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How to Use a Bridging Loan to Buy a House in London
Getting on the property ladder in the capital can be challenging - but did you know you could use a bridging loan to buy a house in London?
Written by: Sam Hodgson
The London property market is notoriously competitive, so when you find the perfect home, you need to move fast.
Bridging loans are a quick funding option that can be arranged within weeks or even days. Unlike standard mortgages, bridging loans are short-term and flexible, allowing buyers to repay the loan once they secure longer-term financing or sell another property. While bridging loans come with certain costs, they do allow buyers to act quickly and avoid missing out on desirable properties.
In this guide, we explain everything you need to know about using a bridging loan to buy a house in London.
Key Takeaways
- Bridging loans can help buyers secure funds quickly in London’s competitive market
- They're typically used to break a mortgage chain, make a property purchase with a quick turnaround, renovate a home or buy a property that isn't eligible for a mortgage
- Bridging loans are short-term, with terms around 12-18 months and can be secured against the property you buy
- Bridging loans are typically repaid in full after term completion rather than monthly, with interest often “rolled up” and paid at the end
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What are Bridging Loans Used For?
How Can You Get a Bridging Loan for London Property?
How Much Do Bridging Loans Cost?
Get a London Bridging Loan Quote
Why Use a Bridging Loan to Buy a House in London?
There are several common reasons you'd use a bridging loan to buy property in London. Generally, these can be broken down into three main categories:
- When you don't have enough time to apply for and secure a mortgage, e.g. when buying at an auction, there is a 28-day limit to complete the purchase.
- If the property is unmortgageable, e.g., it has no working kitchen and bathroom or needs significant renovation work.
- You already have a residential mortgage on a property that you can't (or prefer not to) sell before purchasing your new property, e.g. if you find a perfect house to buy, but your current home is taking a while to sell.
Regulated bridging loans can often be agreed upon within days, meaning you can act fast and then take your time with refinancing later, either by selling another property or getting a standard mortgage.
If you're looking to buy investment property in London, such as a buy to let, it's likely you will need an unregulated bridging loan.
Related: How to find the best bridging loans
How Bridging Loans for Property Work
A bridging loan works like a mortgage but with some key differences:
- Like a mortgage, bridging finance is usually secured on the property you are using to buy; however, a bridging loan can also be secured on an additional property or deposit (for example, the one you're selling), allowing you to borrow more or get a better interest rate.
- A bridging loan can also be arranged much faster than a mortgage: within weeks, or even days.
- You can borrow against an uninhabitable property that mortgage providers won't lend against. Then, you can renovate and refinance once it's ready for a standard mortgage.
The amount you can borrow will depend on the property's value, any renovation costs you may have, and the potential value of the property once improved (where applicable).
Most bridging loans are for a term of 12 to 18 months, so much shorter than a standard mortgage. This is why you need an exit strategy in place.
You don't repay bridging loans monthly as you do with a mortgage. Instead, you repay the balance in full when you have the funds available from your exit strategy (e.g., selling another property or getting a mortgage).
Even the interest you owe can be rolled up and repaid at term as opposed to on a monthly basis.
For a quick quote, try using our bridging loan calculator below:
Fergus Allen
Head of Bridging
Let us do all the hard work of finding the right bridging lender for your circumstances.
We secure bridging finance for applications of all types, and we negotiate competitive lending to meet your needs and timescale.
How to Get a Bridging Loan to Buy a House in London
Bridging finance is usually only offered by private banks and lenders or by dedicated subsidiaries of high street banks. All of these are generally available through specialist finance brokers.
The lending criteria for bridging loans are usually more flexible than mortgages, meaning that issues such as complex income streams, credit score or non-UK residency will not necessarily be an issue as they might be for a high street mortgage.
Related: How to buy an unmortgageable property
See the latest market news below.
