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.
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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.
To know more and speak to one of our Bridging Finance Experts, call us now on 03303 112 646. You can also fill in this short online form to get started. Our team of Bridging Loan Experts will get back to you straight away.