Do you know the best way to buy a house? Bridging mortgage can be an option.
Buying a house is not a piece of cake, rather, it involves a large sum of money to make you unable to purchase a house.
You might be feeling uneasy while arranging funds for a house purchase but worry not.
As we have a bridging mortgage or bridging finance to provide you quick funding for house purchases; a bridging mortgage is considered the best way to buy a house.
Let’s explore in detail what is bridging mortgage and in what ways it is the best funding solution to purchase a house.
Overview:
- Bridging Finance:
- In What Ways Bridging Can Be The Best For House Purchase?
- Bridging Mortgage To Buy A House:
- Buying Un-Mortgageable Property:
- When Mortgage Is Denied For A House Purchase:
- Who Can Get Bridge Finance UK For House Purchases?
- What Are The Costs Of Bridging Finance UK For House Purchases?
Bridging Finance:
Bridging finance is a funding solution for short-term duration; that helps you buying a residential or commercial property. It provides you with quick funding for buying a house.
There are two types of bridging finance:
The bridging finance taken for buying a residential property is called regulated bridging finance, on the other hand, the bridging loans taken for commercial purposes are called unregulated bridging loans.
In What Ways Bridging Can Be The Best For House Purchase?
Bridging is getting popular in the lending market. They are higher in demand rather bridging can be the best option for house purchase, let’s explore how:
Bridging Is Flexible?
As compared to a traditional mortgage, bridging does not apply strict rules rather, bridging finance is flexible in nature. The lending and repayment criteria for bridging are quite flexible.
It is flexible due to the following reasons:
Unlike mortgages, borrowers with bad credit history can also be considered for bridging finance conditionally, meaning there are some deposit requirements you need to fulfil.
With traditional mortgages, borrowers with bad credit are denied mortgage loans by bridging loan experts.
The borrowers who have a bad credit history but intend to buy a house need not to be disappointed as they can be considered for bridging loans conditionally.
There is flexibility in interest payments; the borrowers can pay interest at the end of term duration by choosing the rolled-up interest option.
With rolled-up interest, the borrower can utilise the loan amount entirely. When the term duration ends, the borrower is supposed to repay the loan amount along with rolled-up interest.
The term duration for bridging finance ranges between 3 to 12 months but it can be extended up to 24 to 36 months depending upon the lender.
Sometimes you need funds urgently, which are hard to manage through traditional mortgage. On the contrary, bridging loans offer instant cash to help you out when you need quick funding temporarily.
Bridging finance can be arranged in as little as 24–48 hours. Buying a house involves a large sum of money, and it is hard to arrange funds quickly, in this scenario bridging can be helpful.
Mortgage loans being long-term are not suitable when you need quick access to funds.
Bridging can be used for several purposes, including residential and commercial.
Bridging loans are diverse and can be used for multiple purposes, such as buying a property at an auction, buying un-mortgageable properties, refurbishment/development, or purchasing a house.
They can be secured against all types of property, even for building plots, land without having planning permissions, and for un-mortgageable property (dilapidated).
You are not supposed to pay any exit fees after the loan payment.
Bridging loans are a type of short-term loan. They are offered for 3-12 months or a maximum up to 36 months, depending upon the bridging finance provider.
For regulated bridging, meaning for residential purposes the term duration is a maximum of 12-24 months.
Being short-term, bridging finance temporarily bridges the gap between two finances for instance, between selling an existing home and purchasing a new home or between buying a dilapidated property and doing renovations to make it appealing.
Bridging loans offer a significant amount of finance. Most lenders lend up to 75% loan to value (LTV).
Some bridging experts also grant bridging finance up to 80%- 100% LTV to property developers on a non-regulated basis, meaning for commercial purposes, depending on the asset deposited as security and circumstances.
You can avail bridging loan of the maximum value by securing the loan against both properties, purchasing and existing. With single property as security for bridging loans, you need to pay the interest at a higher rate.
If you repay a long-term loan in full before the agreed deadline, you will have to pay early repayment fees, which could add up to thousands of pounds.
With bridging finance, you are not liable to pay early repayment fees; as these loans are short-term and the minimum loan term is usually one month or three months.
All the above-mentioned perks reveal that bridging finance, due to being a flexible, short-term and quick funding solution, is the best option for house purchase.
Bridging Mortgage To Buy A House:
A bridging mortgage can be used side-by-side with bridging finance. With bridging loans, you can complete a house purchase, whereas a bridging mortgage can be served as an exit strategy.
You can complete the deal by using funds secured through bridging loans before selling your existing home; when your existing house is sold, the funds through sale can be used to repay the bridging loan.This is how a bridging loan bridges a gap temporarily between finances.
Bridging can be used for house purchases in multiple ways and circumstances that include:
- Fixing a property chain break
- Purchasing property at an auction
- Buying un-mortgageable property
- When the mortgage is denied for house purchase
- Property investment
- Property Refurbishment
Fixing Chain Breaks:
Bridging can fix the property chain break; there are two possible ways you can experience a break in the property chain.
- If you intend to buy a new house, but the property you want to sell is on the mortgage.
- There can be another possibility if you want to sell your existing home, but a buyer has pulled out, thus stopping you from buying a new house because the sale of the existing house has failed to complete.
