Buying a property is taking longer than usual due to increased demand from buyers rushing to take advantage of the stamp duty holiday, combined with bank staff working from home, which is slowing everything down. With some high-street lenders experiencing three or four months of delays, buyers worried about getting their finance in place so that they don’t miss out on a property or the stamp duty holiday, are turning to bridging finance.
When is bridging finance needed?
The short answer is when you need flexible finance, and you need it fast. Lending decisions can be made within hours of an initial enquiry and funds released in a matter of days, depending on the lender. While delays to the surveying process have also been experienced by bridging lenders, the overall process is still comparatively much faster. Because it can be arranged relatively quickly compared to mainstream mortgages, bridging is often used by those buying at auction who need finance fast. Once the hammer comes down on the winning bid, the bidder must pay a 10 per cent deposit, followed by the balance of the purchase price within 28 days. This may be too short a timeframe for a standard mortgage but a good broker should be able to arrange bridging finance during this time. With bridging finance in place, you can fund all or part of the required works before refinancing onto a mainstream residential mortgage (if you plan to live in the property) or a buy-to-let if you are renting it out, or sell the property and repay the bridging loan.
Where is it used?
Bridging is often used by those purchasing a residential property who have not yet sold their existing home – perhaps they have a buyer but it is taking too long to get the deal agreed in time or they have yet to find a purchaser. It ensures the borrower does not miss out on the property they are buying, while the bridging loan is repaid once they sell their existing home.
Investors often use bridging finance when the property does not fit the requirements of a standard mortgage. It might not be mortgageable if it lacks a kitchen and/or bathrooms, for example, and need a lot of refurbishment work doing before a standard lender will finance it. The bridging loan enables the investor to purchase the property, do the necessary works and then either remortgage onto a standard mortgage and repay the bridging finance, or to sell the property.
Bridging loans are available to individuals, sole traders or via limited companies on a residential or commercial basis. There is also a growing number of regulated bridging loans, which come under the Financial Conduct Authority’s remit and are suitable for those who plan to live in the property. Bridging loans used by investors tend to be unregulated.
How AWS can advise
Bridging finance is cheaper than in the past but can still work out more expensive than a mainstream mortgage because you are paying for speed and flexibility. It is therefore very important to seek specialist advice from a broker such as AWS, which has plenty of experience in arranging bridging finance. We have good relationships with specialist
bridging lenders so can ensure you get the right funding for your circumstances, without paying more than you need to. Please get in touch for more information.