Buying a house with a bridging loan can be a great way to complete a purchase quickly, or buy a property in need of refurbishment. Before taking out a bridging loan, it’s important that you understand what a bridging loan is, how they work and whether an alternative product would be more suitable.
While bridging finance is an excellent tool in certain situations, it should be used with caution and only where a suitable exit strategy is in place. For example, using a bridging loan to purchase a property because affordability is too tight to get a mortgage is likely to just push your problem into the future and solve very little. We’ll now break down some of the key points that you should understand when looking to use a bridging loan for a house purchase.
What we cover in this article:
- What is a bridging loan?
- Can you get a bridging loan for a house purchase?
- What types of property can I purchase using a bridging loan?
- What documents will I have to provide to get a bridging loan for a house purchase?
- Key product features
- When would a bridging loan be used for a house purchase?
- How much deposit is needed for a house purchase bridging loan?
- How long does it take to buy a house with a bridging loan?
- What interest rates will I pay on a house purchase bridging loan?
- Can you get a bridging loan to buy a house if you have bad credit?
- What are the advantages of using a bridging loan for a house purchase?
- What are the alternatives to a bridging loan when buying a house?
What is a bridging loan?
A bridging loan is a short-term loan which is secured against property and is usually taken for between 1-18 months. When taking out a bridging loan to buy a property that you will live in, the bridging loan will be regulated by the Financial Conduct Authority (FCA) and the maximum loan term will be restricted to 12 months.
Can you get a bridging loan for a house purchase?
Yes, bridging loans can be arranged for house purchases. This is a common use of bridging finance and is offered by most bridging loan brokers and lenders. When using a bridging loan to purchase a property while waiting for your current property to sell, most lenders will allow you to borrow against both, in many cases removing the need for a deposit.
What types of property can I purchase using a bridging loan?
Bridging loans can be used to purchase the following properties:
- Semi-commercial property
- Property in need of repair or refurbishment
- Holiday homes
- Commercial property
- Unmortgabeable property (subject to having a suitable exit strategy)
What documents will I have to provide to get a bridging loan for a house purchase?
When you apply for a bridging loan, you must provide the following:
- Your personal details
- Your reason for needing a bridging loan
- Details of the property that you are purchasing
- Details of any planned refurbishment works
- Proof of your exit strategy
Key product features
|Max LTV||Up to 85%|
|Interest rate||From 0.39% per month|
|Charge types||1st, 2nd & 3rd considered|
|Term||1-36 months (maximum 12 months for regulated loans)|
|Interest type||Added to the loan, deducted or serviced|
|Completion timescale||5 days – 3 weeks|
- Residential, commercial property or land acceptable
- Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds
- Minimum applicant age 18 years – no maximum age
- Available in England, Scotland, Wales and Northern Ireland
- Adverse credit accepted (on a case by case basis)
When would a bridging loan be used for a house purchase?
Bridging loans are commonly used to purchase a house in the following situations:
- Purchasing a property before selling your existing one – When you need to complete a property purchase before selling your current home, a bridging loan can be used as a fast, temporary solution and can be repaid on the sale of your current property.
- Buying a property in need of major refurbishment – When buying a property that is in need of major refurbishment, traditional mortgage lenders may be unwilling to lend until the work is complete. In this situation, a bridging loan can be used to purchase the property, and is then repaid once the refurbishment is complete, using a remortgage.
- Breaking a chain – When a chain is delaying your purchase, a bridging loan can turn you into the equivalent of a cash buyer.
- Buying a property at auction – Auction purchases must usually be completed within 28 days. This is quicker than most mortgages can be arranged, but comfortably long enough for an auction finance bridging loan to be completed.
- Purchasing a property quickly – If you’re in need of a quick property completion, a bridging loan can be used to finance your transaction.
How much deposit is needed for a house purchase bridging loan?
The minimum deposit required for a bridging loan is 20% of the value of the property, or 25% for regulated bridging loans. When deducting the interest from the loan, meaning you have no monthly payments to make this will reduce your net loan, meaning you may need a higher deposit.
If you’re unsure how much deposit you would need, our team will be able to quickly calculate this for you, just get in touch.
How long does it take to buy a house with a bridging loan?
When buying a house with a bridging loan, the transaction can usually be completed in between 5-14 days. The legal process may delay this slightly on some purchases, although when this happens, it shouldn’t add more than 1-2 weeks to the overall process.
What interest rates will I pay on a house purchase bridging loan?
The interest rates charged on bridging loans usually vary depending on the loan to value (LTV), property type and why you are taking out the loan. The lowest rates are usually reserved for applications at 50% LTV or below and secured against a residential property that won’t be subject to heavy refurbishment.
Your LTV may be slightly reduced for refinance bridging loans.
As a guide, here are some example bridging loan rates:
|Bridging loan type||Maximum LTV||Rates From|
|Regulated bridging loans||75%||0.41% per month|
|Residential bridging||85%||0.39% per month|
|Semi-commercial||75%||0.39% per month|
|Commercial||75%||0.39% per month|
|Land||65%||0.39% per month|
|Property refurbishment||85%||0.39% per month|
Can you get a bridging loan to buy a house if you have bad credit?
Yes, bad credit bridging loans can be used to fund a property purchase in this situation. A poor credit history won’t usually prevent lending, although depending on your exit strategy, it may result in you paying a slightly higher interest rate.
That said, some lenders won’t increase your rate in this situation. If you would like to know how much you could pay, contact us now and we’ll offer a quote within no more than 2 hours.
What are the advantages of using a bridging loan for a house purchase?
As with everything, there are advantages and disadvantages to taking out a bridging loan to purchase a house. The main ones are broken down below.
- They can be arranged quickly – Bridging loans can be arranged very quickly and can facilitate very urgent transactions.
- Flexibility – Bridging loan lenders tend to be very flexible, allowing you to borrow even if your circumstances are less than ideal.
- Unusual property – Bridging loans can be arranged against unusual or even unmortgageable property, allowing you to acquire and improve it before taking out a mortgage.
- No monthly payments – The interest charged on bridging finance is often added to the loan, leaving you with no monthly payments to make.
- No exit penalties – Bridging loans can be paid off at any time and usually have no penalties for doing so.
- Higher interest rates – In most cases, the interest rates charged on bridging loans are higher than those charged on an equivalent mortgage.
- Lower LTV – The deposit needed when taking out a bridging loan is usually much higher than would be the case when taking out a mortgage.
- Lender choice is key – While the bridging loan market is strong and reputable as a whole, there are a few bad actors who charge high fees and can be seen to act unreasonably when things don’t go according to plan. This includes high default interest rates, high default fees or being quick to repossess. It must be stressed that this is a real minority, and is not the norm. Dealing with a reputable broker can help to avoid these kinds of lenders.
What are the alternatives to a bridging loan when buying a house?
When buying a house, the alternatives to a bridging loan are:
- Secured loans
- Using savings or approaching family
- Commercial mortgages
- Private investors
- Development finance