Bridging Loan to Flip a Property | How It Works

Key Takeaways

• Bridging loans are ideal for purchasing unmortgageable properties, or those with high renovation potential.
• They allow you to buy, renovate, and sell a property within 12 months, maximising profit.
• Loans are typically capped at 80% loan-to-value (LTV), including fees and interest.
• Your exit strategy (selling the renovated property) are crucial for successful repayment.
• Bridging Finance is an independent brokerage offering tailored advice and support throughout the process.

Why Use a Bridging Loan for Property Flipping?

In the context of property flipping, bridging loans allow you to purchase homes that are unmortgageable or undervalued, complete renovations, and sell for a profit—all within a tight timeline.

Purchase Unmortgageable Properties

Bridging loans enable you to purchase properties that conventional mortgage lenders deem too risky. This includes homes lacking essentials like a functioning kitchen or bathroom.

Fund Renovations

Most bridging loans can cover not just the purchase price but also renovation costs. This comprehensive funding ensures you can transform the property without delays caused by cash flow shortages.

Quick Property Transactions

Speed is often a decisive factor in the property market. Bridging loans can be approved within days, allowing you to move quickly on lucrative opportunities, such as auction purchases.

Flexible Repayment Options

Bridging loans are designed with flexibility in mind. Interest is usually rolled up into the loan, meaning no monthly repayments. Instead, you settle the loan in full once the property is sold.

Key Considerations for Property Flipping with Bridging Loans

Loan-to-Value Limits

Bridging loans are capped at 80% loan-to-value (LTV). This includes the gross loan amount, interest, and fees. If you lack additional security, such as another property, you’ll need to fund the remaining 20% from your own resources.

Exit Strategy

Having a clear exit strategy is essential. Common options include selling the renovated property or refinancing onto a standard mortgage. Ensure your projected timelines are realistic to avoid complications.

Renovation Timelines

Most bridging loans have a maximum term of 12 months. This gives you a year to complete renovations and sell the property. If additional time is required, consult your broker to explore options for extending the loan or refinancing.

Use our bridging loan calculator to get an idea of whether you’ll be eligible and what the costs will be (costs will eat into your profit margin):

How Does a Bridging Loan Work?

1. Application Process: Start by consulting a bridging finance broker. They’ll guide you through eligibility requirements and help secure a decision in principle quickly.
2. Property Valuation: A professional valuation determines the loan-to-value ratio, finalising how much you can borrow.
3. Funds Release: Once approved, funds can be available in as little as 72 hours, depending on the complexity of the deal.
4. Project Execution: Use the loan to purchase the property and fund renovations.
5. Loan Repayment: Repay the loan in full upon selling the property or securing long-term financing.

Costs Associated with Bridging Loans

1. Interest Rates: Typically range between 0.68% and 1% of the gross loan value per month. Interest is often rolled into the loan amount.
2. Facility Fees: Usually 1.5-2% of the loan value, paid upfront.
3. Valuation Fees: Depending on the property, these can range from £950 for smaller properties to more for high-value homes.
4. Legal Fees: Cover both the lender’s and your solicitor’s fees. Joint representation can reduce costs and streamline the process.
5. Exit Fees: While rare, some lenders charge a fee for early repayment. Bridging Finance typically avoids recommending such lenders.

Practical Tips for Property Flipping Success

Calculate Your Profit Margins

Before committing to a project, estimate your renovation costs, selling price, and loan expenses. Ensure the profit margin justifies the investment.

Choose the Right Property

Focus on properties with clear value-add potential. Look for homes in desirable areas or those requiring straightforward cosmetic improvements.

Work with Experts

Partner with reputable brokers, contractors, and valuers. A strong team can significantly improve project efficiency and profitability.

Why Choose Bridging Finance?

Bridging Finance offers personalised advice and support to ensure your property flipping project is a success. As an independent brokerage, we help you navigate the complexities of bridging loans, secure competitive rates, and manage the process seamlessly.