Bridging loans for house purchase

Bridging loans can sometimes be the only way to fund certain property purchases. Look at these purchase scenarios:

• Auction purchase with only 28 days to complete • Property is not habitable, needs essential repairs, or renovation, or refurbishment • New-build property which is not finished • Property with no planning permission, or building regulation approval • Buying at below market value (BMV)

Auction purchase An auction purchase gives the buyer just 28 days to complete and sometimes this is not long enough for a mortgage lender to release funds and complete the purchase. A bridging loan can complete within days.

Property not habitable or needs renovation If purchasing a property in need of modernisation, or full renovation, a conventional mortgage lender may refuse to lend if their valuer tells them that it’s not in a habitable condition. Alternatively, the valuer may advise the mortgage lender that, although the property is generally suitable for the mortgage, some of the funds should be held back, or retained until certain essential works are completed. This is known as the lender ‘making a retention’ of mortgage funds. To avoid this, a bridging loan can be arranged instead of a mortgage and the property can be remortgaged at a later date.

Unfinished new-build property If a property developer goes bankrupt, a receiver will take possession of all the unfinished properties and try to sell them. Obviously, traditional mortgage lenders will not lend until these properties are finished. A bridging loan can be arranged to purchase a part-built property.

Property with no planning permission, or building regulation approval Some properties have had extensions, garages, loft conversions, or even conservatories added where planning permission was not applied for, or building regulations not obtained. In these circumstances these properties are not mortgageable. However a bridging loan can be a great way to purchase, subsequently applying for retrospective planning consent, before a remortgage.

Below market value (BMV) Mortgage lenders will always use the lower of purchase price or valuation to base their lending upon, which is of no use for someone who wants to buy a property at below its true market value. However, some bridging lenders will happily consider a loan using the higher valuation. They tend to lend at the lower of 75% of market value, or 90% of purchase price, so they still want the borrower to contribute some capital as their commitment to the property.