been known to use them in specific circumstances.

If you’re thinking about using bridging finance for a house purchase, you’ve come to the right place.

The following topics are covered below…

Read on to find out more about bridging finance for property purchases or make an enquiry and one of the whole-of-market bridging loan brokers we work with will match you with the lenders’ offering the best deals and give you the right advice.

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What is a bridging loan for homes?

A bridging home loan isn’t a product in its own right, but you might hear the term used when a borrower is using bridging finance to buy a property, whether that’s to live in or for investment reasons.

When a bridge loan is granted for this purpose, it essentially functions like a short-term mortgage, with a term of typically 12 months or less.

Just like with an interest-only mortgage, the amount you can borrow is determined by the value of the property, and the similarities don’t end there. The lender will take a ‘charge’ over said property, and the borrower will pay interest for the agreed term, with the final amount due at the end.

Also, like a mortgage, a bridging loan can be fixed-rate or tracker, with the interest rate being frozen with the former and potentially in flux with the latter.

What is a bridging mortgage?

Bridging mortgages are not a product in their own right but you might also hear this term used in the context of a borrower purchasing a residential property with a bridge loan. The term ‘bridging mortgage’ can be used interchangeably with ‘bridging home loan’.

What’s the difference between a bridging mortgage and a loan?

The main differences between a home bridge mortgage and loan are the higher interest rates and how quickly bridging can be arranged. The entire application process for a bridging loan can be completed within weeks rather than months.

There are differences in how they’re assessed too – bridge loan lenders will be less concerned about your income and more interested in the viability of the exit strategy, and it may be possible to get a bridging loan for an ‘unmortgageable’ property. Their speed and flexibility often make them a viable alternative for borrowers in specific circumstances.

What types of bridging loan are there?

Bridging loans can be broadly split into two categories: regulated and unregulated.

Regulated bridging loans

If you’re using bridging finance to buy a home you’re planning to live in (i.e. as a springboard to a mortgage), or make changes to one you already live in, regulated is the one for you.

Regulated bridging loans are overseen by the Financial Conduct Authority (FCA), which basically means the borrower has additional protection against mis-selling or poor advice, among other things.

Unregulated bridging loans

Meanwhile, unregulated bridging loans are for borrowers whose plans involve an investment property (a buy to let, for example).

Unregulated bridging gives you greater flexibility that’s often needed when making an investment property purchase. For instance, you may be able to borrow based on a buy to let (BTL) property’s rental potential, rather than your annual income, which may be significantly lower.

The advisors we work with have access to both regulated and unregulated bridging lenders. Call 0808 189 2301 or make an enquiry and we’ll match you with an expert with whole-of-market access.

They will help you decide which bridging product is best suited to your needs and find the provider with the best available deal. Saving you time, money and a whole heap of hassle.

Can I use a bridge loan to buy a house?

Yes, you can. While bridging loans usually have high interest rates, they can be arranged quickly if you need to ‘bridge’ the gap in your finances, for example the incoming funds from selling your old property to securing your new one. For straightforward customers, it’s possible to get a conditional offer within a few days of your initial application, subject to valuation.

There are a number of scenarios where a property buyer might need capital fast – so quickly that only bridging finance can help them fulfil their goals. They include:

Property auctions

Using bridging finance for auction properties is commonplace among landlords and developers, as payment is usually due quickly and other forms of borrowing, such as mortgages and secured loans, are often no good, due to the amount of red tape involved.

Auction purchases aren’t necessarily limited to investment buyers.

Residential house hunters can potentially snag a fixer-upper for below market value under the hammer. Successful bidders are expected to cough up the funds within 28 days, and a bridge loan can provide funds quickly, although a valuation of the property you’re buying will need to be carried out so the lender can be confident that the investment is viable.

The bridging loan’s exit strategy could be a refinancing onto a residential mortgage.

Chain breaks

Let’s say you’ve found your dream home but already have a mortgage on a property you need to sell before you can move. Maybe you’re having trouble selling you existing home or a buyer has pulled out, stopping your move in its tracks.

This is often referred to as a chain break, and bridging finance can offer a lifeline here. Moving house is still possible as the bridging loan will provide the capital you need to set up a mortgage on the new property.