2024 Bridging Market Update
The bridging market has had quite a transformation in the past few years. With rates starting at 0.55% per month, the costs aren’t dissimilar from those of a mortgage, and the combination of flexibility, quick turnaround time and less stringent eligibility criteria has led to bridging finance growing in popularity.
It’s now seen as a product in its own right instead of an expensive alternative to long-term finance.
Our finance brokers are seeing more repeat clients, particularly investors who have turned their attention to property flipping considering the slim profit margins the buy to let market has been seeing. HMO conversions have also grown in popularity amid more rigid rental legislation.
According to our team of advisers, a high volume of first-time borrowers already have an understanding of bridging loans before approaching us, showing that bridging is becoming more recognised in the industry.
As bridging finance becomes more mainstream, lenders are reviewing and reducing rates more frequently, offering more flexibility around costs.
The Cost of Bridging Loans for London Property
When you take out a bridging loan, there are three costs you generally need to think about:
- Arrangement fees (typically 1-2% of the capital, paid when your first take out the loan)
- Interest (usually paid monthly or rolled up and paid as a lump sum when your loan is repaid)
- Exit fees (not charged by all lenders, but also generally 1-2% of the capital where they apply)
These costs vary from lender to lender, so it is good to work with a whole of market broker who can find you the best deals from across the market.
Watch our video below for an example of how to fix a broken property chain with a bridging loan:
Related: Our full bridging loan services & guide.
Get a Bridging Loan to Buy a House in London
Are you looking for a bridging loan to buy a London property? At Clifton Private Finance, we have an award-winning bridging team dedicated to getting the best results.
Our team of experienced specialist bridging loan brokers have access to all the leading lenders so that we can offer you the most attractive deals on the market.
We can help you get the best deal available using a wide range of contacts throughout the bridging finance industry. We can also assess your situation and make sure you're getting the right product for you.
You can quickly get the money you need to buy your London property at an affordable rate and with minimal fuss.
Bridging advice gives you peace of mind you're making the right financial decision for your situation.
We can give you a clear idea of your options and guide you through the bridging process, including finding tailored finance solutions.
To see what we can do for you, call us at 0117 959 5094 or book a consultation below.
FAQs
Understanding the difference between net and gross calculations is essential when comparing deals from bridging loan lenders. The calculation determines the maximum LTV (Loan-to-Value), how much you can borrow, and how much you will eventually repay. Here’s the difference: When calculating the net loan amount for bridging loans, the borrower deducts the loan costs and additional fees (such as the arrangement fee) from the total loan amount - this is known as net loan calculation. Contrary to that, gross loan calculation is based on the loan amount the borrower can receive without deducting any costs or fees. In brief, the gross loan calculation represents the total amount available to the borrower, while the net loan represents what the borrower ultimately receives after deductions. A common complication arises when it comes to comparing bridging lenders, as different lenders advertise their bridging loan products differently. The upshot of this, is that it can become difficult to determine if a higher LTV (loan-to-value) represents the actual amount you could receive. Lenders typically use a gross loan calculation when advertising or promoting their bridging loan products. This is because the gross loan amount represents the maximum loan amount the borrower is eligible to receive, and can be used as a marketing tool to attract potential borrowers. Nevertheless, the net loan calculation is used when negotiating an agreement, which is the amount the borrower will receive after deducting fees and other costs. Borrowers are responsible for repaying this amount, and lenders will use that amount to determine repayment schedules and other loan terms. How a broker can help with bridging loan calculations A broker can assist with bridging loan calculations by providing clarity, expertise, negotiation skills, and a comparison of loan options to help you make more informed decisions. A first charge bridging loan refers to a bridging loan that is the only charge against the property, i.e., there is no existing mortgage on that property. A second charge bridging loan is when there is already a mortgage on the property that the bridging loan is being secured against. In the event of repossession, the 'first charge' has the legal