Borrower Tips
The UK housing market can be tricky, navigating property chains or trying to secure your dream home before selling your existing home. Bridging finance has become a key solution, offering temporary liquidity that can prevent you from missing out on market opportunities .
In this guide, we look at using a bridging loan to buy a house, how it works, the costs involved and how Brickflow’s bridging loan calculator can help you make sure your deal stacks and secure the best bridging finance on the market.
Using a bridging loan to buy a house works in the same way as any other bridging finance - it's short-term, usually up to 24 months, secured against the property being purchased (or other/additional assets) and fast to arrange.
They are agreed on the basis that the borrower will soon have liquidity, either from the proceeds of an upcoming sale or through refinancing onto a longer term mortgage. Your specific exit strategy will be agreed with the lender at the outset and they will monitor whether or not it is proceeding to plan throughout the loan term.
A well-defined exit strategy, such as an agreed completion date for a sale, will make it easier to secure a bridging loan and most likely with better terms and rates.
When using a bridging loan to buy a house, it’s key to understand the difference between regulated and unregulated bridging finance:
Bridging finance has become relatively mainstream as a solution for buying a house or property. They are fast and flexible enough to suit a diverse range of borrowers and can therefore provide a solution in many property scenarios.
Some example scenarios when bridging loans can be used:
Since they first came to market in the 1960’s bridging loans have rescued many home buyers who haven’t secured a sale for their own home, or a sale has fallen through, but want to continue the purchase of their next home.
In parts of the UK, multiple home purchases and sales can be linked together, meaning a buyer pulling out somewhere along the chain can affect everyone involved. Bridging finance means you can act as a cash buyer and break that chain and the associated risks. As above, it allows you to buy before selling.
For homebuyers with a limited budget or out-priced from their local area, or investors looking to capitalise on below-market-value properties, bargains can often be found at auctions. But the 28-day completion timescales rule out traditional finance.
Investors buying at auction can use unregulated bridging finance, whilst homebuyers would have to take out a regulated bridging loan. Find out more about regulated vs unregulated bridging here.
Some properties, and often those found at auction, are not eligible for traditional finance because they are considered uninhabitable. This typically includes properties that are structurally unsound, or without working kitchen and bathroom facilities. A refurbishment bridging loan can finance part of the purchase and up to 100% of the work costs, before either selling, or refinancing.
Alternatively, if the refurbished property will be the borrower’s home, the bridging loan can be repaid by selling their existing home.
Read our in-depth guide for more information on fast bridging loans, timescales for approval and tips for securing a loan quickly.
If there is a delay in securing a mortgage for a new property, a bridging loan can cover the purchase cost until the mortgage is approved and funds are disbursed.
Bridging loans can facilitate a huge range of property purchases. Here are just a few examples of the types of property you can buy with a bridging loan, but the list is by no means exhaustive:
If you want to know if you can fund your next property purchase with a bridging loan, enter the details into Brickflow’s live bridging loan calculator. You’ll instantly see how many lenders will offer a loan, how much you can borrow and what it will cost you. You can then filter your results to match your specific circumstances.
It takes seconds, and offers the most comprehensive financial due diligence for your property investment, enabling you to instantly see whether your deal stacks or not.
Find out more about bridging loan eligibility criteria and what you need to apply.
The process for securing a bridging loan for a house purchase is similar to any bridging finance:
At Brickflow, we’ve streamlined the process for securing bridging finance into a single digital journey, where you can instantly search & compare bridging loans, receive multiple same-day DIPs, and apply with your intermediary, directly from the platform.
The costs associated with a bridging loan will typically be higher than traditional long-term finance. This is because they are perceived to carry more risk to lenders, and they are fast and flexible - as with everything, you pay for convenience.
Additionally, as a type of specialist property finance, the loans are often tailored to your needs rather than being an ‘off-the-shelf’ product like most mortgages are.
Knowing the cost of your bridging loan before you commit to any house purchase is essential - run your numbers through Brickflow’s live bridging calculator to avoid wasting time on deals that don’t stack.
The typical costs are:
Most lenders offer rolled-up interest (paid at the end of the loan), so there are no monthly payments involved, however the interest paid is therefore compounded.
Interest is calculated daily, so you only pay interest on the duration of your loan, even if you exit the loan early or midway through a month. Your final redemption payment (to pay off the loan) will include the original amount of capital borrowed plus accrued interest.
The rate of interest on your loan will depend on:
If you commit to a property investment before you know what you can borrow and what it will cost, you run the risk of taking on a losing project. By modelling your deals on Brickflow, you can help avoid that scenario - and it only takes a few seconds.
Just like with a residential mortgage, you need to shop the market to find the best bridging loan for a house purchase. Use Brickflow to compare bridging loans from across the market and when you’ve found your deal, apply online with your intermediary.
It's really this easy:
1. ENTER your project criteria and model deals
3. APPLY directly with your intermediary (or a Brickflow broker partner)
Smart developers and investors don’t wing it - make Brickflow a funding habit, and carry out your tech-powered financial due diligence in under 60 seconds.
Yes, if you intend to repay the bridging loan with the sale of your current property the bridging loan lender will want to know the market value of the property, as well as how much mortgage debt is outstanding on the property.
If you’re using your current property as the securing asset for the bridging loan, the lender will also carry out a valuation.
In some circumstances it is possible. If for example, you buy a property that is below market value, but the lender is willing to lend up to 75% of market value, it could equate to 100% of the purchase price.
Alternatively, some lenders might be willing to accept additional security rather than equity input, in a kind of ‘cashless deal’. Lenders will only consider a cashless arrangement on a case by case basis. A specialist bridging loan broker can help you.
You are at risk of losing all assets used to secure the loan should you default.
Yes, there are many lenders that will cover up to 100% of the proposed work.
Search for bridging loans on Brickflow to find out exactly what you can borrow for your project.
Technically, yes a bridging loan could be used to cover stamp duty, when arranged as part of the overall bridging loan to buy a house.
Yes, it is possible to exit a bridging loan by refinancing the property with either a residential mortgage or a commercial mortgage.
If refinancing is your exit strategy for your bridging loan, lenders will need to know that you can secure a traditional mortgage for the appropriate amount - a mortgage decision in principle is favourable.
Conversely, borrowers with bad credit can struggle to secure a residential mortgage, which will be problematic for the bridging loan lender.
A bridging loan for a house purchase will typically be more expensive than traditional long-term finance. This is not only because they are fast and flexible finance, but because they will typically carry more risk to lenders than a long-term amortising loan.
Additionally, whilst bridging loans are now mainstream, they are still a type of specialist property finance, and often tailored to your needs rather than being an ‘off-the-shelf’ product that most mortgages are.
Read more in Bridging Loan vs. Mortgage.
For unregulated bridging, funding typically takes around two weeks to be released from application, depending on the lender’s valuation report and the legal searches. If a lender works with an AVM (automated valuation model) and accepts title insurance, therefore meaning no searches are required, completion can be in just a few days.
Regulated bridging, which is subject to the same regulations as a homeowner mortgage, can take up to 12 weeks to complete.
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