Moving house can be a stressful time, particularly if you are trying to sell your current property to coincide with the purchase of your new home.
If you’ve found your dream property you will want to be able to quickly make an offer, but without a buyer for your own property there’s a good chance that your offer won’t be accepted.
Arranging a mortgage for your purchase can also take several months, by which time you may have lost out to a cash buyer.
This is where a bridging loan can be the answer to your problems, effectively turning you into a cash buyer and enabling you to purchase your new property before you sell your current home.
As a cash buyer with funds in place you can purchase your chosen home before anyone can gazump you.
You can take your time selling your current property and not rush the process in order to achieve the best possible sale price.
You may be able to negotiate a really good deal on your new property if you can complete the purchase quickly and/or perfectly accommodate the sellers ideal completion date.
If the property you are buying needs restoration, conversion or some improvements that you have, or would like, to carry out, you can do this before you move in.
If you don’t want to move twice, taking out bridging finance means you don't have to sell your current property and move into rented or other temporary accommodation whilst the work is carried out. Instead, you can stay where you are until your new property is ready and move just the once.
You can move into your new home and then carry out repairs to your old home in order to enhance its value before sale.
Bridging loans make it possible to borrow money on a short-term basis by securing it against the equity in a property. The first property to be used as security is usually the one being sold. However, bridging loans can be secured against more than one property, and are often secured against the property being sold, together with the one being purchased. Other properties including holiday homes and buy to lets, can also be used as security.
A bridging loan can be secured by a first charge or second charge, in the same way as a mortgage. A first charge happens when there is no existing mortgage on the property, or when the bridging loan is being used to clear the existing mortgage, in addition to providing additional funds for the new purchase. If there is an existing mortgage this is usually left in place and the bridging loan is secured as a second charge.
How much you can borrow depends on the loan to value ratio (LTV), meaning you can borrow up to a certain percentage of what a property is worth (or more than one property if applicable). The percentage LTV that we can go to depends on a few factors.
Regulated bridging loans secured against houses, bungalows, apartments and flats tend to lend up to a maximum of 75% gross LTV. The higher the loan to value, the greater the deemed risk and therefore the higher the interest rate. The best interest rates are available up to 50% LTV.
It may be that using just the property being sold exceeds 75% LTV for the required sum, in which case we can add in the property being purchased, or another property that you may already own. This will reduce the LTV, meaning that you can borrow more if needed and by reducing the LTV, this enables us to place the loan on a plan with a lower interest rate.
To keep the figures simple, securing a £100,000 gross bridging loan against a property worth £200,000 would be 50% LTV, assuming the property doesn't have any borrowing secured against it already.
If the same property already had a mortgage of £40,000 then the LTV would be 70%.
£40,000 mortgage plus £100,000 bridging loan = £140,000 total borrowing. Open market value is £200,000
Therefore £140,000 / £200,000 x 100 = 70%
Using our simple maximum bridging loan calculator, you can see at a glance how much you could raise, based on the value of both the property you are selling and the property you are buying.
You will need to enter:
When working out how much you need to borrow you need to consider the purchase price of your new property, the stamp duty due, legal fees, and any funds you will require for moving and home improvements.
You will also need to look at the value of your current property, and what you think it will realistically sell for. You’ll then need to deduct any mortgage from this figure along with estate agent and solicitor fees.
This will tell you the amount of money that you will have left from the proceeds of selling your current property. This, along with any potential re-mortgage facility, or other arrangements you have, which will need to be enough to repay the bridging loan.
We are always on hand to talk to you about this in more details and discuss possible options.
Please remember stamp duty or SDLT (Stamp Duty Land Tax). If buying before you sell you will be required to pay the extra stamp duty surcharge for owning an additional property, on completion. This is between 3% and 4% of the purchase price, depending on the location of the property within the UK.
If the bridging loan is regulated, the only acceptable exits are sale of a property or refinancing.
For unregulated loans, the exit can be anything as long as you can demonstrate that the funds will be available to repay the borrowing by or before the end of the term.
AgeDue to the short-term nature of this type of borrowing, some lenders have an age limit whereas others do not.
Affordability & credit scoreMost bridging loans are arranged with the interest added to the facility each month or deferred until such time that the borrowing is repaid in full. As there are no monthly payments to make, affordability does not need to be assessed in the same way as most longer-term finance applications.
We can arrange bridging finance for customers with adverse credit if they intend to repay the borrowing with money they will have readily available later, such as proceeds from selling a property.
