How To Get A Bridging Loan In Scotland
Peak Scottish house prices reported by the Your Move house price index in November 2018 put house price growth in England, Wales & Northern Ireland into the shade. For homebuyers and investors looking for property opportunities it may be possible to drive a harder bargain in 2019. But being able to act quickly when an opportunity comes up is often essential to closing a property deal in this kind of market.
Whether you're looking to buy Scottish property for commercial or residential purposes, having fast finance in place will save you losing an opportunity to another buyer.
Mortgages from traditional lenders
The first port of call for many lenders is often to a high street bank or building society where they have history of having arranged a mortgage or an unsecured loan. But it's very possible that trying to arrange a mortgage with a traditional lender is not the most suitable finance for your situation.
Firstly, traditional lenders assessing mortgage viability will ask for a lot of detailed information to establish whether they are happy to lend in principle.
If you intend to buy a property for investment, such as a buy to let, traditional lenders will require full sight of your property portfolio and details of your personal income to ensure that you have the knowledge and experience to take on a commercial property venture, and that you can afford to do so.
Depending on the lender this assessment process can take many weeks - and time may not be on your side.
Secondly, traditional lenders may be unable, or reluctant, to provide finance for certain types of property. For example, high street lenders will not grant a mortgage to buy an "unmortgageable" property.
A property is classified as unmortgageable by a bank if its value is under £50,000, it has structural issues, or does not have a bathroom or kitchen, or is defined as derelict.
For the adventurous Scottish investor with experience of extensive building works, who's looking to renovate-to-rent, or renovate-to-sell, these are the very properties which offer excellent margins for profit. So you will need an alternative type of property finance.
Bridge finance for property purchases
A bridging loan is effectively mortgage finance for the short term: usually a maximum of 12 months for a residential property, and up to 18 months, or possibly longer, for investment property. It's used to "bridge" the gap until long-term finance (a mortgage) can be arranged, or property is sold.
It gives access to similar amounts of finance as a mortgage, but the borrowing costs are structured for the short term. Interest is quoted as a monthly rather than an annual figure, because it's likely that the borrowing will be repaid in less than a year. And after the first minimum loan period (usually a month) it is charged daily, so a bridge loan repaid in a month and a half will have interest charged for one month and 14 days - not two complete months.
Every bridging loan is required to have a clearly defined and agreed exit plan: the means by which the borrower will be able to repay the finance within the loan period. The exit may be refinancing with a mortgage, proceeds from the sale of another property the borrower owns, or the sale this property.
Advantages of using a bridging loan
- Bridge finance can typically be arranged much more quickly than a mortgage - within days or weeks, rather than months.
- Bridging loans are secured against property value (hence they're not available to first-time property buyers). The focus on property value rather than income or credit record an make finance available to borrowers with a chequered credit history or lower earned income.
- For regulated bridging loans, secured against the value of a personal home, interest will be "rolled up" into the total amount of the loan, to be repaid by the exit strategy at the end. This is to relieve financial pressure on homeowners already paying for a personal mortgage. The same option in available to non-regulated investor borrowers, to reduce the pressure on cash flow over the course of the project.
- Terms can be agreed to suit your circumstances and projections. An experienced mortgage broker will advise that it's prudent to arrrange your loan period for the longest-available terms, to allow for unexpected delays, but it's possible to access bridge lending with no early-repayment penalities if you are ready to exit sooner.
- It's possible to secure high loan-to-value (LTV) financing with a bridge loan. Many lenders are willing to offer 75% LTV terms, with some lenders willing to offer up to 80% LTV with additional security. The ability to source such a significant percentage of the finance needed gives borrowers effective leverage buying property in Scotland.
What can a bridging loan be used for?
The flexibility of bridge finance is one of its great advantages to borrowers. The specialist, off-the-high-street lenders who offer it frequently specialise in different areas of lending, and are able to take a more bespoke, nuanced view of borrowers' needs and circumstances.
Buying Scottish residential property
The previous image of bridging loans as a very niche, largely inaccessible form of finance suitable only for professional developers and investors no longer reflects the current property finance market.
If you're wanting to buy a property for your personal residential use, a bridging loan can be a fast and very effective way of securing the property you want, at a cost which - within the overall picture of property finance - is less expensive than you may have anticipated. And it will save you valuable time, which could be critical to your purchase.
- Residential purchasers looking to move to Scotland from overseas, or different parts of the UK, will be under additional pressure to progress a purchase within a short time-frame. Bridge finance can enable you to buy before you've sold a property elsewhere, taking the additional stress out of the process.
- Unique, historic or bargain-priced repossesed properties that you want to invest time and care in as a dream-home renovation project often only come up for sale by auction. Unless you are a cash buyer with appropriately deep pockets, bridge finance will be your only finance option to complete a sale within the required 28 days.
- If you're wanting to downsize and your existing property has not yet sold, the great advantage of the excess equity you have is that it can buy you a comparatively painless transition. You can arrange a seamless one-move, or delay moving into your new home until renovations are completed, or take your time to allow your old home to achieve its market value.
Buying property for investment or commercial use
If you're looking to buy a commercial property such as a shop or restaurant, using a bridging loan may be your best option. Unlike traditional lenders, who require a lot of documentary evidence to approve a loan for a commercial property, bridging loan lenders will be focused on your ability to repay. What is chiefly required is a robust exit plan.
Conventionally, finding purchase finance for a mixed-use property, such as a shop or pub with a flat upstairs, can be a struggle. A well-connected mortgage broker can find you bridge finance to achieve the purchase, and identify the practicable exit with you.
How much can I borrow with a bridging loan?
For a quick calculation of how much you could you could access with a bridging loan, use our bridging loan calculator:
How to get a bridging loan
If you want to buy property in Scotland, we can help. Clifton Private Finance has a wealth of experience in providing bridging finance for properties across Scotland, including Glasgow, Edinburgh, Fife, Dundee and Aberdeen.
Our strength as a specialist property finance broker is our extensive network of lenders that we work with on a daily basis to secure the best financial solutions for our clients.
To discuss your purchasing options using bridging finance refurbishment bridge loan options, call our team to arrange a convenient time for you:
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Rates from: Downsizing/Upsizing Releasing Funds From Your Home Short Term Lease Finance Auction Purchase As at September 2020 Rates from: Ground Up Development Light & Heavy Refurb Finance For Unmortgageable Properties Land Purchase As at September 2020 Rates from: Up to 80% LTV Minimum Loan £500k Minimum Income £100k Serviced monthly interest required As at September 2020
Buying Before Selling?
Development & Refurb
Large Bridging Loans
Releasing Funds From Your Home
Short Term Lease Finance
As at September 2020
Ground Up Development
Light & Heavy Refurb
Finance For Unmortgageable Properties
As at September 2020
Up to 80% LTV
Minimum Loan £500k
Minimum Income £100k
Serviced monthly interest required
As at September 2020