If you’re looking to purchase a property but need fast access to financing, a bridging loan could be just what you need. While not as well-known as mortgages, bridging finance is becoming an increasingly popular option for homebuyers in certain situations. Let’s explore when residential bridging loans can be used and why in some cases, home buyers may choose this option over a traditional mortgage.
Using Bridging Loans for House Purchases
There are several situations where bridging loans can come in handy for someone buying a residential property: We have highlighted some of these below to give you an idea of how bridging loans have become an important tool in the property market.
Buying at Auction
One of the most common uses of bridging finance is for purchases at property auctions. Quite often people will see a property at auction that they would like to buy, however they could be unable to sell their current property in time. Once their own property sells, they are then able to repay the bridging loan.
With a bridging loan in place, buyers have the funds readily available to quickly complete on auction property purchases within the tight timescales set down by auctioneers (28 days or less). Attempting to get a mortgage approved this quickly would be extremely difficult. A bridging loan can help ensure that property buyers do not miss on a bargain, or the house of their dreams because of lack of available capital.
Downsizing/Selling Existing Home
Bridging loans allow homeowners to purchase a new property with the bridge covering the period before their existing home sale completes. This enables them to downsize or relocate without having to move twice or waste money on rented accommodation.
Buying Renovation Projects
For buyers looking to purchase properties in need of refurbishment, a bridging loan can provide the capital needed for the renovations alongside the purchase funds. Mortgage lenders are often more reluctant to lend on unmortgageable properties requiring extensive works. Bridging lenders are usually happy to provide funding as the loan can be repaid when the house is sold or becomes eligible for a traditional mortgage.
Property Chains
Bridging finance can help if you are in danger of missing out on your new home because you are stuck in a chain. In the case of delays further up the chain a bridging loan can give you the funding you need to complete your purchase while the problem is resolved. The loan bridges the homebuyer until any held-up sales in the chain conclude.
Benefits of Bridging Loans for House Purchases
There is no doubt that a traditional mortgage is usually the first port of call for house buyers, however in certain circumstances a bridging loan may initially be a better option. Here are a few key advantages:
Speed
The biggest benefit of bridging loans is speed. While mortgage completions can take months, bridging loans can sometimes be arranged in just 2-4 weeks from application. This allows buyers to act fast and secure their desired property when a rapid purchase is required.
Flexibility
Bridging lenders take a more flexible, common-sense approach compared to mainstream mortgage providers. They focus on the security provided rather than rigidly assessing income and credit scores to the same extent.
Renovation Funding
With a bridging loan, buyers can access funds for both a property purchase and any required renovations/refurbishments in one loan. Mortgage lenders are typically reluctant to lend on properties requiring significant works.
Short-Term Nature
Bridging finance is designed as a short-term solution to allow time for existing property sales to complete or refurbishment works to finish. This avoids potentially getting stuck in a long mortgage term initially.
Are There Any Downsides to Bridging Loans?
While bridging loans offer some compelling benefits for certain homebuyers, it’s important to be aware of the potential downsides too:
Cost
Interest rates on bridging loans are typically higher than standard mortgages due to their short-term nature and less stringent lending criteria. Arrangement fees and exit fees can also make bridging finance more costly.
Repayment Timescale
Bridging loans must be repaid within 1 to 12 months if regulated and 1 to 24 months if non-regulated. This means having a clear, viable repayment strategy such as an upcoming property sale.
Security Required
As with a mortgage, bridging lenders will require security against the loan, in the form of a property charge.
So, in answer to the question “Can I get a bridging loan to buy a house?” it is a resounding yes, bridging finance can certainly be used for purchasing residential properties in the right circumstances. While more expensive than mortgages, the speed and flexibility of bridging loans make them a popular choice for auction buyers, those purchasing renovation projects, those stuck in chains, or homeowners looking to bridge the gap between a new purchase and sale of their existing property.
Regulated or Non-Regulated
If you or a family member intend living in the property being purchased or refinanced using bridging finance. A Regulated bridging loan facility that is regulated by the Financial Conduct Authority (FCA) will be required. Should you be purchasing a property as an investment property or via a company. The bridging loan will be non-regulated and won’t be authorised and regulated by the FCA. Orchard Financial Solutions Ltd trading as Pyxis Capital are authorised and regulated by the FCA and can provide advice on regulated and non-regulated bridging finance.
Just be sure to have a solid repayment plan in place and be aware of the higher costs involved with this type of short-term lending solution. If you are buying a home and considering taking out bridging finance contact the team here at Pyxis Capital on 01257 543072 or e mail info@pyxiscapital.co.uk. As a specialised finance broker, we have access to a large panel of specialist lenders who offer bridging finance.