What Is a Bridging Mortgage?
A bridging mortgage is a type of short-term loan that helps borrowers “bridge the gap” between the purchase of a new property and the availability of long-term financing or the sale of an existing asset. These loans are typically secured against a property and are available for both residential and commercial purposes.
Key Features of Bridging Mortgages
- Quick Access to Funds: Bridging loans can be arranged in as little as 7-14 days.
- Short Loan Terms: Typically between 1 and 12 months, though some extend to 36 months.
- Higher Loan-to-Value (LTV): Borrow up to 75% or more of the property’s value.
- Repayment Flexibility: Options include selling the property, refinancing, or other exit strategies.
How Does a Bridging Mortgage Work?
A bridging mortgage provides immediate funding while you arrange long-term financing or complete a property transaction. Here’s an example:
Scenario
You purchase a property at auction for £500,000 but need to complete the transaction within 28 days.
Solution
Secure a bridging mortgage for £375,000 (75% LTV) to cover the purchase while waiting for the sale of your current property.
Exit Strategy
Once your current property sells, you use the proceeds to repay the bridging loan, including interest and fees.
Bridging loans are often used in situations where timing is critical. They allow you to act like a cash buyer, making them particularly attractive for property auctions or chain breaks.
Costs of a Bridging Mortgage
Bridging mortgages can be more expensive than traditional loans due to their short-term nature and higher risk. It’s important to understand the associated costs:
Interest Rates
- Rates range from 0.4% to 1.5% per month (equivalent to 5% to 18% APR or higher).
- Example: A £300,000 loan at 1% monthly interest costs £3,000 per month.
Fees
- Arrangement Fees: Typically 1%-2% of the loan amount.
- Valuation Fees: Property assessment costs, typically a few hundred pounds.
- Exit Fees: Charged when the loan is repaid.
- Legal and Administrative Fees: Covers contract setup and other formalities.
Eligibility Criteria
While bridging loans are more accessible than traditional mortgages, lenders still assess applications based on:
- Credit History
While not as critical as for a standard mortgage, a good credit score helps secure better rates.
- Property Value
The loan amount depends on the value of the collateral property.
- Exit Strategy
A clear and feasible plan to repay the loan (e.g., property sale or refinancing).
- Deposit/Equity
Typically, borrowers need at least 25% equity in the property.
- Income Assessment
Lenders may evaluate your ability to service interest payments, especially for longer-term loans.
Advantages of Bridging Mortgages
- Fast Processing
Funds can be accessed in days, ideal for time-sensitive purchases.
- Flexible Uses
Suitable for residential, commercial, and development purposes.
- No Monthly Payments
Many lenders allow rolled-up interest, repaid at the end of the term.
- Large Loan Sizes
Borrow significant amounts based on property value and equity.
- Customizable Terms
Tailored repayment options and flexible loan durations.
Risks and Considerations
- Higher Interest Rates
Monthly rates can quickly add up, making it a costly option.
- Risk of Repossession
Failure to repay can result in the sale of your secured property.
- Complex Fees
Arrangement, valuation, and exit fees can significantly increase overall costs.
- Uncertain Exit Strategies
Delayed property sales or refinancing issues can escalate costs.
Frequently Asked Questions
Can I get a bridging mortgage with bad credit?
Yes, some lenders specialise in bad credit bridging loans, but rates may be higher.
How does a bridging loan compare to a mortgage?
A bridging loan is short-term and designed for immediate funding needs, while a mortgage is long-term financing for property purchases.
What is the minimum deposit for a bridging mortgage?
Typically, you’ll need at least 25% of the property’s value as a deposit.
How are bridging loans repaid?
Most are repaid as a lump sum at the end of the term, often through property sale or refinancing.
Are bridging loans regulated?
Regulated bridging loans are overseen by the Financial Conduct Authority (FCA), while unregulated loans are not. Always check with your broker.
Why Choose The Landlords Broker for Bridging Mortgages?
At The Landlords Broker, we specialize in providing tailored bridging mortgage solutions. Here’s what sets us apart:
Expert Advice
Our team ensures you understand all costs, conditions, and potential risks.
Wide Lender Network
Access competitive deals from trusted lenders.
Speedy Approvals
Funds available in as little as 7 days.
Transparent Fees
Clear breakdown of all costs, including interest and arrangement fees.
Bespoke Solutions
Tailored financing to suit your unique needs and exit strategy.
Start Your Bridging Mortgage Journey Today
Ready to bridge the gap? Contact The Landlords Broker today to explore your options and secure fast, flexible financing tailored to your needs.