Residential bridging loans explained
What is a residential bridging loan?
Residential bridging finance is a type of short-term bridging loan designed to ‘bridge’ a financial gap. They can be used as an alternative to a standard mortgage when it’s necessary to act quickly to secure or renovate a property in a short timeframe.
They can be offered on a 1st or 2nd charge basis – or even 3rd charge where required.
How do they work?
Applications are offered on an interest-only basis for up to 24 months, with the monthly interest usually either deducted from, or rolled up into the loan. Where needed, you can pay the interest monthly, subject to proving that it is affordable.
Regulated loans are restricted to a maximum term of 12 months.
Regulated vs non-regulated loans
Where you or your family, either occupy, have occupied, or plan to ever occupy the security property, you must take a regulated bridging loan.
These loans are regulated by the Financial Conduct Authority (FCA) and there are additional rules in place to offer a greater level of consumer protection.
Unregulated loans are those arranged on investment properties.
When would you take out a residential bridging loan?
There are a number of reasons to take out a residential bridging loan as opposed to a mortgage, some of the more common ones are:
- To raise funds quickly for business or property investment opportunities
- To extend the lease of your property before selling
- To fund the refurbishment or extension of your home
- To complete the purchase of a property at auction
- To purchase a new property before your current home is sold
- To raise the funds needed to pay your debts as they fall due, for example paying a petition for bankruptcy
The above are examples, although we can consider residential bridging finance applications for almost any situation.
Key product features
|Max LTV||Up to 80%|
|Interest rate||From 0.43% 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)
- Loans from £25,000 with no maximum loan size
Costs of a residential bridging loan
What rate will I pay?
Our interest rates of 0.43% per month for loans up to 50% loan to value (LTV). We can offer loans at 75% LTV at 0.65% per month.
The lowest rates are offered for loans at 50% LTV or less. Lenders price applications based on the risk presented to them, and LTV plays a big part. Reducing your LTV is likely to reduce both the rate you’re charged and the total interest you pay significantly.
Are there any other fees?
On top of the interest charged, there are a number of fees to pay. The main ones are:
Lender arrangement fee – These fees are usually between 1-2% of the loan amount and are charged by the lender for setting up the loan. Larger loans usually benefit from lower fees (in percentage terms). This fee can usually be added to the loan.
Broker fees – Most brokers charge fees for arranging residential bridging loans. These fees are usually 1-1.5% of the loan amount. We don’t charge a fee for our service.
Valuation fee – These fees are charged early in the process and can’t be added to the loan. The amount charged depends on the property value, location and the lender chosen.
Legal fees – Legal fees are charged for the legal administration involved in arranging the loan. You will be expected to pay both your own and the lenders legal costs.
How much can I borrow?
We can offer residential bridging loans from £25,000 with no maximum loan size.
Loan to value (LTV)
The main restriction is usually LTV. We offer up to 80% on unregulated loans and 75% for regulated.
Property type and location
We can lend on properties in any UK location. Lending in Northern Ireland and some parts of Scotland is restricted by some lenders. If you’re looking to fund a property in those locations, talking to an expert before applying could save you a lot of time.
Where to get residential bridging finance
This type of finance is very specialist and as such, it’s not something that’s generally offered by high street banks. That said, there are some very strong lenders operating in the market, although they aren’t generally household names.
Lenders range from specialist banks, through to small independent lenders. As you’ll be borrowing money and offering security over your property, it’s important that you do due diligence on a lender before choosing to work with them.
Using a broker
As this is such a specialist type of finance, a good broker can make the process far simpler and ensure that you’re only dealing with the most reputable lenders.
Of course, some brokers charge large fees for their service, so this must be offset against any savings they offer. We don’t charge a fee for our service.
Who can get a residential bridging loan?
We can arrange loans for individuals, partnerships, LLPs, Ltd companies as well as offshore companies, trusts and pensions.
UK nationals, foreign nationals, expats and overseas investors are all acceptable.
Although there are certain criteria that must be met, we can consider applications for people who have bad credit. We have lenders available who are happy to ignore adverse credit subject to having a suitable exit strategy in place.
You can learn more about this in our bridging loans for bad credit guide.
Your exit strategy is your plan for how you will repay the loan and it is crucial to the success of your application. Before approving your application, the lender will want to know that they will be repaid within the agreed term.
We can consider any realistic exit strategy. The most common are to either sell the property, or to refinance to a long-term mortgage.
Where you have failed to repay a current bridging loan, we can also consider re-bridging loans.
Your income is only taken into account if the loan is reliant on it for repayment, either through payment of the interest monthly or for your chosen repayment method.
If you plan to roll-up the interest and your chosen exit strategy is sale of the security property, your income is not usually taken into account.
The residential bridging loan process
What is the application process?
This depends heavily on the type of lender chosen. Some require very little information, whereas others will ask for more.
The process begins when you either talk to an expert or use our instant comparison tool to find the most suitable terms for your circumstances. Once you’re happy with the terms offered, you would complete the application form for your chosen lender and the formal application is made.
Where a valuation is needed, this would then be undertaken, while the lender assesses the supporting information. In many cases, there will be little information required, especially where your chosen exit strategy is sale of the security property.
Should the valuation and supporting documentation be acceptable, a formal offer can be issued and the legal process can begin.
Can you offer loans without the need for a valuation?
This is a request that we get quite often. We can offer loans with no valuation, but they tend to be at lower LTVs. For applications below 65% loan to value, we may be able to offer an instant ‘automated’ valuation.
Is there risk involved with residential bridging finance?
Yes, when securing borrowing against your home, there will always be risk involved. Should you fail to repay your bridging loan when due, your home may be at risk.
Failure to repay can result in repossession, which makes expert advice of vital importance when taking out residential bridging finance.
Can you lend where there is a small commercial element to my property?
We can usually lend on semi-commercial property without issue. In this situation, you would need a commercial bridging loan.