- In these two situations, bridging finance offers you quick access to finances you need to set up a mortgage on the new property, thus, making house purchases still possible.
- Bridging finance bridges the gap created by pulling out of the buyer and provides you funding to buy your desired home before selling your existing home.
- When your existing home finally sells, the funds raised can serve as your exit strategy.
Purchasing Property At An Auctions:
Bridging can be an ideal option for purchasing property at an auction; it is a common practice among landlords and developers, as they offer quick access to funds temporarily.
If you win a bid at an auction, you need to deposit 10% of the property instantly, and the remaining 90% is to be submitted within 28 days.
Bridging finance can provide the quick funding that you need the most in an auction.
Buying Un-Mortgageable Property:
Traditional long-term loans are offered only for habitable properties. Uninhabitable properties are usually un-mortgageable. But the criteria for bridging finance are more flexible.
Possibilities of getting bridging loans on dilapidated (an un-mortgageable property) depend on your development plans and prior experience in property development projects.
These un-mortgageable properties can be in demolished condition or without basic amenities such as without kitchen, toilet, or water system in them. Funds collected through bridging finance can help convert them into mortgageable properties.
When Mortgage Is Denied For A House Purchase:
Bridging loans are used as an alternative for getting quick funding to buy a house when a traditional mortgage is being denied. You can be denied mortgage loans due to different reasons, e.g., your credit score is not good at the moment but is likely to be repaired in the next few months; thus, in this scenario, a bridging loan bridges the gap.
If you want to funding for the development of a property that has the potential to become a viable buy-to-let property with a little investment.
Bridging finance can help you if you are short of funds; it provides financing to buy the property and carry out the renovations.
An exit strategy can be used as a remortgage onto a buy-to-let agreement.
If you intend to refurbish a house to make it appealing for the buyers or tenants so that profit could be earned, you should opt for bridging loans.
Traditional mortgage cannot be a good option for property refurbishment projects as they are long-term commitments.
A home bridging loan provides you with the option to make the most of the opportunity and renovate it to earn a profit, and the funds collected through its sale can be used as an exit strategy.
Who Can Get Bridge Finance UK For House Purchases?
Bridging loan applications are assessed on a case-by-case basis, but the following factors are taken into account by most bridging finance providers:
Strong Exit Strategy:
An exit strategy is crucial in securing bridging loans for house purchases. It defines how you will repay your bridging loan. In most cases, the exit route will be either a remortgage to pay off the capital or the sale of the property.
Therefore, you need to provide proof of a viable exit strategy to get your bridging loan application approved. Some bridging loan experts will accept ‘non-standard’ exit strategy such as using investments, endowments, inheritance etc to settle the loan.
The finance providers need to guarantee that the funds are due to enter your account within a specific time duration and charge interest daily if the exit is no-standard; instead of monthly.
ReadMore: A Complete Guide to Remortgaging
Credit Score:
A good credit score is a plus as your chances of bridging loan approval are higher if you have a good credit history because, with a good credit score, you are considered a low-risk client.
But it does not mean that bad credit is a deal-breaker. There are bad credit specialist bridging lenders who offer bridging loans conditionally to borrowers with a bad credit score.
Security:
Security depends on your exit strategy, as bridging loan experts need assurance that your security property will sell (as an exit strategy).
The bridging finance providers will consider its location, construction type and any variables which may delay a sale or put potential buyers off, such as a leasehold agreement.
Prior Experience In Property Development:
Experience in property is not mandatory rather, it can increase your chances of loan approval, and you may find bridge home loans with the best bridging finance rates easier to come by.
What Are The Costs Of Bridging Finance UK For House Purchases?
- Interest Rates: The bridging finance interest rates range from 0.30% – 1.5% per month.
- Valuation Fees: You are supposed to pay about £700 on a £500,000 property as a valuation fee.
- Arrangement Fee: The arrangement fee of a bridging loan can range from 1% – 2% of the loan amount.
- Legal Costs:The borrower is supposed to pay his legal fees as well as of the lender’s legal fees.
- Administration Costs: Sometimes, you are bound to pay an admin fee; it depends on the lender.
- Exit Fees: Generally there is no exit fees, but sometimes it may be involved depending upon which lender you are approaching.
Read More: Top UK Property Market Trends In 2022
A bridging broker can help you reach the best bridging finance provider (who is a specialist in his niche) and also in getting the best bridging finance interest rates.
These brokers can present your application in a way that chances of getting bridging loans get higher.
How Can The Bridging Loan Be secured For House Purchase?
You must be thinking that bridging loans can be secured from a bank but the majority of high street lenders don’t offer bridging loans.
Due to the crash in 2007-2008, the banks stopped offering bridging loans; at that time rules and regulations on unregulated home, loans were strict.
Bridging loans can be borrowed from bridging experts in the market. After approaching a bridging finance provider, you can follow an application process for securing bridging loans.
These bridging loan experts need to be approached through bridging finance expert brokers; who can guide you to the right track.
Sum Up:
Bridging loans can be borrowed from bridging experts in the market.
After approaching a bridging finance provider, you can follow an application process for securing bridging loans.
These bridging loan experts need to be approached through bridging finance expert brokers; who can guide you to the right track
