Bridging Loans for a Self-Build
It is essential to have the appropriate funds when buying land, building a property from scratch or developing in general - renovating, restoring or repairing.
A bridging loan will raise capital when a self-build mortgage cannot be secured. It will get the ball rolling, allowing work to begin quickly and alleviate delays that may come with traditional finance.
Terms vary from 3 months to 3 years, giving flexibility and options when considering the scope of a self-build project.
The advantages of a self-build bridging loan
Bridging loans are commonly used by property developers in the course of a self-build project.
- Fast financing - You can get your project off the ground quicker. Bridging loans are usually approved within days rather than weeks (as long as you can meet lender criteria).
- Flexibility – interest rates are more expensive but, crucially, interest is paid only during the term the loan is outstanding. Meaning you are not tied to a long-term loan, allowing you to recoup the higher interest rates when selling. Early repayment fees do not apply as a bridging loan can be paid back as soon as the project is completed. However, it is essential to consider the short-term nature without a solid repayment plan.
- Land purchase – A self-build bridging loan is a popular option for those purchasing land. Without planning permission, lenders may be unwilling to offer a mortgage. A bridging loan can be secured against the purchased land, allowing construction to begin with the funds obtained.
- Building from scratch – the total sum required for a borrower to complete a prospective project, such as constructing a home up to a liveable standard, can be made available via a bridging loan.
What makes a self-build bridging loan different?
Comparatively, self-build mortgages can be inflexible and more stringent. The funding is often released in stages as the build progresses, incurring more fees (inspection costs) and sometimes delays.
There are eligibility requirements if a borrower is trying to secure a self-build mortgage. Therefore, a borrower may be at the whim of a more stringent process.
Alternatively, bridging loans give borrowers the total funds necessary to get a project underway and see it through to completion. Funds can be allocated across the different stages of a build with more flexibility.
Traditional mortgages are not an option if a property is considered uninhabitable, lacking functional utilities such as a kitchen, bathroom, or heating.
Whereas a bridging loan can be used to get a property up to mortgageable standard.
Consider your exit strategy…
A self-build project comes with additional challenges that may hinder the repayment of a bridging loan.
It's wise to research planning permission and building regulations and to anticipate any construction delays, as well as unforeseen costs. Rushing into expensive borrowing without a clear roadmap could have a severe impact on the success of your project.
Therefore, it is vital to consider delays that may occur – rushing into an expensive borrowing rate without a clear roadmap will result in the opposite of a quick solution.
Ultimately, you must consider carefully whether a bridging loan is feasible and repayable for the short-term it will be outstanding.
How to get a self-build bridging loan
Seeking the advice and expertise of specialist brokers is essential for securing the best bridging loan.
Lenders may be unwilling to work directly through individuals, especially considering the risk involved in a self-build project. Seeking specialist advice will help you evaluate and review whether a bridging loan is appropriate for your project.
A bridging loan broker will give you the best chance of securing the most competitive and flexible loan for your self-build project.