right to be repaid first, before the second charge, which is why second charge loans can be slightly more expensive as they're a greater risk to lenders. It is still entirely possible to secure a second-charge bridging loan and they are common within the industry. Yes, you can get a bridging loan with bad credit. While lenders will look at your credit score and factor it into your application, there is no requirement for regular loan servicing with a bridging loan, and so your income is not analysed and your credit score is significantly less important than with a mortgage. Almost all regulated bridging loans are short-term, and have a duration of 12 months. Bridging loans are short-term by nature. However, there can be some flexibility on term length, particularly for unregulated bridging. For example, bridging for development projects, flipping properties, buy to let bridging loans and commercial bridging loans can all have longer terms up to 36 months. Some bridging loan lenders allow you to extend your term if at the end of 12 months your property hasn't sold or your alternative funding hasn't come through yet - however, this is down to the lender's discretion and there are no guarantees. It's important to be aware of the risks of bridging loans, and your property can be seized and sold to compensate for failure to repay. A bridging loan exit strategy is simply the way in which you plan to repay your bridging loan. The most common exit strategies are selling an existing property, selling the property you're purchasing, refinancing with a mortgage, or a combination. Other more unique exit strategies can include selling a business, receiving a pending inheritance, or receiving a large tax rebate. Here are some of the most common alternatives to bridging loans: We break down each of these other financing tools in our full guide to alternatives to bridging loans. While none of these options provide the flexibility, loan size and low interest rates that bridging loans do for property transactions, you may find they are more appropriate finance options for your specific situation. No, there is no strict age limit for securing a bridging loan. Bridging loans are typically 12 months in duration, which means that there aren't age limits in place like there are for mortgages that can last for 25+ years. The main example where age may be an issue is if you plan to refinance your bridging loan with a standard mortgage. In which case, you'll need to be eligible for a standard mortgage to qualify for your bridging loan - and if you are approaching retirement age, this could be an issue and you may be rejected for a bridging loan. However, we work with specialist equity release and lifetime mortgage lenders that can provide a Decision in Principle for later-life lending (if it's feasible) so that your bridging loan can be approved if it makes sense with your broader strategy. There are two types of bridging finance: regulated bridging loans and unregulated bridging loans. It simply depends on the intended use of the property you're purchasing. When you or a family member intend to live in the property you’re purchasing with your bridging loan, you’ll need a regulated bridging loan. If you're getting bridging finance on property that you or a family member will not be living in, or if it’s a commercial property, then you’ll need an unregulated bridging loan (commercial bridge loan). And if you intend to sell the property to repay your bridging loan (flipping the property) instead of refinancing or selling another property, you’ll get an unregulated bridge loan. Regulated bridging loans are authorised and regulated by the FCA and are usually locked to a 12-month maximum term. Unregulated bridging loans, meanwhile, can have extended periods of up to 36 months and are generally more flexible. If you’re unsure, it’s best to speak to a qualified adviser to go over exactly what you need and find the best bridging loan for you. Yes, your bridging loan lender will require a new valuation to be carried out for all properties in your bridging loan transaction. In some cases, we can work with lenders that can facilitate a 'desk valuation', which is a valuation carried out online based on the local property market, images of the property and the specifications of the home - this can save a considerable amount in fees and speed up your application, but it's not always possible, especially for higher value properties. You can borrow up to £25m with bridging finance, but it’s typically capped at about 80% of the value of the property you’re using as security. It's important to note that different lenders have varying policies and criteria regarding the maximum loan amounts they offer for bridging finance. Some lenders have a maximum limit of over £1 million, while others may specialize in smaller loan amounts. Additionally, the terms and conditions of the loan, including interest rates and fees, should also be taken into consideration when determining the overall affordability of the bridging loan. You don't