Regulated Bridging Guide
13 June 2023
Regulated bridging loans are short-term loans, usually used to fund a gap in finances between the sale of your home and the purchase of a new property. These can also be used to purchase properties which are not currently mortgageable with a traditional mortgage. They are called regulated bridges as they fall under the FCA rules which help to protect borrowers.
Regulated bridges can be used for a variety of reasons;
- Quick purchase/Auction purchase
- Self-build
- Chain break
- Downsizing
- Converting an unsuitable property
Most lenders will lend up to 70 or 75%, with a maximum term of 12 months. The interest can be retained, meaning the interest is added to the loan, or serviced, meaning you pay the interest as you go, however, in most cases, this would be retained. Loan sizes start at £50,000 and are unlimited at the upper end, subject to satisfactory valuations.
Interest rates with some lenders are set in advance and with others are price on application. Private banks tend to have more flexibility in their pricing, however, they tend to only look at loans of £1m+. Some may consider from £500k+.
One of the most important aspects of a bridging loan is the exit. Any lender will want to understand how they will be repaid and check the suitability of this repayment vehicle. This can be the sale of a property, a new mortgage to be taken after works have been completed or other capital events but this needs to be clear and agreed upon upfront.
When it comes to solicitors, we would always advise appointing someone who has prior experience in dealing with bridging transactions and understands the speed and complexity of these transactions.
Case Study 1
Our clients approached us as they needed to purchase a property before selling their existing home. This was due to a seller needing to sell quickly and the clients not wanting to miss out on the property. They owned their existing property outright which was valued at £1.5m and were purchasing the new property for £2.2m. We secured the bridge against both properties which meant that we were able to secure the client's £1.8m net (the full purchase price). The clients intended to exit the bridge with the funds from the sale of their existing property.
Case Study 2
An existing client approached us to assist with purchasing the semi-detached cottage attached to their home, owned by an elderly person moving into long-term care. The clients couldn’t borrow on a typical mortgage as they intended to knock through to extend their property. The purchase price was £350,000 and the client required £125,000. The client's exit was via remortgage of a BTL property they owned in London.
Case Study 3
A new client approached us to assist with a bridge against their home, a large, detached house set in 20 acres of land with stables. The clients wanted to use the money to assist with an investment into their business and towards the deposit for a holiday home in Spain. We were able to source a 75% LTV bridge against a value of £2.2m whilst also utilizing an existing valuation report, saving both time and fees. Their exit was a new residential mortgage for the full amount.
Case Study 4
Peritus was approached by a new client to source some short-term finance to purchase a new build family home. The funds were required urgently due to the clients receiving notice to complete on the new home, and a delay in the sale of the client’s current home.
The clients received a large discount on the new build property if they were deemed cash purchasers, and as such the new property could not be used as security. The current property had enough equity in it to purchase the new property outright, but not enough to obtain enough funds from a bridging lender. As such, the client’s parents were happy to use their unencumbered home as additional security.
We successfully completed on the bridge in time, and once the previous property was sold the bridge was repaid.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
