When it comes to buying a property, whether it’s your first time, you are wanting to move up the property ladder, or you are purchasing an investment property, sometimes complications arise that could make the whole transaction fall through.
This guide outlines how a bridging loan can help you through the house buying process, and the various complications bridging finance could fix.
This is a problem that occurs very regularly in the housing market – you are ready to exchange contracts with the vendor of the property you are buying, then last minute, the buyer of your property pulls out. Without your buyer, you don’t have the money available to purchase your new property.
A bridging loan can be ideal for filling this temporary gap in finances.
The bridging loan can be used to continue your property purchase, meaning you won’t be letting down the seller and breaking the property chain, and then the bridging loan can be repaid from the proceeds of when your current property sells with a new buyer.
If you are purchasing a property at auction (perhaps a buy to let), you are required to pay a 10% deposit (of the purchase price) on the day of the auction, as well as exchange contracts, then you have 28 days to complete the purchase in full.
A typical mortgage can take up to a couple of months to arrange, however, a bridging loan can be arranged in as little as 48 hours in some circumstances. So, a bridging loan could be used to purchase the property in full at the time of the auction, then paid back through ‘re-financing’ when you have a suitable mortgage, or another finance option, in place.
You may be in a position to sell your property, but you know it will sell for a substantial amount more with some refurbishments or renovations carried out. In this case, you could use a bridging loan to pay for the work to be done, and then pay it back when the property is sold for the higher price.
Sometimes funds are required quickly when it comes to dealing with inheritance tax and various other probate issues. For example, you may need to pay inheritance tax and/or legal costs, release charges on the deceased person’s property, or pay off other beneficiaries.
A bridging loan can help in these situations to avoid a rushed, below-value sale of the property in order to cover the costs. The bridging loan can be repaid when the property is sold.
If your property is due to be repossessed after defaulting on a loan secured against the property, a bridging loan can be used to pay off the outstanding debts. This will allow you to regain control over the property so you can then sell it under your terms, and not in a forced-sale situation where the property is likely to sell for less than the market value.
In some circumstances, you may have the chance to buy a property for a reduced priced – maybe you are buying it from a family member who are giving you a good deal, or the independent seller is in a genuine rush to sell the property for personal reasons.
Many bridging lenders will secure the loan based off the market value of the property, not the purchase price. This means you may be able to borrow 100% of the purchase price if this falls within the maximum loan to value ratio that the lender offers. If you can also put in a deposit yourself, you will be reducing the loan to value even more, which will make the interest rates cheaper.
Using a bridging loan calculator can help you work out whether a bridging loan would be a suitable option for you.
Holly has 11 years of experience working in the finance and insurance industries, and has extensive knowledge within both sectors. She is fully qualified in mortgage advice and practice, and holds various relevant qualifications in other areas of the industry. Holly is currently the Managing Director of bridging and commercial loans broker, KIS Finance.
Holly enjoys using her wealth of knowledge and creativity to devise financial guides and informative articles for both consumers and businesses.
https://www.kisbridgingloans.co.uk/
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