necessarily need a deposit for a bridging loan in the traditional sense of cash reserves, but you do need security for your loan in the form of another property or asset to keep the loan-to-value below 80% at a maximum. For example, if you're buying a £300k property with a £300k bridging loan, you'd need another property to secure the loan against along with the property you're buying, or else your loan to value would be 100%. You can effectively secure a loan for 100% of a property value, but only if you have other property as security to keep your overall loan-to-value below 80%. So, if you're getting a loan for 100% of a property value, you'll need another property in the background to secure it against. The easiest way to see if you're eligible is either to give us a call or use our bridging loan calculator that automatically calculates your LTV. Using funds from a bridging loan to purchase a property puts you in a strong position as a buyer - similar to that of a cash buyer. Being a cash buyer is attractive to sellers because there is no onward chain requirement, and the funds are ready to go for the purchase. Using a bridging loan also eliminates the need for the chain to complete, and puts you in a position where funds can be available in a matter of weeks for completion; effectively rendering you a cash buyer to prospective sellers. Regulated bridging loans (for residential properties) are typically 12 months, however, some non-regulated bridging loans for buy to lets and commercial properties can be up to 36 months. Some lenders are more flexible on term durations than others, and it can be a case-by-case basis as to whether you'll get approval for a longer loan term. Yes, you can use a bridging loan to pay Stamp Duty. This amount could be covered by a bridging loan, providing you have a way to repay the additional borrowing amount to your lender. Yes, bridging loans are generally considered safe provided they are used for suitable property transactions. Speaking to a bridging loan adviser is recommended if you're unsure about the risks and suitability of a bridging loan for your situation. Generally speaking, the main risk of a bridging loan is that if you cannot repay the loan, your property can be repossessed and sold to clear your debt. For example, if you take out a bridging loan to buy a new property but your existing property fails to sell and you cannot recoup the funds, this could become a risk. However, bridging lenders always require their own valuations for any property involved in a bridging transaction to combat this. Another example could be that you're unable to secure a mortgage to refinance your bridging loan. At Clifton, we make sure your remortgage plans are sound if this is your bridging loan exit strategy, and can even arrange your mortgage for you through our dedicated mortgage advice service on the other side to smooth the process. Bridging loans are designed to be short-term so there’s no maximum age limit when applying for a bridging loan. This does depend on the lender, as some bridging lenders do have an upper age limit, but there are lenders on the market who offer bridging loans for borrowers aged 70 and over. Bridging loan interest rates usually range between 0.45% - 2% per month, depending on the case and the market rate. Unlike mortgage interest rates, bridging loan interest is calculated monthly instead of yearly. This is because bridging loans are short-term and, in many cases, repaid within a year. Bridging loans can be arranged without early repayment penalties, so interest is calculated monthly to ensure you only pay interest on the months you have the loan for. No high street banks currently offer bridging loans. Instead, bridging loans are provided by specialist short-term finance lenders. At Clifton Private Finance, we are a whole of market brokerage that deals with multiple bridging loan lenders, and we act as an intermediary between clients and the lender ensuring the process is smooth and hassle-free, and making sure our clients are getting a good deal. Banks typically charge two main fees when taking out a bridging loan – arrangement fees and interest. But there are other costs to consider such as valuation fees, broker fees and administration fees. Costs can vary from lender to lender, and will also depend on what your bridging loan is for (e.g., residential or commercial purposes.) Arrangement fees are what the lender charges you to take out the loan and can range between 1.5 - 3% of your overall loan. Bridging loan interest, on the other hand, is calculated monthly. This can catch borrowers out who may be expecting an Annual Percentage Rate (APR) like with a mortgage. You cannot turn a bridging loan into a mortgage, but you can repay a bridging loan with a mortgage and effectively refinance it into a long-term arrangement. This is common when buying an unmortgageable property with a bridging loan, carrying out refurbishments, and then mortgaging it once it is wind and water-tight and a new valuation has been carried out. This is