Bridging Finance for Residential Purchase

The benefits of using bridging finance, particularly in the context of a "Let to Buy" scenario where traditional mortgage financing is unavailable due to complex income issues. It emphasizes the importance of having a clear exit strategy and discusses key considerations such as cost, repayment options, and potential uses for bridging finance.

3/6/20242 min read

a bridge over a pond with rocks and trees
a bridge over a pond with rocks and trees

For this study we are looking at the benefits of bridging finance for a client looking to Purchase a new residential property by using a “Let to Buy” mortgage to raise funds for the deposit.

In this instance, the client was in the process of a standard Let to Buy re-mortgage (a let to buy re-mortgage is when a client wants to retain their existing residential property and let it out, max 75% loan to value) but due to their complex income the underwriters wanted to see more payments from their current contract which had just started.

The client was purchasing their new residential with a mortgage which had already offered and was now in a position where they would not be able to secure the finance, they needed using traditional means in time to meet the stamp duty deadline. This is where we were able to suggest regulated bridging finance to raise the deposit funds and be able to facilitate the purchase.

Contact us today to discuss Bridging Loans and how we can assist you.

With bridging finance there are a few important factors that need to be considered;

  • You must always have an exit for your client before taking out the bridge – the lender will need to know what this and will require proof if the exit is a refinance by way of a decision in principle.

  • Bridging finance is more expensive than a standard mortgage and should only ever be recommend as a short-term solution.

  • The financing options are either for Serviced or Retained. “Serviced” is where a client makes a monthly payment like a standard mortgage and the client’s income will then need to be evidence to show it is affordable. “Retained” is where the interest is deducted from the loan at the outset, usually with a minimum of 12 months deducted.

  • The client will have to pay valuation fees at the outset.

  • Arrangement fees and cost of the lender’s solicitors will also be deducted from the loan at the outset.

  • This will then give you a gross loan amount and a net release to the customer on completion.

With this customer, they already have the exit planned and just need to ‘Bridge’ the gap between the purchase and the let to buy refinance. Though 12 months interest will be deducted from the beginning, the client will only ever pay for the period they use, so if they refinance after 2 months, they will only pay for those 2 months of interest when they exit the bridge.

There is typically a minimum period of 1 month before the client can exit the bridge but normally no exit fees, standard arrangement fees are 2% of the gross loan.

The other uses for bridging finance are if a property is non-mortgageable and needs refurbishment, change of use, an auction purchase or if a client needs to raise funds quickly.

If you have any questions about Commercial Finance, contact us today to speak with our CeMAP certified Mortgage Advisors at 0113 8730 740. Alternatively, complete this short online form for a callback.