How much can I borrow?
Short lease bridging loans are usually available up to a maximum of 75% 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.
The minimum loan is usually £25,000 with no maximum, meaning we can fund virtually any loan.
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 revert technically revert to the freeholder.
This very rarely happens, but to avoid this, the lease must be extended and can cost a lot of money.
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 as the cost increase.
This makes it difficult for mortgage lenders to offer lending against these properties as they would be lending against a rapidly depreciating asset.
How much will a short-lease bridging loan cost?
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.
Rates start at around 0.48% per month and interest can be added to the loan leaving no monthly payments. Rates of 0.55-0.65% are common.
Most lenders charge a lender fee, usually 2% of the loan amount. In some cases, lenders also charge an exit fee. Although we can usually avoid exit fees, where charged they tend to be 1% of the loan amount, or one months interest. These fees can usually be added to the loan.
How long do they take to complete?
We can complete short-lease bridging loans in around 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.
How to extend property leases
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.
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.