Bridging Loan to Buy a House

A Bridging loan is an quick way to borrow money in the short term. They can be used to ‘bridge the gap’ if you need to buy one property before selling another. Compared to a typical mortgage, bridging loans can be arranged quickly if speed is important.

However, bridging loans are a secured loan, meaning that you have to secure an asset against them (usually a property or properties). As there is a risk of losing your asset.

Ranging from simple to complex scenarios, some examples of bridging finance solutions.

• Property Purchases: They enable buyers to fund the acquisition of a new property before selling an existing one, facilitating smoother transitions between homes.
• Property Development: Bridging finance can be used to finance renovations, refurbishments, or property development projects, providing short-term capital for construction or improvement work.
• Auction Purchases: They are commonly used to secure properties bought at auctions, where immediate payment is required to secure the purchase.
• Chain-Breaking: Bridging loans can prevent property chains from collapsing by providing funds to complete a purchase when delays occur elsewhere in the chain.
• Short-Term Cash Flow Needs: They can address temporary financial gaps or emergencies, providing liquidity until more permanent financing arrangements are in place.

When considering how much you can borrow with a bridging loan, it’s essential to understand that the maximum loan amount is typically determined by the loan-to-value (LTV) ratio. In most cases, lenders cap the maximum loan, including any retained or rolled-up interest, at around 75% of the property’s value.

This means that you can borrow up to 75% of the value of the property being used as security for the loan. It’s worth noting that this limit applies to the total value of the property or properties offered as security, even if you’re using multiple properties to secure the loan.

Therefore, your borrowing capacity with a bridging loan will depend on factors such as the value of the property, your financial situation, and the lender’s specific criteria and risk assessment processes.

Generally, you’ll need a deposit for a bridging loan. The deposit requirement varies but typically ranges from 20% to 40% of the property’s value. Having a deposit reduces the lender’s risk and may improve your loan terms.