How to Use Bridging Finance to Purchase a House in London
London has always been known for its rich heritage as well as economic significance, attracting millions of people across the nation. Its numerous heritage sites, attractions and retail centres have made London a happening place to live in the UK.
The property market in London has grown immensely over the last few years. If you are looking to purchase a home or a commercial office in London, and you come across a good home or an investment opportunity, you need to act fast. That’s when bridging finance in London can come to your rescue.
What is Bridging Finance?
Best Bridging finance in London is a short-term finance option, which is particularly used to bridge short-term funding gaps. With bridging loans, you can raise funds quickly to finance your home purchase, so you don’t miss out on an exclusive deal.
Bridging finance has become a popular way to raise finance in recent years. It’s not hard to see why because in these fast-moving times, having the freedom to act quickly and take advantage of key opportunities can make all the difference.
How Bridging Finance Can Help You?
Depending on the individual situation, a bridging loan can be used for one to eighteen months, and secured against the value of the property or land. They are most commonly used in London to fund the purchase of a new home before the current home is sold and to break property chains. Bridging loans can also be used to renovate your home before you put it up for sale. Some more common uses of bridging loans are:
Bridging Loan for Residential Property Purchase
Bridging loans can be used in many ways in terms of the sale and purchase of residential property. Homebuyers often use bridging finance when they wish to purchase a new home before selling their existing home. Residential bridging loans are quite flexible and can be taken out with fewer limitations.
Bridging Loan for Commercial Property Purchase
Obtaining a traditional loan for commercial purposes can be a long process, which may result in the borrower losing out a great deal. A bridging loan gives quick access to the funds they need, allowing business owners to seize the opportunity before their competitors do.
Bridging Loan for Auction Property Purchase
If you have won property at an auction, you will be required to pay 10% of the total amount the same day, and the remaining amount within 28 days. Bridging finance makes this kind of auction property purchase easy by offering quick access to funds at highly competitive rates.
Bridging Loan for Property Renovation
When the property is unmortgageable, meaning it requires significant renovation work to be carried out, the bridging finance can be immensely useful. With a bridging loan, property owners can undertake refurbishment work without any delay to increase their property condition and value, and later refinance it to a long-term mortgage.
Bridging Loan for Buy-to-Let Purchase
Due to the increasing population, rental properties are always in high demand in London. Many property developers and investors wish to seize a lucrative investment opportunity by using bridging loans to quickly complete the property purchase.
How Much Can You Borrow Using Bridging Finance in London?
As bridging finance continued to gain popularity, more lenders in London have moved to high-value loan space. However, how much you can borrow ultimately depends on the asset or property used as security and your plan to repay the loan. Usually, lenders agree to offer 70% to 75% LTV, but in rare cases, a 100% bridging loan is also possible.
Some lenders also offer considerably less because of the borrower’s background, the condition of the property and other aspects of the deal. To secure the highest LTV possible, your financial position and exit route play a crucial role.
What is the Cost of Bridging Finance?
Before taking out a bridging loan, there are mainly three costs you need to think about: interest rates, arrangement fees and exit fees. The arrangement fees and exit fees are usually 1-2% of the capital, which is paid when you first take out the loan.
The bridging loan interest rate in London charged on bridging finance is often a percentage of the total loan amount, which is calculated on a monthly basis. The charge usually ranges from 0.5% to 2% per month. As a borrower, you can pay interest in one of the three ways.
Rolled up Interest
You don’t need to pay interest every month, but the interest is added to the outstanding loan amount and paid altogether when the loan is repaid.
The interest payments are deducted from the total loan amount and are used to repay the interest when they are incurred. That means the interest on the loan is prepaid.
Service interest requires you to pay interest costs monthly just like a traditional mortgage.
How you wish to pay interest will affect how much you can borrow, the total cost of the loan and your cash flow. It is best to consult a bridging finance expert in London who can help you go through different interest rate structures and choose what works best for you.
How Do You Repay Bridging Finance?
Bridging finance is a short-term financing option, which can last for a few days to a maximum of 36 months. Since it lasts for a short term, the lender would need solid information on how you plan to repay such a huge amount. Therefore, it is essential that you present a feasible exit plan that convinces the lender that you will repay the loan on time. Here are some ways to do it:
If you have taken bridging finance to purchase a new property before selling your existing one, you can repay your bridging loan when your existing property is sold. As you may not be absolutely sure when your property will get sold, you can opt for an open bridging loan, which gives you the flexibility to repay the loan at any time, but up to a certain point.
Refinancing is one of the most common ways to repay the loan. Whether you have purchased a new home or renovated your existing home, you can refinance your property to a longer-term mortgage with a new lender. The new mortgage will help you repay your bridging loan. This way you will pay lower interest rates over several years compared to bridging finance, which tends to be more expensive because of its flexibility and short-term nature.
Sale of assets
In this situation, the bridging loan can be repaid by the sale of any asset or using capital from another income source. If you take this route, the lender will want to know when and how the event will take place to make sure you have enough capital when it is time to repay the loan.
Getting Bridging Finance to Purchase a Home in London
Bridging finance is generally offered by individual lenders and private banks, all of which are available through specialist bridging finance brokers. The lender criteria may vary from lender to lender, but they are usually more flexible than traditional mortgages. That means the borrower’s credit history and income streams will not be an issue as they might be with traditional mortgages. Most lenders are concerned about the value of property and your exit strategy before granting the loan. Hence, as long as your property is in prime condition and you present a strong plan to repay the loan; most lenders will be willing to offer bridging development finance in London.
The main benefit of bridging finance is that it can be arranged more quickly than any other type of loan. But, this isn’t straightforward. In order to arrange bridging finance in the fastest way, you will need the help of a bridging loan broker. This is particularly true when you are looking for a high-value bridging loan and there are complexities in your application. Using a specialist broker with many years of experience means they can help you go through the application process smoothly and get the best terms for your situation.