Residential Property and Bridging Loans
Purchasing a residential property
Bridging loans work to finance the purchase of a new property before you have sold your current house. You then pay back the bridge loan with the proceeds from the sale.
In a competitive and fast-paced property market, bridge finance effectively gives you the status of a cash buyer, meaning any offer you make on a property is much more attractive than the competition, who may be tied into a property chain.
Bridge finance can often mean the difference between having your offer accepted or losing out on a property you've set your heart on.
Chain break – the buyer pulls out
A potential buyer may pull out of the deal when everything appears to be going smoothly, losing you the opportunity to purchase your dream house.
A property chain relies on a lot of things happening on time and is liable to break at any given moment.
This can happen after a mortgage is agreed upon, you may have booked a removal company or even started packing during this time. Thousands of pounds can be lost in fees such as arrangement costs due to a chain break.
Bridging loans can present a great solution in this scenario. Using the loan, you can purchase your new property outright, and pay the loan back with the money you get from selling your existing property.
Upsizing or Downsizing
Depending on the circumstances, people looking to sell may be doing so to “upsize” or “downsize.”
Upsize - securing a larger property situated in a more attractive location or neighbourhood. Spacious and accommodating for a larger or growing family.
Downsize - securing a smaller property that fits a buyer’s current needs. A property that may be smaller, easy to maintain, better located and suited to the buyers’ stage of life (pensioners, no children etc.)
The speed and flexibility of bridging loans give buyers options to react to slow or “hot” property markets.
Deadlines can often be tight, quickly progressing from viewing to agreement and purchase. Therefore, a bridging loan can give buyers a better footing in a competitive market. Overall, making them more attractive buyers with the cash readily available.
Whether they choose to downsize or upsize, a bridging loan will accommodate any direction for financing property.
Renovation and home improvement
Lastly, a bridging loan can be used to renovate and improve a current residential property. To increase its value overall or bring it up to a liveable standard.
The loan is then paid off when either the house is sold on or remortgaged. Once improved through renovation, the house will have more value – allowing you to remortgage into a better deal, and releasing equity to pay off the bridge loan.
A short term loan of this nature is flexible in its application, whether for an all-encompassing renovation project or simple refurbishment;
- Unmortgageable property – If the property is currently at an uninhabitable standard, lacking a working bathroom or kitchen facilities, it will likely be ineligible for a standard mortgage.
- Refurbishment – refurbishing interiors and improving the overall quality of a home will make it more attractive to buyers.
- Auctioned properties – a property bought at auction may need significant renovation or refurbishment. Furthermore, properties acquired in auctions come with additional challenges that a bridging loan can solve
How to get a residential bridging loan?
The best course of action would be to seek a broker specialising in bridging loans. Experts can better ensure a borrower’s interests are accounted for and the most relevant terms are met for the client.
For the average buyer, seeking specialist advice from those who have expertise in property finance will aid the process considerably. They will submit the application and help expedite the process.
It is essential to have an exit strategy in place. Lacking a clear repayment strategy that does not consider possible delays may amplify risk.
