Everything you ever wanted to know about using a property that you have lived in to get a bridging loan.
There are two principal types of residential bridging finance applicants, residential property investors who look to buy property to rent out or sell on and owner occupiers who already live in the property they borrow against or are looking to buy a property that they plan to live in. Owner occupied properties can be both houses and flats.
All loans to owner occupiers are regulated by the Financial Conduct Authority (FCA). Regulated owner occupier loans can either be first or second charge. This means it can either be the sole loan secured against the property as a first charge or, if there is enough equity in the property after a mortgage or any other secured loan, it can be placed ‘behind’ the first charge lender as a second charge loan.
The bridging purpose with which most are familiar is that of “bridging the gap” between the completion of a sale and accessing the credit needed to make a purchase. This is a fantastic option in the event of a chain break or indeed other unforeseen delays to help avoid losing a dream home.
Indeed, even without a chain break scenario, speed can be essential to getting a great property deal across the line. Purchasers buying at auction or simply looking to take advantage of a seller’s discount for a quick sale can use a bridging loan to secure a better deal. It increases their bargaining power and unlike a High Street mortgage it won’t take months to arrange!
Aside from the property chain break there are many regulated owner occupier bridging loans that are driven by the personal circumstances of the borrower with an immediate need to raise cash. Monies raised can be used for a huge variety of purposes including of course home improvements.
Once an owner occupier has improved, renovated or extended his home he can then take advantage of its increased value by securing longer term property finance to redeem the bridging loan. In summary, whether it’s for purchase, capital raising or equity release, owner occupiers, have, in residential bridging finance, a great tool at their disposal.
A bridging loan is a short-term loan secured against property. It allows you or your business to “bridge a gap” until either longer-term finance can be arranged, or the underlying security or other assets can be sold.
Most lenders will accept security on residential, commercial, and mixed residential and commercial properties. Some will accept security on land with planning permission and some even on purely land or other assets.
A bridging loan is regulated when it is secured against a property that is currently occupied, or will soon be occupied, by either the borrower or an immediate member of their family. All bridging loans that enable the commercial acquisition of a property or for funds to be raised exclusively for business purposes are not regulated by the Financial Conduct Authority (FCA). The split between regulated and unregulated bridging loans is roughly 50/50 now.
Nearly all lenders will charge a valuation fee which covers the cost of surveying your property and determining its value. Most will also charge an arrangement or facility fee to cover the cost of setting up a loan. This is usually around 2% of the loan amount. Finally, prior to completion of your loan, most lenders will also charge a legal fee, usually charged at a set rate, and used to cover their legal fees for completing the loan. Valuation and legal fees are usually charged up front whilst administration and arrangement fees are often built into the terms of the loan.
Yes. It is obviously best to do this after any minimum term has elapsed and provided you have chosen a good lender you should be refunded any unused interest and shouldn’t incur any early exit fees. Bridging.com can help you select the best lender to suit your circumstances.