When your original home finally sells, the funds raised can serve as your exit strategy for the bridging finance (we’ll talk more about exit strategies later).

If the property to be sold has sufficient equity, most lenders will be happy to offer you a bridge loan until the house sells without proof of income.

Developing a property for buy to let without capital

Imagine you’ve seen a building that needs work, but has the potential to become a viable buy to let property with a little investment.

You’ve no capital to carry out the development and are worried about losing out to potential rival bids because you can’t act without the ready cash to snap it up.

Bridge to let agreements

Bridging finance can give you the means to buy the property and carry out the necessary renovations. Your exit strategy would be a remortgage onto a buy to let agreement.

These deals are sometimes referred to as bridge to let applications, and the same lender will assess you for the BTL remortgage and decide whether to offer you a deal in principle while the bridge loan is being arranged.

The valuation, and indeed every other aspect of the application, and the borrower must meet the lender’s standard BTL mortgage criteria.

When you don’t plan to hold a property for long

Perhaps your plan is to refurbish a property you don’t already own and sell it at a profit. Taking out a mortgage may not be the best option, as these are long-term commitments.

A home bridging loan can provide you with fast funds to snap up the property and renovate it, and the sale of said property provides you with an exit strategy.

To borrow against the increased value of a refurbished property

Similar to the example above, perhaps you want to refurbish a property to increase its worth and borrow against the new value.

A bridge home loan – either a first or second charge – can provide the funds for refurbishment and the remortgage to borrow against the increased value will be the exit strategy.

This could be a viable option if you’ve been turned down for other forms of borrowing, such as secured loans.

To purchase an ‘unmortgageable’ property

Most lenders will only provide a mortgage for habitable properties, but with bridging finance the criteria is more flexible.

Bridging loans for home purchases are often handed out on buildings that are little more than a shell – the finance can be used to renovate the building and the exit strategy can be either sale or remortgage.

Whether you’re successful in obtaining a bridging home loan on an unmortgageable property will depend on numerous factors, such as how achievable your redevelopment plans are and whether you have past experience with similar projects.

When you’ve been turned down for a mortgage

Depending on why a lender has declined you for a residential mortgage, a bridging loan could provide another vehicle for getting a foot onto the property ladder.

For example, maybe you have no income at present but will have some six months down the line. Or perhaps your credit rating is poor but is likely to be repaired in the near future. Bridging finance can live up to its name in these scenarios by ‘bridging’ the gap.

Other scenarios where a sale must be completed quickly

The main advantage of bridging loans is how quickly they are to arrange, and there are many situations where this is a godsend for house buyers.

Maybe the person you are buying a house from has threatened to sell the home to somebody else while you’re still waiting for a mainline of credit to become available. A bridge loan would give you instant capital to present a rival offer.

If you were involved in a self build project and needed funds fast for a property which may be deemed ‘unmortgageable’ for a traditional mortgage, but given enough time could be a very viable and potentially profitable investment, a bridging loan could be a solution.

If you were taking out a bridging loan on this basis, you would need to be sure you could make the repayment if there were unforeseen delays in construction, which may slow you down from reaching a point when the property could be mortgageable.

Timing may also be of the essence if you’re buying a home abroad and there’s pressure to provide the funds on completion, or maybe a relative has fallen seriously ill and you need to up sticks swiftly to be near them. Property bridging loans could be the answer.

Why use a specialist lender when getting a bridging mortgage?

Since the bridging finance market is vast, it can be difficult to find a bridging finance provider with the right expertise to cater to a customer in your circumstances.

You may need a specialist lender if any of the following applies to you…

  • You’re taking on a complex development.
  • The property is unusual – e.g. of non-standard construction or unmortgageable
  • You have severe adverse credit.
  • You’re looking for a deal with more than 70-75% LTV.
  • You want 2nd or 3rd charge bridging finance.

The best way to get a bridging loan to invest in a UK property is via a whole-of-market broker, regardless of whether your application is complex. That way, you’ll have access to the best deals you’re eligible for.

