Short-Lease Bridging Loans

Raise funds against short-lease properties quickly using bridging finance. Get the best deal with ABC Finance.

Rated Excellent on Reviews.co.uk

A short-lease bridging loan can be used by property investors to profit on purchase of a property due to the uplift in value on extension of the lease.

Often combined with property refurbishment, lease extension is a strong niche used by property investors who are seeking improved yields across their property portfolio.

Short-lease bridging loans explained

What is a short-lease bridging loan?

A short-lease bridging loan (or lease extension bridging loan) is used to extend the leasehold of a property.

They’re used to fund the purchase of a property with under 75 years left on the lease, which is usually being sold at a discount to its freehold value.

Upon completion of the lease extension, the property value usually increases dramatically.

What is a leasehold property?

With a leasehold property, although you own the property, the land on which the property is leased from the freeholder.

This means that at the end of the lease, ownership of everything on the land (your property) will technically revert to the freeholder.

This very rarely happens, but to avoid this, the lease must be extended, which can be expensive

Why won’t mortgage lenders offer funding for short-lease properties?

The cost of extending the lease increases the closer the lease gets to expiry. This reduces the property value by a similar amount to the cost of lease extension (or often more).

This makes it difficult for mortgage lenders to offer finance against these properties as they would be lending against a rapidly depreciating asset.

Key product features

Key Features

Max LTV

Up to 85%

Interest rate

From 0.39% per month

Charge types

1st, 2nd & 3rd considered

Term

1-24 months (maximum 12 months for regulated bridge loans)

Interest type

Added to the loan, deducted or serviced

Completion timescale

5 days – 3 weeks

Criteria

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 £10,000 with no maximum loan size

Short lease bridging finance criteria

Who can take out a short lease bridging loan?

Our bridging loans are available to borrowers who are applying in personal name, as a partnership, LLP or limited company.

We can also arrange loans for trusts, pension funds and overseas borrowers.

What is your minimum and maximum term?

We have a minimum term of 1 day and can offer terms up to 24 months.

Can you lend to borrowers with bad credit?

Adverse credit doesn’t exclude you from taking out these loans. We’re can lend to borrowers with almost any credit problems, including current, immediate threat of bankruptcy or repossession.

Mortgage arrears, CCJs and defaults will not usually prevent your application from being approved.

These loans are known as bad credit bridging loans.

Does the lease need to be extended on or before completion of my bridging loan?

Most lenders will expect the lease to be extended on or before completion of the loan. This will mean that the property will be extended when the lender takes a charge on the property.

Some lenders are willing to offer finance where the lease cannot be extended on completion, although this can prove more difficult.

Where the section 42 has not been issued before the property has been purchased, this can make funding extremely difficult if the lease is very short.

This is due to the two-year ownership period required to initiate a lease extension. As most bridging loans are offered for terms of between 12-18 months, they would not usually give you enough time to fund where a section 42 has not been issued.

How much can I borrow?

What are your minimum and maximum loan sizes?

The minimum loan is usually £10,000 with no maximum, meaning we can fund virtually any loan.

What is your maximum loan to value (LTV)?

Short lease bridging loans are usually available up to a maximum of 85% of the property’s value. However, some lenders will lend 100% of the purchase price if the lease is extended at the point of completion, as the property will increase in value with a longer lease. These are known as below market value bridging loans.

Short lease bridging loan rates & costs

What interest rate will I pay?

Specialist short lease bridging loan lenders are fairly flexible. So, even though the lease is short and will be extended on completion, assuming that the property itself is suitable security, rates will be at the lower end of the scale.

Bridging loan rates start at 0.39% per month and interest can be added to the loan leaving no monthly payments. Rates of 0.55-0.85% are common where the lease extension is already agreed and can take place on completion.

Where the section 42 is issued, but no agreement has been reached with the freeholder, your rate will increase, with a rate of 0.9-1.25% being realistic.

Are there other fees to pay?

Yes, in addition to the interest, there are a number of other set-up costs which must be paid during the application process. The main ones are the following:

Legal fees – Borrowers pay both their own and the lenders legal costs. The cost of these fees vary depending on the property value, the work involved in the lease, location and the loan amount required.

Lender arrangement fee – This fee is usually between 1-2% of the loan amount and is charged when the loan application completes. Larger loans are likely to be closer to 1%, with smaller loans at 2%. This fee is usually added to the loan.

Broker fee – Many brokers charge a fee for their service, often between £1,000 and 1.5% of the loan amount. We don’t charge a fee for our service.

Lender exit fee – Some lenders charge an exit fee on their loans. This fee is usually between 1 month’s interest and 1.5%. We can often arrange loans with no exit fee and always look to do so where possible.

Valuation fee – The valuation fee (also known as a survey fee) is a fee paid to a chartered surveyor to undertake a report on the condition, value and saleability of the security property. The cost can vary, or may even be avoided where an electronic valuation can be undertaken.

How to get a short lease bridge loan

Should I use a broker or approach a lender direct?

A broker’s job is to find you the best deal and support you in your application through the process. A good broker will be able to make the process easier, leaning on their experience to avoid any potential issues before they arise.

That said, some brokers charge a fee (as mentioned above), which adds further costs. At ABC Finance, we don’t charge a fee for our service.

How long do they take to complete?

Short-lease bridging loan applications usually complete in 7 – 14 days. This is if all information, including the valuation and legal pack, is completed and satisfactory. If you require the loan sooner, please make us aware upfront.

Generally, it is worth allowing around 14 days to complete your lease extension bridging loan, to allow for any unforeseen delays. Of course, where the lease extension is still undergoing the legal process, this will delay completion of your loan.

Frequently Asked Questions

How do you extend a property lease?

In order to extend the lease of a property, you must first be classified as a qualifying leaseholder. To be eligible, you must have owned the property on a long lease for at least two years.

Qualifying leases must have been issued initially for more than 21 years and can’t be a commercial lease.

To initiate the extension, a section 42 notice must be issued to the freeholder. This is assuming there is no intermediate lease between yourself and the freeholder.

The process can be tricky, and it may be best to seek advice from an expert to ensure things run smoothly.

Are bridging loans risky?

Taking out a very short-term loan will always carry an element of risk, as it must be repaid within a short timeframe. Failure to do so will inevitably put your property and credit history at serious risk.

That said, should you plan ahead to ensure that you’re comfortably able to repay the loan in time, then there’s no additional risk compared to other types of borrowing. For example, taking out a 6-month bridging loan to negotiate and extend the lease of a property that hasn’t had a section 42 issued is very risky.

The freeholder does not have to extend and finance would be difficult to achieve elsewhere, meaning you could run out of time and be unable to refinance.

To keep reading, check out bridging loans for land or bridging loans London.