100% bridging loans: How to get one
If you need a short-term property loan but don’t have cash to use as a deposit, you might be able to get a 100% bridging loan. Here’s how.
Bridging loans are a type of short-term finance designed to bridge a funding gap, such as when you need to pay for something but you’re still waiting to receive the money you planned to use to purchase it.
Bridging loans are secured on property and you can usually only borrow up to 75% of the property’s value (known as the loan-to-value or LTV) to minimise the risk to the lender. But if you need to borrow more, it is possible in certain circumstances.
Bridging loans can be used to raise money for almost any purpose, but they are particularly useful for buying an unmortgageable property to renovate, buying a new home before you’ve sold your old one if a property chain breaks down, buying at auction and buying land without planning permission.
These interest-only loans can be taken out for as little as one month or for up to two or three years, and the interest can be “rolled up” so you pay it all off at the end along with the capital rather than making interest payments each month. They are a relatively expensive way to borrow though, so the shorter the term you can take them out for the better.
Is it possible to get a 100% bridging loan?
Although 100% bridging loans (where you borrow 100% of the value of the main property you are using as security for the loan) are harder to come by, they are available.
When you are taking out any kind of bridging loan, it’s a good idea to speak to a specialist bridging finance broker to find the best deal for your circumstances and to get help with the application process. This is even more important if you need a 100% loan.
You might need to borrow 100% of the property’s value if you are buying it but don’t have the cash available to pay for the remaining 25% or if you need to raise funds for something else but borrowing 75% of the property you are putting up as security (which could be one you already own) doesn’t give you enough.
How can you get a 100% bridging loan?
There are two ways you can get a 100% bridging loan. The first is to provide additional security for the loan. For example, you may want to buy a property for £200,000 but you are only able to borrow £150,000 at 75% LTV. You could raise the remaining £50,000 by using another property you already own, such as your home, as security.
This is possible even if there is already a mortgage or other loan secured on the additional property, but the maximum amount you would be able to borrow would depend on the value of this property and the amount of the loan already secured on it. The lower the LTV overall, the lower the interest rate you’ll pay.
When doing this, you will need to pay extra fees since each property being used as security will need a valuation and legal costs will be more.
Bear in mind that you will be at risk of losing both these properties if you can’t pay the loan back since the lender will repossess and sell them to get its money back. This could be particularly problematic if one of the properties were your home.
The other situation in which you might be granted a 100% loan is if you are buying a property for less than its market value.
This might be because you’re buying from a family member or friend at a discount, you’re buying the property at a reduced price as a way of paying off a debt you are owed, you’re buying a property with tenants living in it or you’ve come to an arrangement with the seller for some other reason such as they need a quick sale. You may also have secured a property at auction for less than its valuation.
In this case, the lender will base the amount of the loan on the open market value of the property rather than on the amount you’re buying it for, making it possible to borrow 100% of the purchase price.
You can increase your chances of being approved for a 100% loan and getting it at the best interest rate possible by meeting certain criteria.
These criteria include having a viable exit strategy (how you intend to pay off the loan), having a good credit history and having experience in property. It will also be easier to get a 100% bridging loan if the primary property being used as security will likely sell quickly at a high enough price. Lenders normally focus mostly on your exit strategy though.
Other options if you can’t get a 100% bridging loan
If you’re not able to secure a 100% loan, you may still be able to borrow 85-90% of LTV or more. The methods and criteria mentioned above still apply. Compare bridging loans with a lower LTV.
Pros and cons of 100% bridging loans
The benefits of 100% bridging loans are that you won’t need cash to use as a deposit or to make up the shortfall if borrowing 75% LTV isn’t enough. However, you’ll either need more than one property to use as security or be able to secure a deal on the property for less than the market value to get one.
If you’re using more than one property as security, you’re at risk of losing both of these if you can’t pay back the loan.
There are also fewer lenders willing to grant 100% bridging loans, so you may need to shop around more to get one.
It is possible to get 100% bridging loans but speak to a specialist broker and make sure your exit strategy is likely to be successful before taking one out.
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