How to get a Bridging Loan in Wales
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Taking a bridging loan in Wales can be an effective way to get funding to buy or renovate a property. There are, however, differences in Welsh property law and so it’s beneficial to understand all your options before you go ahead and secure a deal.
Bridging loans are short-term loans that are secured against property. They originated in the residential sector and have now become a popular choice for both private individuals and commercial investors who need fast access to funds to buy or renovate a property.
What is a bridging loan?
Bridging loans are short-term loans that are secured against property. They originated in the residential sector and have now become a popular choice for both private individuals and commercial investors who need fast access to funds to buy or renovate a property.
A bridging loan is a type of short-term loan which is arranged for 1-18 months and is used to provide a fast cash injection while waiting for other funds.
They are a form of property finance that is used to bridge the gap between 2 events happening, such as purchasing one property, and another being sold.
Bridge loans, also known as bridging finance, were first offered in the 1960s by large banks and building societies to fund property purchases before the borrower’s existing property was sold.
Bridging loans are now a very popular form of finance and are offered by a wide range of specialist lenders such as Together Money, United Trust Bank and Shawbrook Bank.
How do bridging loans in Wales work?
Welsh bridging loans have many similarities to bridging loans across the UK; however, there are some subtle yet important differences.
Bridging loans for residential property and homebuyers in Wales
A property sale in Wales works in a similar way to England, although there are some differences in the legal system to be aware of that we cover later in the article.
An example of how a bridging loan would work:
- You want to buy a house for £600,000 and you need to put down a £200,000 deposit and borrow the rest on a mortgage.
- Your house hasn’t sold yet and you only have £50,000 in savings.
- You ‘bridge’ the gap and get a bridging loan for £150,000 to cover the deposit until you sell your house.
- When your house sells you pay off the bridging loan with interest (accrued on a monthly basis and payable at the point of loan exit.)
The maximum loan amount in Wales is normally up to 75% loan-to-value, so 75% of what the property is worth. This is a figure set by the Financial Conduct Authority (FCA). Not all loans are regulated and whilst some lenders will provide a higher loan-to-value these are unregulated loans that do not offer the oversight and protection that the FCA provides.
Bridging loans for commercial property in Wales
As a financial product that is often used by property investors and developers, commercial bridging loans are popular with those looking to buy property, land or machinery, also to complete renovations.
A commercial bridging loan is a short term arrangement and the average repayment term is twelve months, although this can extend to 18 months. A bridge solution is meant to be a stop-gap until longer term funding is secured.
For example, a high street bank or conventional lender may not offer a mortgage on a buy-to-let property until work has been undertaken on it to ensure it meets acceptable building and safety standards.
A commercial loan can provide funds for renovation and then once work is complete the property owner can secure a long term, lower interest financial product such as a buy-to-let mortgage.
ABC Commercial Bridging Loans
Learn more about commercial bridging loans in our ABC commercial bridging loan guide.
Can a bridging loan be used as a replacement for a mortgage in Wales?
A bridging loan is not a mortgage but works in a similar way, by securing a loan on property.. Scottish property law is unique and property purchases follow a set process that makes them more streamlined than the rest of the UK, meaning they advance to a legally binding stage more quickly.
Whilst a bridging loan would not be recommended as a long term replacement for a mortgage, it can cover the gap between a mortgage being arranged so a purchase can proceed.
There are a number of alternatives to bridging loans each with their own advantages and disadvantages, here are some other options to consider:
Mortgages
A mortgage is a long term loan secured on property. A bridging loan is not a type of mortgage although both products have similarities as they use property as collateral.
Mortgages are more appropriate for longer term needs and tend to come with lower interest rates, whereas bridging loans are short term arrangements. It is unlikely you would be able to get a mortgage on a property that needed substantial work or development, whereas bridging loans can be used for development purposes.
For a detailed breakdown, read our guide to bridging loans vs mortgages.
Buy-to-let mortgage
A buy-to-let mortgage is a loan is a type of finance used to purchase rental properties that will be let out to paying tenants. This type of mortgage typically has longer repayment terms than bridging loans and lower interest rates.
The benefit of a buy-to-let mortgage is there is no need to sell your existing property to secure the loan, and the income from tenants will cover mortgage repayments on your investment.
In Wales property law for landlords specifies that a property must be Fit For Human Habitation (FFHH). This standard covers electrical safety testing, ensuring there are working smoke alarms in a property and carbon monoxide detectors are fitted.