also common for properties bought at auction where a mortgage would be too slow to arrange, and so a bridging loan is used which is then replaced with a mortgage later. Yes, bridging loans are typically more expensive than mortgages. Bridging loan interest rates can be much higher than a mortgage, and are calculated and displayed as monthly rates instead of the usual annual percentage rate (APR) that you’ll see on a mortgage. However, bridging loans are a short-term solution, and you’ll only pay interest on the months you’ve borrowed money for – and you can repay early without any charges (for most loans). There are many circumstances where bridging loans are an affordable option and a means to an end - for borrowers that need to finance a property purchase quickly, it may be the only option available. If there is a purchase involved, bridging loans are paid from the lender to the lender’s solicitor, then to the client’s solicitor, and then to the seller’s solicitor - so, you as a client will not see the funds in your own account - similar to a mortgage. If there is no purchase involved (for example, for a bridging loan for home improvements before selling), the funds go from the lender to the lender's solicitor, to the client’s solicitor, and then to the client's bank account. In terms of how bridging loans are repaid by you, they are repaid as a lump sum, either at the end of your term or during it. You can choose to either 'service' the interest, so pay the interest back monthly, or roll it up into the value of the loan to also pay this off as a lump sum along with the capital. In most cases, a bridging loan will require a minimum deposit of 25%. However, the minimum can vary depending on the lender and the specific circumstances of the loan itself. Generally, bridging loans are secured against a property or other valuable assets, and the deposit required is often expressed as a percentage of the property's value, known as the loan-to-value ratio. In some cases, 0% deposit bridging loans are an option, but only if you have other property or assets in the background to provide additional security. You do not pay monthly instalments towards the capital loan of your bridging loan. Some bridging loans require you to repay the interest accrued each month, but most lenders will actually give you the option to roll this up into the loan value, meaning you repay it with your lump sum at the end and have absolutely no monthly commitments. It's worth noting that as soon as you pay off most bridging loans, you stop accruing interest - so, the quicker you pay it off, the less expensive it will be, and there are typically no ERCs (early repayment charges). Bridging loans can be arranged in as little as 7 working days. However, it depends on the complexity of the bridge loan and your specific circumstances. It may also be more expensive for you to rush an urgent application through – but not impossible. Bridging loans are a popular option for borrowers who are under time constraints, such as buying a property at auction or breaking a chain. The key factors lenders tend to consider are: Security - Bridging finance is usually secured against property or other valuable assets. Lenders will assess the value and marketability of your security. Exit Strategy - Lenders will want to understand how you plan to repay your bridging loan. In most cases, this is selling your old property, selling the new property (flipping), or refinancing with a long-term mortgage. Loan-to-Value (LTV) Ratio - Lenders consider the loan amount compared to the value of the property being used as security as a percentage. The LTV ratio can vary, but most lenders will have a maximum of 60-80% LTV. Remember, the criteria for obtaining bridging finance in the UK can vary depending on the lender and your circumstances.
What are net vs gross bridging loan calculations?
Which calculation do lenders use for bridging loans?
What is the difference between first-charge and second-charge bridging loans?
Can you get a bridging loan with bad credit?
How short-term are bridging loans?
What are bridging loan exit strategies?
What are some alternatives to bridging loans?
Is there an age limit on bridging loans?
Are bridging loans regulated?
Do you need a valuation for a bridging loan?
How much can you borrow with bridging finance?
Do you need a deposit for a bridging loan?
Can I get 100% bridging finance?
Does a bridging loan make you a cash buyer?
What is the longest bridging loan term?
Can I use a bridging loan to pay stamp duty?
Are bridging loans safe?
Can an 80 year old get a bridging loan?
What is the monthly interest rate on a bridging loan?
Do banks still do bridging loans?
How much do banks charge for bridging loans?
Can you turn a bridging loan into a mortgage?
Is a bridging loan more expensive than a mortgage?
How are bridging loans paid?
What is the minimum deposit for a bridging loan?
Do you pay monthly payments on a bridging loan?
How long does it take for a bridging loan to come through?
What is the criteria for bridging finance?
