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Using a Bridging Mortgage to Buy a House

In what circumstances might a bridging mortgage be the right choice for you? Discover more about bridge loans for home purchases

No impact on credit score

Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: August 26, 2021

Bridging finance is most commonly used by developers and landlords who need to complete a transaction quickly, but they can also be used to buy residential property under specific circumstances.

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

Can I use a bridge loan to buy a house?

Yes, you can. A bridging loan would usually serve as a viable alternative to a mortgage under certain circumstances. This is often when the transaction needs to be completed quickly and a mortgage would take too long to arrange.

Bridging loan applications can be completed in a matter of weeks, sometimes faster, which can be ideal if you’re buying a house at auction or need to act quickly to pip a rival buyer to a property.

Other scenarios where a bridging loan is a potential option for buying a property include chain breaks – i.e. if you need fast funds to tide you over until the sale of your existing home has gone through – and when the borrower doesn’t qualify for a mortgage due to short-term issues, like bad credit that’s due to be discharged in a matter of months or temporary cashflow problems.

As bridging loan interest rates can be significantly higher than mortgages, most borrowers remortgage their property to pay off their bridging loan and settle the outstanding debt over the course of their mortgage term.

It’s possible to get a bridging loan from one lender and remortgage with another as the exit strategy, or take out both products with the same lender.

What is a bridging mortgage?

This isn’t really a product in its own right but you might hear the term used when a lender provides a bridging loan for a house purchase and the subsequent remortgage, too. These deals can be more straightforward to arrange than using separate lenders for the two debts as there would be no question marks around the exit strategy and the process would likely be quicker.

Bridging mortgages can be complex since you’re essentially taking on two debts, but the good news is that help is available. There are brokers in our network who specialise in these arrangements and they know exactly which lenders are best positioned to offer them with the most favourable rates.

Speaking to a broker with the right knowledge and expertise could save you time, money and potential disappointment, as this could be the difference between finding the right lender, first time, and being rejected for the finance you need.

When would you use a bridging loan to buy a house?

Bridging mortgages are most commonly used under the following circumstances…

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 refinance 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 your 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.

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.

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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 broker when getting a bridging mortgage?

Because they know exactly which lenders to approach for these often-complex agreements and can negotiate the most favourable deal on your behalf. 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 broker who specialises in bridging mortgages, regardless of whether your application is complex. That way, you’ll have access to the best deals you’re eligible for.

How to apply

  1. Ready your documents: You will usually need a valuation report, proof of ID, proof of your exit strategy and proof of income. Some lenders might also want to see a business plan (if there’s a commercial element to the investment) and evidence of your track record in property.
  2. Download your credit reports: This will give you the chance to challenge any inaccuracies and have any outdating information removed. These things can improve your creditworthiness and might even improve the interest rate that you qualify for. Download your credit reports here.
  3. Speak to a bridging finance broker: This is the best way to ensure you get the most favourable rates on both your bridging loan and the remortgage you’ll be refinancing the debt onto afterwards. There are brokers in our network whose speciality is bridging mortgages – make an enquiry to speak to one of them today.

Deposit requirements

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 bridging mortgage?

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 mortgages

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 mortgage broker

Bridging mortgages can be complicated and the stakes are often high, so professional guidance and bespoke advice is worth its weight in gold. Speaking to the right bridging finance broker before you apply is often the difference between success and disappointment, and we’ve made it our mission to make sure everyone gets the right advice.

We offer a free broker-matching service that will assess your needs and circumstances to pair you with an expert who has the knowledge and expertise you need. In this case, it will be a bridging finance advisor we’ve handpicked because of their strong track record helping customers just like you.

Call 0808 189 2301 or make a quick online enquiry and we’ll set up a free, no-obligation chat between you and your perfect bridging mortgage broker today!

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the 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.

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