Short term finance may be required to bring the property up to the required regulatory standards, at which point the owner can transfer to a buy-to-let mortgage.
Remortgaging and equity
A popular option, remortgaging involves switching to a new lender or renegotiating the terms of your loan with your existing lender.
In some cases, the value of your property will have increased since you took the original mortgage giving you more equity, which is the amount your house is worth minus the amount you owe.
Increasing your equity means that your mortgage lender may allow you to borrow more. Even if the value of your property hasn’t changed, it is worth discussing options with your mortgage lender as they may be able to offer some flexibility and potential options for you as an existing customer.
Second-charge mortgage
A second-charge mortgage is a loan secured on your property, it is separate from your main, or first, mortgage and funds are provided by a different lender. As your property is used as collateral if you default on either mortgage your home could be repossessed.
Equity is important for a second-charge mortgage as lenders will want to make sure that if you defaulted on payments the sale of your property would cover both mortgages.
Equity release mortgages
Equity release mortgages are often synonymous with people of retirement age and you will need to be aged over 55 to qualify for this option. This financial product allows homeowners to borrow money against the value of the property and continue to live in the property until it is sold. When the property is sold the loan will be repaid with interest.
Commercial mortgages
Commercial mortgages are a long-term financial product, with repayment terms up to 25 years, secured on a property that is not where you live.
Rates for commercial mortgages will ordinarily be significantly lower than bridging loan rates, however, if you do decide to pay a mortgage back earlier than agreed there may be early repayment fees.
If you would like the flexibility to pay your mortgage back earlier, or overpay, then speak to your mortgage broker to match you with a lender that offers early repayment options.
Interest payments on commercial mortgages are tax deductible and so this can help reduce taxable income and, in turn, liabilities.
Asset Loans
Asset loans describe a category of financial products and services that help businesses and individuals secure funding based on the value of their assets. Using assets as collateral negates the need for using property.
Personal or small business loans
Small business loans are one of the main finance options used by startups and small businesses. This type of loan is quite straightforward with funding provided by a lender, often a mainstream bank, that is paid back over an agreed period with interest.
Unsecured and secured loans
Unsecured loans are often shorter term arrangements and a type of credit that isn’t secured by assets such as property or stock that could be sold in the event of a default. Lenders will assess the creditworthiness of a business and the likelihood that they will be able to pay back the loan.
This type of loan is considered to be higher risk as the lender does not have certainty the payments could be met, or that they will receive their money if the business defaults on the arrangement. Unsecured loans ordinarily have higher interest rates than secured loans.
A bridging loan is an example of a secured loan. Secured business loans are based on assets or ‘collateral’ so the lender will have confidence that monies can be recouped if the business defaults on payments. Often assets such as property, or merchandise are used to secure loans.
Interest rates on secured loans are often lower as there is a guarantee that the lender will get their money back; however, with long term secured loans interest rates can be higher as a lender is tying up funds for a long period.
Invoice finance and factoring
Invoice finance and factoring allows you to use your outstanding invoices to secure financing, typically 80-90% of monies due. Factoring is where a lender will pay you directly and take ownership of the invoices, they will collect the payment and settle any remaining amounts. With invoice factoring the lender will take a fee for providing the service or a percentage of the invoice amounts.
Development finance
Development finance loans are short to medium term loans designed for significant property refurbishments or developments, and are based on the projected value of the completed works. This type of finance can be costly as it is often used for large and complex projects by property investors.
Negotiating with an existing lender
A bridging loan can be used to repay your mortgage, with the interest added to the loan, leaving you with no monthly repayments to make. This can be useful if you’ve run into difficulties with your current mortgage provider and are in arrears. A bridging loan could pay off your mortgage whilst you seek an alternative arrangement, such as the sale of a property or a new mortgage.
Many lenders will be keen to avoid last-resort actions and have specialist teams to help those in debt, with a range of options. If you are experiencing difficulties then contact your lender as soon as possible to outline your situation.
Fast house buying companies
Fast house buying companies can be used to release equity from a property quickly. The key difference is bridging finance allows you retain ownership of the property, whereas quick house sale companies are purchasing the asset from you.
It is important to note that fast purchases companies usually offer no more than 75% of your property value, meaning they make a considerable profit on the property.
Why are bridging loans in Wales popular?
Taking a short-term bridging loan allows people to access significant funds quickly for property, land or machinery purchases.
