Yes, it is very possible and very common to buy a house using a bridging loan. Using a bridging loan essentially makes you a cash buyer, so they are often used to help complete a property deal much faster and you can avoid property chains which might otherwise stop a sale from going through.
Your property will always be used as security and this will determine how much you borrow – which may favour people who have been turned down for other loans due to poor credit or income eligibility. But importantly, you will need an exit strategy or could potentially risk losing your home or using a bridging loan could become quite costly.
Lending Expert is a specialist bridging loans broker since 2013. To discuss your requirements, simply check your eligibility using the button below.
Features of a Bridging Loan
- Rates from 0.44% per month
- Loan duration of 3 to 24 months
- Interest rolled up until the need
- Up to 75% LTV available
- Borrow £25,000 to £25 million
Examples of When You Can Use Bridging Loan to Buy a House
To buy a new property before yours has sold – If you are looking to move and have found the perfect property, but you have not sold yours yet, you could get a bridging loan to make you a cash buyer and complete the sale. You then have the remainder of the bridging loan term (e.g 3 to 24 months) to complete the sale of your property and pay back the loan.
This option can be common for homeowners who are stuck for months and months trying to sell their own property but are struggling to close a sale. But if they want to move on and complete and avoid losing it, a bridging loan is an option.
If a buyer pulls out – If you are in a property chain and everyone is set to complete, but suddenly your buyer pulls out, this can delay the whole process from going through. Of course, you can put your house on the market again, but if you do not have any bites and everyone is desperate to proceed, bridging can be used to rescue a purchase.
To avoid a property chain – If you are in a property chain but are looking to complete on a new property quickly, you can use a bridging loan to speed up the process. The process of getting a mortgage can be very long and some struggle to get approved or offered good terms. Rather than waiting several months and the entire chain falling through, a bridging loan can help you complete sometimes in just a few weeks.
For landlords buying a new home – If you have found an exciting property to renovate and rent out, you could get competition from other landlords who are looking to do the same. A bridging loan allows you to complete typically within 2 to 4 weeks and arrange flexible terms that suit your needs.
Buying property at auction – Both homeowners and landlords can buy properties from an auction and you could get a real bargain if you find the right opportunity. With a 20% deposit required upfront and the balance required in 28 days, you can use bridging finance or ‘auction finance’ to pay the remaining 80% and complete the sale.
Bridging Loan Home Purchase Example
The Smith family are looking to buy their dream home which is worth £1 million. But they are struggling to sell their existing home and have been trying for months and months. Their dream is currently being looked at by other potential buyers and they realise that they could risk losing this property to someone else any day now ..
To complete the purchase, they borrow £600,000 through a bridging loan, which is the amount that they would receive if they sold their original home. This is used to complete the sale of the property and the Smith family are delighted and ready to move in.
6 months later, someone makes an offer for their original home and it is accepted. The Smith family repay the interest that has accumulated from the bridging loan and the loan is now cleared. The Smith family has their dream home and everyone lived happily ever after.
High Loan-to-Value (LTV) is Available
People looking for bridging loan products can access around 70% LTV or this could be as high as 75% or 80% depending on the borrower and the property. This means that you should be able to finance the purchase of a property through bridging and any other savings or income that you have.
Repayments Can Be Rolled Up
The repayments for a bridging loan can be rolled up until the end of the loan term, whether it is 3,6, 12 or 24 months – and this can be very useful for cash flow and to avoid paying interest in the short term.
However, the longer you have the loan open, the more interest that will start to accrue over time. There is usually the option to repay early, but depending on how soon it is (less than 3 months) or the terms of the lender, this may or may not incur a fee. This bridging loan calculator will give you an estimate of the interest costs and fees involved.
Make Sure You Have an Exit Strategy To Avoid Repossession
When using bridging loans to buy a house, it is always important to have an exit strategy for the end of the loan term – and to present this to the lender when applying. How do you plan to pay back the bridging loan? Is it from the sale of the property, renting it out to tenants or through a longer-term mortgage?
If you have used bridging finance to purchase a home or renovate a property but you have not repaid it by the end of the loan term, you may be in a tricky position.
Whether it is due to building delays or failing to sell the property, You may have to look at refinancing under a new arrangement with the bridging lender, but this could be costly or you may have to find another lender who will accept.
In the worst case scenario, if you cannot meet the repayments or get refinancing, the bridging lender could repossess your property. They will always speak to you beforehand and try to help your situation, but this is a possibility and it highlights the importance of having an exit strategy from the start.
Would you like to discuss your bridging requirements? You can get an initial quote in less than 5 minutes by checking your eligibility below.