The advisors we work with are all whole-of-market brokers and can connect you with the right lender first time. Call 0808 189 2301 or make an enquiry to get the ball rolling.

How much deposit is needed for a bridging mortgage?

The maximum LTV most lenders will offer for a bridge financing home purchase is between 70-75% of the gross loan for low-risk customers. With interest factored in, you would usually need a deposit of between 30-35% of the property’s value.

Those considered higher risk may have to settle for a lower percentage, though under specific circumstances, it is possible to get an 80-100% bridging loan. Although that will mean putting up additional properties or assets as security to safeguard the loan.

Additional valuations must be carried out on each security property/asset, sometimes at the borrower’s expense.

What impacts eligibility for a home bridge loan?

When shopping for a bridge loan to buy a house, the key to getting the best rates is convincing a lender that you’re a low-risk borrower and this means ticking as many boxes as possible on their eligibility checklist. Bridge mortgages are assessed on a case-by-case basis, but the following factors are taken into account by most providers…

The strength of the exit strategy

We’ve already touched on exit strategies, and they’re paramount where bridge mortgages are concerned. In most cases, the exit vehicle will be either a remortgage to pay off the capital or the sale of the property. So you should be ready for the lender to request proof that one or the other will be achievable, such as evidence of an agreement in principle.

Some lenders will accept ‘non-standard’ exit vehicles, such as using investments, endowments, inheritance etc to settle the loan. They will need evidence that the funds are due to enter your account within a certain timeframe, and may charge interest daily, rather than monthly if the exit is ‘non-standard’.

Your credit rating

Bad credit is not a deal-breaker for some bridging lenders. Indeed, there are bad credit mortgage lenders –  but generally speaking, borrowers with a clean credit rating will be viewed as lower risk by bridging finance providers.

When the exit strategy is a bad credit remortgage, some lenders will approach your application with caution if you have bad credit, and underwriters might be mindful about the possibility of you incurring further adverse during the loan term.

The security property

This can be linked to your exit strategy, as the lender will want to be confident that your security property will sell (if that’s how you’re planning to settle the debt). They will take into account its location and construction type (any non-standard elements could impact on its value) as well as whether there are any variables which may delay a sale or put potential buyers off, such as a leasehold agreement. The quicker and easier it’s likely to sell, the better.

Experience in property development

Again, this won’t be a deal-breaker for some lenders as there are bridging providers who specialise in customers with no development experience, but anyone with vast experience in the property industry may find bridge home loans with the best rates easier to come by due to the perceived lower risk on the developer’s part.

Alternatives to bridging home loans

There are alternatives to using bridging finance to invest in a UK property, each with advantages and disadvantages that you should be aware of.

Such as:

  • A buy-to-let mortgage:
    Most people opt for bridging because of how quickly it can be arranged, but did you know that a BTL mortgage could be completed within a month with some lenders? Obviously, this will depend on how straightforward your application is, but if you have as long as a month to play with, a buy-to-let mortgage could prove more cost-effective. Find out how quickly you could get a mortgage in our standalone guide.
  • Secured loans:
    Secured loans allow homeowners to borrow large amounts against their property or another asset. You’ll typically pay less interest on this product than a bridging loan, but this will only be a viable alternative if timing is not of the essence – they can take between three and six months to complete.
  • Releasing equity:
    If you’re using a bridge loan as a workaround solution to a chain break, you could consider remortgaging to release equity. This capital could be used to bankroll your move to the new property, or at least buy you some time until your home sells. Obviously this is only an option if you have a property with sufficient equity.

These are just a few of the bridging loan alternatives that are currently available. If you’re wondering whether you’d be better to use bridging finance or another option to achieve your goal, get in touch and the advisors we work with will offer expert insight and connect you to the lenders offering the best rates around.

Speak to an expert bridging finance broker

For further information about finding a bridging finance broker and to get the ball rolling on your application for one, call 0808 189 2301 or make a quick online enquiry for a free, no-obligation chat.

The brokers we work with are all experienced whole-of-market brokers and we’ll make sure we connect you with someone with the right expert knowledge to ensure you get the best product at the best available price for your own circumstances.

Updated: 18th February 2021
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies 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. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.