Welsh property law has stringent regulations for landlords that require rental properties to meet high safety standards, this can often require a short term cash injection that would not be available through a mortgage.
What can a bridging loan be used for?
Bridging loans are flexible and can support a range of commercial opportunities, particularly in relation to developing property.
What is the BRRR model?
The buy, refurbish, refinance and rent (BRRR) model is popular. This involves using a bridging loan to buy and refurbish a property, then refinance it at a lower rate and rent it to gain an income that will exceed mortgage payments.
Buying a property before your current home has been sold
This is a very common reason for a residential bridging loan and allows homebuyers to proceed with a purchase whilst they are waiting to sell their home.
Fixing a broken property chain after a sale falls through
If your house purchase is part of a chain and a sale falls through, a speedy bridging loan can ensure that you have the funds to buy your new property whilst putting your house back on the market.
Buying a property at auction
Often distressed properties that are unmortgageable owing to their condition can be purchased at a discount at auctions. When a property is bought at an auction the sale must be completed within 28 days and this is an added reason to look for a quick finance solution.
Investing in a buy-to-let property
As we’ve discussed in this article, similar to renovation projects, a buy-to-let property may need work before it can be rented to tenants to generate income. A mortgage lender will not provide a buy-to-let mortgage until the property meets Welsh property standards to be Fit For Human Habitation.
Land purchase
Much is written about bridging loans and property, however, they can also be used to purchase land with the intention of applying for planning permission. Once planning permission is granted you could refinance with development finance to provide funds for a build.
How can I get a bridging loan in Wales?
Bridging loans have become more mainstream and are now provided by many lenders. It is, however, wise to compare lenders and deals as terms vary widely.
Additionally, if your focus is the speed of the transaction then you are likely to seek a lender with fewer compliance requirements.
Whilst individuals and businesses can apply to bridging loan lenders directly this can be a time consuming, repetitive process. With a large range of financial products available it is preferable to seek expert advice to find a lender with experience in this area, particularly in Scottish bridging loans.
Using a specialist loans broker, such as ABC Finance, means that we can negotiate with lenders to find you the best possible deal. Getting a quote is easy, our advisors will call you back for a confidential, friendly no-obligation discussion. If you wish to proceed they will help you fill in a simple form to begin searching for the right lender for you. Initial approval can move quickly and in straightforward cases funding can be made available within a few weeks.
ABC Finance business has been supporting businesses across the UK since 2000 and is regulated by the Financial Conduct Authority. Our experts work with a wide panel of lenders and take time to understand your business needs to get you the best deal; our aim is to save you money.
We’ve helped over 30,000 businesses find a loan – our Trustpilot scores and reviews demonstrate how happy our customers are with our service.
How quickly can you get a bridging loan?
Bridging loans can be arranged relatively quickly, ordinarily within 5-21 days. On rare occasions a loan can be approved in a few days although this is not typical. ABC Finance can give a funding decision
If you are looking for a very speedy turnaround then it is advisable to compare lenders as there is a variance lender compliance requirements. It should be noted that if a lender is prepared to accept a lower standard of assurance on the property by undertaking fewer checks it is likely their risk is higher, and thus their rates will likely reflect this.
The lenders with the lowest rates often take longer as they have rigorous application processes.
You can read the ABC Finance guide to bridging loan timescales for further information on how long the application process takes.
How much can I borrow with a bridging loan in Wales?
The amount you can borrow with a bridging loan in Wales varies and is dependent on the equity available, which is what a property is worth (or will be worth when it has been renovated) minus any outstanding liabilities or loans.
An average range for a bridging loan is between £50,000 and £10 million; however, lenders will provide finance from £10,000 to £250,000 depending on your circumstances. Bridging loans are classed as residential for private property, semi-commercial and commercial with the financial available increasing for each category.
Bridging loan requirements
To apply for a bridging loan you will need to be 18 or over and a UK resident. You will also need to provide proof of income, bridging loan lenders in Wales commonly accept:
- Payslips
- Bank statements
- Tax returns
- Property income (demonstrated through bank statements)
You will need to provide detailed information about the property you intend to use as security, or a clear business plan for land or property development.
Financial history is less of a concern to lenders as compared to a mortgage in Wales as interest is, in most cases, paid at the end of the loan period and secured on a property.
How much does a bridging loan in Wales cost?
Bridging loan costs vary depending on your circumstances and choice of lender, although interest rates can be as low as 0.5%. It’s worth noting that there are a number of fees that are added to a bridging loan and these should be included in your estimate when you are comparing products.
