Key Takeaways
- Bridging loans offer quick, short-term funding to help property buyers in London secure their dream home or investment property without waiting for other funds to come through.
- Eligibility for a bridging loan is based on your loan-to-value ratio (LTV), not your income or credit score.
- Bridging Finance is a fee-free, independent brokerage that helps navigate the complex London property market with expert advice and support.
- Costs include interest (typically 0.68-1% per month), facility fees (1.5-2%), and property valuation fees, but interest is rolled up into the loan and repaid in one lump sum at the end.
- Bridging loans can be used for buying before selling, auction purchases, property flips, refurbishments, and more.
How Bridging Loans Work in London
The process of securing a bridging loan in London typically starts by choosing the right broker who can navigate the complexities of the market. Here’s how it works:
- Research and Eligibility Check
Start by assessing whether a bridging loan is right for your needs. Use a bridging loan calculator to check your loan-to-value (LTV) ratio and see how much you could borrow. It’s essential to understand that your eligibility is based on your LTV, not your income or credit score. - Consult a Bridging Finance Broker
Although you can go directly to a lender, it’s advisable to work with an independent bridging finance broker. Brokers are experienced in navigating the London property market, understand the range of options available, and can ensure you get the best deal. They also provide valuable support throughout the process, handling the paperwork and liaising with lenders, valuers, and solicitors. - Get a Quote
After speaking to a broker, you’ll receive a free quote that outlines the loan’s costs, terms, and repayment schedule. Crucially, no credit check is required at this stage. - Decision in Principle
If everything looks good, your broker can secure a decision in principle, often within 24 to 48 hours. This makes you an attractive buyer when negotiating with estate agents and sellers. - Property Valuations
The lender will need to carry out property valuations, and these can significantly influence the terms of your loan. The valuation will determine the LTV and ensure the loan amount aligns with the property’s value. - Approval and Fund Release
Once approved, your funds can be released as quickly as 72 hours, allowing you to proceed with your property purchase or investment. Interest will be rolled up and repaid at the end of the loan term, freeing up your cash flow for other needs like moving costs or property refurbishment.
Why Choose Bridging Finance for Your London Property Purchase?
The London property market is fast-paced and highly competitive. Bridging finance provides several key benefits that make it an attractive option for property buyers:
Speed and Flexibility
Bridging loans are typically processed much faster than traditional mortgages. In London, where property transactions can happen quickly, bridging finance gives you the flexibility to secure a property before other buyers.
Avoid Property Chains
Bridging loans are invaluable for avoiding property chains. If you’re in a chain, delays in the sale of your property can cause you to miss out on your next home. By using bridging finance, you can purchase the new property outright, making you a more attractive buyer to sellers.
Opportunity to Buy Before Selling
If you find your ideal property but haven’t sold your current home yet, a bridging loan allows you to buy first and sell later. This is especially useful in a market like London, where desirable properties can be snapped up quickly.
Customised Financing Options
Since bridging finance is flexible, it can be tailored to your specific needs. Whether you’re purchasing an unmortgageable property, buying at auction, or looking to refurbish a property for sale or rent, a bridging loan can be the perfect solution.
Costs of Bridging Finance
Understanding the costs involved in a bridging loan is essential before committing. Below is an outline of the typical costs involved:
Interest Rates
The interest rates for bridging loans typically range between 0.68% and 1% per month, depending on the loan’s LTV and your lender. The interest is generally rolled up into the total loan amount, so you don’t need to make monthly payments—this can be helpful for cash flow management during the loan term.
Facility Fees
In addition to interest, lenders charge a facility fee, usually between 1.5% and 2% of the loan amount. This fee covers the lender’s administrative costs, and it is added to the overall loan value.
Valuation Fees
To secure your bridging loan, the lender will require a professional property valuation, which can cost approximately £950. For properties above £1 million, a full survey is often necessary.
Legal Fees
You are required to cover the legal fees for both your solicitor and the lender’s solicitor. The average cost for lender’s legal fees on a £250k property can be around £1,000.
Broker Fees
At Bridging Finance, we don’t charge a broker fee for our services. Many brokers charge fees ranging from £495 to £995, but we work on a commission basis paid by the lender, so there are no extra costs for you.
Redemption and Exit Fees
Some lenders charge an exit fee for early repayment of the loan, but at Bridging Finance, we avoid recommending such products because they reduce the flexibility of bridging finance. Redemption fees are also typically small, usually between £100 and £150.
When Can Bridging Finance Be Used?
Bridging loans are highly versatile and can be used in a variety of scenarios. Here are some of the most common use cases:
Buying Before Selling
If you find your perfect property but the sale of your existing home is delayed, a bridging loan can ensure you have the funds to purchase without delay. Once your home sells, the bridging loan is repaid.
Buying at Auction
Auction purchases often require completion within 28 days, and a bridging loan can help you meet this tight deadline. You can then refinance the loan with a traditional mortgage after the purchase is complete.
Property Refurbishments
If you’re buying a property that requires significant renovation, bridging finance can help you fund the purchase and complete the necessary work before refinancing or selling the property for a profit.
Short-Term Investment
For property investors in London, a bridging loan can provide quick access to capital for acquisitions, renovations, and flips. The speed and flexibility of bridging loans make them an essential tool for investors seeking to maximise their returns.
Personal Circumstances
Bridging loans can also be used to cover personal financial needs, such as funding care fees or paying off an interest-only mortgage that is coming to the end of its term.