The Client
This case looks at the benefits of bridging finance for a client purchasing a new residential property, using a let-to-buy mortgage to raise the deposit funds.
The client was already in the process of a standard let-to-buy remortgage – where a client retains their existing residential property and lets it out, typically up to 75% loan-to-value. However, because of their complex income, the underwriters wanted to see more payments from their current contract, which had only just started.
The Scenario
The client was purchasing their new residential property with a mortgage that had already been offered, but was now at risk of not being able to secure the deposit funds through 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 and facilitate the purchase.
The Solution
With this client, the exit was already planned – the bridging loan simply needed to bridge the gap between the purchase and the let-to-buy refinance. Although 12 months of interest is deducted from the loan at the outset, the client only ever pays for the period they actually use. If they refinance after two months, for example, they only pay for those two months of interest when they exit the bridge.
There is typically a minimum period of one month before a client can exit a bridge, but normally no exit fees. Standard arrangement fees sit around 2% of the gross loan.
Key Considerations for Bridging Finance
- You must always have a clear exit strategy for the client before taking out a bridge. The lender will need to know what this is and will normally require proof, such as a decision in principle, if the exit is a refinance.
- Bridging finance is more expensive than a standard mortgage and should only ever be recommended as a short-term solution.
- Financing is typically either serviced or retained. Serviced means the client makes a monthly payment as with a standard mortgage, and their income needs to be evidenced as affordable. Retained means the interest is deducted from the loan at the outset, usually with a minimum of 12 months deducted.
- The client will need to pay valuation fees at the outset.
- Arrangement fees and the cost of the lender’s solicitors are also deducted from the loan at the outset.
- Together, these give a gross loan amount and a net release to the client on completion.
Bridging finance also has other common uses, including where a property is non-mortgageable and needs refurbishment, a change of use, an auction purchase, or where a client simply needs to raise funds quickly.
Frequently Asked Questions
Can bridging finance be used to raise a deposit for a residential purchase?
Yes, this is a common use of bridging finance, particularly when timing is tight.
It can bridge the gap between a purchase completing and funds becoming available from a remortgage or other planned source.
What is the difference between serviced and retained interest on a bridging loan?
Serviced means the client pays interest monthly, similar to a standard mortgage, while retained means the interest is deducted from the loan upfront.
With a retained facility, the client generally only pays for the period they actually use, even if more months of interest were deducted at the outset.
Do I need an exit strategy before taking out a bridging loan?
Yes, lenders will always want a clear exit strategy confirmed before agreeing a bridging loan.
Where the exit is a refinance, lenders will typically want proof of this, such as a decision in principle, before proceeding.
What fees are typically involved in a bridging loan?
Standard arrangement fees are typically around 2% of the gross loan, alongside valuation fees and the lender’s solicitor costs.
These are usually deducted from the loan at the outset, with the balance released to the client as the net loan on completion.
Commercial Finance Network is a whole-of-market FCA authorised commercial finance broker working with property investors, developers, and businesses across the UK and internationally. We work across the full specialist bridging panel and will tell you which lenders will engage with your deal, what LTV and rate to expect, and how to structure the application before anything is submitted.
Commercial Finance Network is directly authorised and regulated by the Financial Conduct Authority. Your home may be repossessed if you do not keep up repayments on your mortgage.
Call us on +44 1494 622 111 or email info@cfnuk.com to speak to a specialist directly.
Related Pages
- Bridging Loans – fast, flexible funding secured against property
- Bridging Loan Exit Strategies – how to plan a credible route off a bridging loan
- Bridging Loan Requirements – what lenders actually look for before approving a case
- Bridging Loan Calculator – estimate monthly interest and total borrowing costs