Credit history will need to be investigated more if you intend to refinance your bridging loan, as the lender will need to be satisfied that you will be able to meet the likely lending criteria required to arrange the proposed refinance facility.
Types of securityWe can secure loans on any type of property or land, often even un-mortgageable property and ones of non-standard construction.
If you have anything unusual, then please give us a call to discuss.
All the owners of any property used as security need to be included as named borrowers taking out the bridging loan.
Once you have sold your current property, if there is going to be a shortfall between the proceeds of the sale and your bridging loan, you need to consider how you are going to pay this.
For example, you may be planning to port your current mortgage to the new property, in which case it is important that you check with your current provider if this will be possible.
Or you may be planning to take out a new mortgage to cover the shortfall, in which case you need to make sure that you are in a position to get the required mortgage agreed.
If you are over 55 you may want to consider taking out a lifetime mortgage to clear the bridging loan.
If your exit strategy is something like an inheritance, sale of shares or a maturing investment, you may need to have a backup plan in case there is an unexpected problem and your planned exit doesn’t materialise.
Whatever your plans, you need to make sure that you have a good exit strategy in place that will satisfy the lender that you will be able to repay the loan.
When you buy your new property, you will have the normal amount of stamp duty to pay, but because you wouldn’t have sold your current property your new purchase, for stamp duty purposes, will be classed as a second home. Therefore, you will need to pay the extra surcharge amount in order to complete your purchase.
In England and Northern Ireland the stamp duty surcharge is 3%. It is 4% in Scotland and there are different rates applicable in Wales. You will need the money to pay stamp duty, available at the time when you complete your purchase.
For example, if you are purchasing a property for £400,000 in England before you have sold your current property, the stamp duty land tax (STLT), to be paid is £7,500 plus £12,000 (3% surcharge) = £19,500.
See our stamp duty calculator to work out exactly how much stamp duty you would need to pay.
Whilst you will have to pay the stamp duty surcharge to complete your purchase, you can claim this element back, provided you sell your current property within 3 years.
If needed, you can add the cost of the extra stamp duty to your loan, so that you don’t have to find the money for this upfront.
It’s really simple to apply for a bridging loan with us. Just give us a call and we’ll take some basic initial information, typically:
We will then get a facility approved for you and send you detailed terms, with a full explanation of all the costs involved.
We have access to all the best lenders so you can be assured that you will be provided the best rates available to you.
We can also confirm with any estate agent or vendor that you now have funds in place and are effectively a cash buyer, in a position to complete very quickly, which may help you to secure a better deal on your purchase.
Depending on the circumstances and how quickly you need the funds, the process usually takes around 2-3 weeks, but when required, it can also be done in just a few days.
Many brokers will charge you a fee to apply and / or upon the successful completion of your loan. However, unlike most brokers, here at KIS Finance we don’t charge any broker fees for arranging bridging finance.
It will cost you nothing to apply and if your application fits with the lender’s criteria for using a desktop valuation you probably won’t have to pay any valuation fees either. If a full valuation is required, then you will need to pay a fee for this.
You will need to pay some legal fees, but if you prefer you can wait to instruct solicitors until after you have received your formal offer.
Any other fees, such as the lender’s admin fee, the facility fee and the telegraphic transfer fee can be added to the loan facility, meaning that you don’t have to find the funds to pay these upfront.
Lenders will automatically set up the loan for 12 months, especially on a regulated loan.
The minimum term for the loan is one month, meaning that if you clear the loan within the first month you will be charged the full first month’s interest. After this time, you will be charged to the day that the loan is repaid. For example, if you clear the loan after 3 and a half months, you will be charged interest just for those 3 and a half months.
We understand that if this happens, it is the best outcome for you, and also there are other occasions when it makes sense to change your mind about a bridging loan. We do not charge any sort of cancellation fee.
Depending on how far your application has progressed, there may be fees that you have already paid, for example valuation and perhaps some legal fees.
These will only be for valuations and legal fees if they have been instructed. We are unable to refund valuation fees for valuations that have already been carried out, and you would incur costs for any legal work the solicitors have done.
Other costs such as the facility fee (lenders arrangement fee), administration fees and telegraphic transfer fee, will not be charged if the application is cancelled before the loan is drawn down.
Written By Holly AndrewsLast updated: 22 November 2023 | © KIS Bridging Loans 2024