Use our free bridging loan calculator to get an estimate of what your costs would be.
Bridging loan fees
A bridging loan is a legal arrangement where a ‘charge’ is placed on a property giving a lender an interest in the property. This means that if you default on payments a lender will be able to sell the property to recoup their money.
In addition to interest payments for the loan, you can expect to pay arrangement, exit, administration, valuation and legal fees.
Many lenders will expect you to use a solicitor, see our in depth guide on this here, and you will have to pay their legal fees.
Always keep in mind the total cost of an arrangement and any hidden fees. Using a broker and taking legal advice will minimise any nasty surprises.
Frequently Asked Questions
Yes, 100% bridging loans are possible in Wales.
Lenders will be cautious when offering and they are likely to require more than one property as security, or another significant valuable asset.
Few people qualify for a 100% loan and it should be noted that these loans are classified as unregulated in Wales.
There are two main types of bridging loans, these are open and closed bridge loans:
Open bridge loans do not have a specific repayment date; they are, however, still regarded as short to medium term loans by lenders and so will need to be paid back within a year to two years. These loans are flexible and, as a result, come with higher costs.
Closed bridge loans have a fixed repayment date and are ordinarily used whilst house buyers are waiting for completion on a sale. These loans are less costly than open bridge loans.
A first charge loan is when there is only one loan secured against a property provided by a single lender, this could be a mortgage. In this situation the lender has the first claim on the property in the event of a default.
A second charge bridging loan is where there is already a loan secured against a property. In a default situation a property would be sold and the first charge loan would be paid before the second charge loan.
The difference between these two loans is that a first charge loan is usually for a higher amount than a second charge loan and is often used to purchase a property or undertake substantial work.
A second charge loan typically provides funds for renovations or to access cash flow during a property sale.
The bridging loan exit plan you provide will detail how you are going to pay back the lump sum, either by securing a longer term financing arrangement such as a mortgage, or selling a property.
Interest on bridging loans is typically rolled up and paid at the point of exit, which is when the loan is repayable.
There are three main options on how interest can be paid:
Repay a lump sum, also known as ‘rolled up interest’: This is by far the most popular option as it negates the need to pay any monthly instalments. Interest is paid at the end of the term along with the initial loan amount and any fees.
Pay a monthly fee: similar to a mortgage, interest is paid on a monthly basis until the loan is repaid.
Retained interest: this is where the maximum interest is included in the loan amount. For example, if the loan was used for the full possible term that is 12 months for residential mortgage in Wales. If the loan is paid back earlier then a portion of the interest is refunded.
Yes, bridging loans are regulated in Wales by the Financial Conduct Authority. Loans that exceed 75% of the value of a property used as security are not regulated.
Regulated loans are more appropriate for personal property finance and unregulated loans that are more flexible are better suited to commercial investors.
The maximum term on a regulated loan is usually 12 months, whilst unregulated bridging loans can extend to 36 months.
Yes, a bridging loan is secured on a property and so ultimately if the loan is not repaid then the lender will be able to recoup the loan. Lenders will focus on the value of the property you are using as security and also how intend to pay back the loan, this is known as the ‘exit strategy.’
Having a poor credit history will not prevent you obtaining a loan and by working with a broker you can deal with lenders who specialise in loans for people with adverse credit.
Taking a bridging loan involves a lender putting a legal charge on a property. This means that the lender has an interest in the property and can sell it to recoup the loan if the borrower defaults.
A bridging loan will require a property as security and this will require a series of compliance checks to assess the value and condition of the property; this is where using a solicitor can be helpful in terms of completing paperwork and understanding what is required to complete the lender’s requirements.
Using a solicitor is a personal choice and very much depends on your confidence and ability to deal with complex matters, paperwork and an increased demand on your time. There are, however, a number of situations where the use of a solicitor will be fully expected, particularly in the case of high value loans, or loans that involve multiple parties.
Welsh property law is different to English law in some areas, with differences in terminology and areas such as property searches.
There have been some significant changes to Welsh law with recent amendments to the Renting Homes (Wales) Act 2016. These changes will be particularly relevant to anyone looking to rent property.
If you choose to use a solicitor then it is preferable to use one that specialises in Welsh law and bridging loans.
Learn more about bridging loans
Bridging Loan To Buy Before Selling
Do High Street Banks Still Offer Bridging Loans?
