Residential Bridging Loans
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Why Choose Us
Ascot MortgagesA residential bridging loan is an excellent solution for those who need fast, short-term financing, often used to bridge the gap between property purchases or during renovation projects. It offers a flexible way to access funding when traditional mortgages may not be available or practical, particularly when time-sensitive deals are on the table.
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Written by:
Phil Greenwood
Ascot Bridging Expert
Last Updated:
07.10.2024
Written by:
Phil Greenwood
Ascot Bridging Expert
Last Updated:
07.10.2024
What is a Bridging Loan?
A bridging loan is a short-term loan, typically secured against a property, used to provide quick capital for purchases or projects that can’t wait for a traditional mortgage or long-term loan. Residential bridging loans are most commonly used by homeowners, developers, or investors who need to secure funds quickly, whether for buying a property, renovating, or addressing cash flow issues while waiting for long-term finance.
How Do Bridging Loans Work?
Unlike traditional loans where monthly repayments cover both the interest and principal, most residential bridging loans roll the interest into the loan, allowing borrowers to repay the total amount, including interest, at the end of the term. These loans are secured against residential property, and borrowers must present a clear exit strategy—how they plan to repay the loan, usually through the sale of property or refinancing.
Key features of a bridging loan include:
- Quick access to funds: Usually within a few days or weeks.
- Flexible repayment terms: Generally between 3-24 months.
- Higher interest rates: To reflect the short-term nature and associated risks.
How Much Does a Bridging Loan Cost?
The cost of a residential bridge loan can vary significantly depending on the lender, loan amount, and loan-to-value (LTV) ratio. Interest rates typically range from 0.55% to 1.5% per month, with additional costs such as:
- Arrangement fees: Usually around 1-2% of the loan amount.
- Exit fees: Sometimes charged when the loan is repaid, around 1-1.5%.
- Valuation and legal fees: To cover the cost of valuing the property and drawing up legal documents.
| Loan Amount | Interest Rate (per month) | Arrangement Fee | Exit Fee |
| £500,000 | 0.55% – 1.5% | 1-2% | 1-1.5% |
What Can I Use a Bridge Loan For?
Bridging loans for residential property are highly versatile and can be used in various situations:
Buying Property at Auction
Auction purchases often need to be completed within 28 days, which is too fast for most traditional mortgages. A residential bridging loan allows you to secure the property quickly.
Renovation
If you’re buying a property that needs significant work, it might be considered “unmortgageable” by traditional lenders. A residential bridge loan can cover the purchase and renovation costs until you can refinance.
Purchasing Land
Some use bridging loans to purchase land for development. After the build is complete, you can either sell the property or secure a long-term mortgage.
Fixing a Broken Property Chain
If you’re stuck in a property chain and risk losing your dream home, a bridging loan can secure the purchase until your current home sells.
Bridging Loan Criteria
Lenders will typically assess the following criteria before offering residential bridging finance:
- Property value: The loan amount is usually capped at 75-80% of the property’s value.
- Exit strategy: You must have a clear plan to repay the loan, often through property sales or long-term refinancing.
- Credit history: Although less important than with traditional mortgages, lenders will still consider your credit score to assess risk.
How Much Can I Borrow with a Bridging Loan?
The amount you can borrow depends on the value of the property being used as security and your loan-to-value (LTV) ratio. Typically, you can borrow up to 75-80% of the property’s value. Some lenders may offer loans as small as £50,000, while others can provide up to several million pounds for large-scale projects.
How Quickly Can I Get a Bridging Loan?
One of the primary benefits of a residential bridging loan is speed. Funds can often be arranged within 1-3 weeks, depending on the lender and the complexity of your case. This makes bridging loans ideal for time-sensitive purchases, such as buying a property at auction or securing a home before your current property is sold.
Conclusion
Residential bridging loans provide a flexible and fast financing option for homeowners and property investors. Whether you’re fixing a broken property chain, buying at auction, or carrying out renovations, bridging finance can help you secure your project quickly. However, it’s crucial to have a clear exit strategy to ensure you can repay the loan on time. Consulting a mortgage broker who specialises in bridging loans for residential property is highly recommended to secure the best deal.
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FAQ
01/ Can I apply for a residential bridging loan if I already have a mortgage on another property?
Yes, having an existing mortgage on another property does not prevent you from applying for a residential bridging loan with Ascot Mortgages. Each application is assessed on an individual basis, focusing on the viability of the proposed project and your ability to meet the repayment terms.
02/ Are there any restrictions on how I can use the funds from a residential bridging loan?
Residential bridging loans are versatile, but they are primarily intended for short-term financing needs related to residential property, such as purchasing a new home before selling the current one, completing renovations, or resolving short-term cash flow issues. It is important to discuss your intended use of the funds with Ascot Mortgages to ensure it aligns with the loan’s purpose and complies with relevant UK regulations.
03/ What happens if I cannot repay the residential bridging loan on time?
If you find yourself unable to repay the residential bridging loan within the agreed term, it is imperative that you contact Ascot Mortgages as soon as possible. We are dedicated to working with our clients to find suitable solutions, which could include restructuring the loan or exploring alternative financing options, in line with UK lending standards and regulations.
04/ Can I extend the term of my residential bridging loan if needed?
It may be possible to extend the term of your residential bridging loan, subject to an assessment of your specific circumstances and the rationale behind the extension request. Each request for an extension is considered on a case-by-case basis by Ascot Mortgages, ensuring compliance with UK lending guidelines and your ability to meet the revised repayment terms.
05/ Will I need a solicitor to obtain a residential bridging loan?
Yes, engaging a solicitor is necessary when obtaining a residential bridging loan, as there are several legal aspects involved, such as property conveyancing and securing the loan against the property. A solicitor will manage the legal process, ensuring all requirements under UK law are met and the interests of both parties are safeguarded.
06/ Can I use a residential bridging loan for buy-to-let properties?
Absolutely, residential bridging loans can be used for buy-to-let properties. Whether you are purchasing, renovating, or refinancing a buy-to-let property, Ascot Mortgages can provide a tailored bridging loan solution that meets your specific needs and complies with UK property finance regulations.
07/ Are residential bridging loans regulated in the UK?
Yes, residential bridging loans are regulated in the UK when the loan is secured against a property that the borrower or their immediate family will occupy. The Financial Conduct Authority (FCA) regulates these loans to ensure that lending practices are fair, transparent, and in the best interest of the consumer. Ascot Mortgages adheres to all FCA guidelines and regulations to provide you with a secure and reliable lending service. For any further enquiries or personalised advice, our dedicated team at Ascot Mortgages is here to assist you and guide you through the application process.
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Legal
Ascot Mortgages authorised and regulated by the Financial Conduct Authority and can be found on the FCA register (www.fca.org.uk) under reference 776062. The FCA do not regulate some forms of mortgages. The guidance and advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK. There may be a fee for mortgage advice. The precise amount will depend upon your circumstances but we estimate it will be £599 per mortgage account. Ascot Mortgages Ltd give you the option to pay a non-refundable fee of £1299 payable with the application. If this option is taken, Ascot Mortgages Ltd will refund any procuration fee received by the lender.
Ascot Mortgages Limited is registered in England and Wales and have their registered office at 8 Webster Court, Westbrook, Warrington, WA5 8WD. The company’s registration number is 06764971.
We are a credit broker, not a lender. We work with the whole of the lending market. We may receive commissions that will vary depending on the lender, product, or other permissible factors. The nature any commissions model will be confirmed to you before you proceed.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY DEBT SECURED ON IT
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