Buying A Home In London - How To Use A Bridging Loan To Beat The Competition
Competition for house buying in London is cutthroat - even at prices well above the national average. To give themselves the best chance, homebuyers and investors are making use of bridging loans more than ever before.
Competition in London is fierce for property
London is the planet’s biggest investment market and financial centre. It counts among its population the world’s highest number of ultra-high-net-worth individuals. It is an amazing place to live and work. It also happens, unfortunately, to suffer from a chronic housing shortage.
In London, cash buyers are king – they’re able to take a property for sale off the market within hours – far faster than any other potential purchaser is able to contact a broker to even begin a mortgage application.
For people and families looking to move home in London, a bridging loan gives them the opportunity to purchase a new home quickly, even if they have an existing property they need to sell. Bridging loans also give investors the speed and ability to move quickly to win a deal.
How do bridging loans work? Bridging loans are a type of finance facility designed to cover a gap in time between two transactions happening, for example when you purchase a new property but have not sold your existing one yet.
Let’s look at five of the most common types of situation where Clifton Private Finance assist our clients.
Bridging loans to purchase London property to live in
Rarely do homeowners receive a firm offer on the property they’re selling at the exact same time as they discover the ideal property they want to move into next.
This creates a situation where a homeowner may not be able to provide proof of funds for the property they really want to purchase to a vendor’s estate agent or solicitor. So, the property will stay on the market and, given how quickly London property sells, someone else may purchase it while they’re waiting for a firm offer on their existing home.
We helped one client with a fast bridging loan in London. He owned a property worth £645,000 and wanted to move to a home worth £885,000. The problem was that his current house was still on the market. We arranged a bridging loan for the client which used his existing and desired property as security - this allowed him to buy the home he really wanted whilst giving him time to sell his old place.
Bridging finance for use at property auctions
Many buyers and developers prefer to secure the best deal on London property by using auction services provided by local estate agents. Mortgages generally take a few weeks to complete and, therefore, they are not suitable for use at auctions which require a down-payment of 10% of the property’s price at the time of bidding with the 90% balance paid in full within 28 days.
Traditionally, only cash buyers have the readily available funds to meet these payment deadlines. However, auction bridging loans are available to level the playing field. Buyers and investors can secure an “in principle” approval to take out an auction bridging loan prior to an auction taking place or shortly thereafter.
Let’s say that you want to purchase a property at an auction. To do this, you have put another property of yours up for sale which, when sold, will provide the capital you need to bid at the auction. However, the property you have on the market hasn’t found a buyer yet.
Auction bridging loans use the existing equity in your property as security. This means that you can purchase your new home or investment at an auction and still have time to sell your property at or close to the price you wish to receive for it.
Bridging loans in London to break mortgage chains
If there are multiple people in a mortgage chain, the chances of a deal falling through or deadlines not being met increases. Being stuck in a mortgage chain is incredibly frustrating for all involved and there are really only three ways to break a property chain – to sell before you buy, to not sell and use equity in your existing property to use as a deposit on your new London property, or to get bridging finance.
How would this work? Let’s say your current London property is worth £750,000 and you owe £200,000 on the mortgage. You want to move into a home that’s worth £1,000,000 but your mortgage provider will only provide you with funding on the successful sale of your current property.
A bridging loan can be used to complete your £1,000,000 purchase. Once your existing home has been sold and the old mortgage has been settled, the bridging loan can be repaid using funds from the mortgage on your new property.
Bridging loan for extending a short-term lease in London
In central London, many homes are still sold leasehold rather than freehold. The leasehold on a property lasts for a defined length of time. The owner of a leasehold property must make payments to the freeholder regularly in order to continue to “rent” the land on which their leasehold property sits (houses) or in which it is located (flats).
Once a lease has less than 80 years left, many lenders are reluctant to provide buyers with the finance required to purchase. A lease extension bridging loan may be used in these circumstances. This allows you to buy the property and pay the freeholder the amount they require to extend the lease left to a period that a standard mortgage lender would feel comfortable lending on.
Developers often use lease extension bridging loans to buy a property with a short leasehold remaining. That’s because, once the leasehold extension has been agreed with a freeholder and paid for, the property is often worth more than the total of the amount used to purchase the property initially and the price paid to extend the lease.
Bridging loans to purchase London investment property
Clifton Private Finance has worked with many investors using a bridging loan to purchase and renovate buy to let property. One client, an Iranian UK passport holder residing in Dubai, wanted to purchase a new buy to let property in London while, at the same time, renovating another of his London buy to let properties.
Our client had placed his Bristol-based residential property on the market to fund this. However, before he could find a buyer, he saw the buy to let home he wished to purchase in London and wanted to move quickly to stop others from purchasing the property before him. He approached his bank for help but they were not willing to do so because he was based in Dubai and his salary was paid in a foreign currency.
We secured a bespoke bridging loan for our client which was secured against his existing Bristol property. Using this money, he purchased the new buy to let property and set about refurbishing his existing one. The bridging loan was settled on the completion of the sale of his Bristol property.
We arranged a bridging loan for flats in London for another client, again nervous that, did he not act quickly, that the opportunity he was interested in pursuing would be taken away from him.
This developer wished to buy a site in London with the intention of turning the property into four separate apartments. Using the property as security, we arranged a £1.75m bridging loan over 18 months which allowed him to purchase the property, develop it, and then sell the completed flats.
London bridging loan service
Bridging loans can also be taken out by clients to downsize, develop and refurbish, and purchase an overseas property in addition to the uses we’ve looked at in this article so far.
Clifton Private Finance can arrange bridging loans for London clients in as little as 5-7 days (sometimes even quicker), for terms of 3-36 months, and for amounts ranging from £50,000 to £25,000,000.
You will need a deposit of 20% on your purchase or your project however, depending on the value and type of other assets you own (including pension funds, investment portfolios, fine art, and classic cars), we can work with you to find a lender prepared to provide you with finance with a lower cash deposit (occasionally no deposit).
We’re very experienced in securing bridging loans for London clients on primary residence properties or on investment properties (including buy to let, HMOs, and conversion of commercial property to residential).
Who does Clifton Private Finance work with on bridging loans?
Clifton Private Finance arranges bridging finance from residential property purchases in London through specialist lenders as well as high street banks, including Lloyds, Barclays, HSBC, and NatWest.
We also have access to an extensive network of private banks and wealth managers with whom we have arranged many business mortgages and commercial investment mortgages in the past.