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Remortgaging After a Bridging Loan | How it Works
Buying a property with a bridging loan and then remortgaging afterwards is a popular strategy for homebuyers and property investors alike.
A bridging loan gives you the speed, flexibility, and 'cash-buyer status’ to snap up your dream property and beat the competition.
As soon as you can refinance on a standard mortgage, you do - whether that’s three months or twelve months later - and you’ll only pay interest for the months you’ve used your loan.
For example, let’s say you’re looking at buying a property at auction.
You need to complete it in 28 days, but your mortgage approval is projected to take about six weeks – there’s just not enough time, even though you can afford it.
So, you take out a bridging loan (a 12-month property finance loan) to secure the property, which can be arranged within a week if you really need it.
You secure the purchase, and then you have 12 months to get that standard mortgage approved at a nice low rate, repay your bridging loan, and move on with your life!
At that point, if you’ve only had your bridging loan out for 3 months, most lenders will only charge you bridging interest for that portion - you won’t need to pay 12 months’ worth of interest if you don’t use it.
In this guide, we’ll walk you through the steps a borrower can take to successfully remortgage after bridging finance—how to find the right specialist lender, and whether remortgaging is the right option for your financial circumstances after a bridge loan.
If you want advice on your personal situation, consider speaking to the experts: book a free, no-obligation consultation with our friendly, qualified advisers.
Written by: Sam O'Neill & Sam Hodgson
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Can You Remortgage to Pay Off a Bridging Loan?
Why Remortgage After Bridging Finance?
Remortgaging as a Landlord or Property Investor?
How Long Before You Can Remortgage After Bridging Finance?
Can You Be Refused a Remortgage?
Looking For Advice With Remortgaging After Bridging Finance?
Can You Remortgage To Pay Off a Bridging Loan?
Bridge loans are short-term, often expensive in terms of interest, and, naturally, have shorter repayment periods – which, for many borrowers, can be a financial pressure depending on the circumstances.
But they’re usually used to solve a problem - for example, you can’t get a standard mortgage quickly enough, or the sale of your current property has fallen through, but you’re ready to buy.
Bridge loans are an excellent way for a borrower to quickly access funds to make a transaction faster and with more flexibility than applying for a mortgage upfront.
With this said, many borrowers aim to take out a bridge loan and then apply for a mortgage to repay the bridge - so, yes, it is a viable option to remortgage to pay off the initial bridge finance for the property. However, you must consider carefully your options and which lender you choose to go with, as remortgaging after a bridge loan may affect which lenders are willing to offer you a mortgage.
Why Remortgage After Bridging Finance?
You might want to remortgage after a bridge loan for a few reasons – mainly because bridging loans have a term of 12 months, so you’ll need to find some way of refinancing.
The 3 most common options are:
- Remortgaging
- Selling the property
- Selling a different property
Here are a few examples as to why you might choose to remortgage after bridging finance:
- Switching to a secured mortgage – A mortgage can act as an exit strategy for a bridge loan. Where a bridge loan is repaid over a short term, a mortgage can consolidate the payment into a longer term, allowing a borrower to have lower monthly payments and enjoy a more financially secure situation without having to worry about the heavy price that can come with bridging finance over a short-term.
- Lower interest – With bridging finance, there are comparable more expensive interest rates. These fees can mount up over a shorter repayment period. By remortgaging, a borrower can save money on fees and expensive interest rates over the duration of a long-term mortgage opposed to a short-term bridge loan.
- Consolidating debt – Remortgaging can simplify your finances by consolidating debt – such as credit card debt, or from personal loans and bridge loans. By consolidating into one monthly payment, this can potentially reduce the overall interest paid, alongside other fees.
- Equity – While bridge loans can be used to purchase property, they can also be used to cover the costs of renovation or refurbishments. With the funds from a bridge loan, you might have increased the value of the property and, therefore, increased the equity in the property. When remortgaging, you may be able to release this equity and get access to more funds for future property improvements or other purposes.
Sam O'Neill
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.
Remortgaging as a Landlord or Property Investor
Landlords or property investors can make use of bridging finance to purchase buy-to-let properties in order to rent out.
To repay the bridge, investors can remortgage the property while also generating income through tenants. This can be a great strategy for those looking to increase their property portfolio and buy up property quickly, remortgaging after bridge finance to pay the bridge over a longer term.
If you’re looking for more specific information on bridge-to-let loans, visit our page here.
And for more example uses and how bridging finance works, our most senior bridging advisor, Sam O'Neill, explains the process in the video below:
Bridging Finance: How Long Before You Can Remortgage?
After you’ve purchased a property financed through a bridge loan, most lenders will require that ownership of the property have lasted 6-12 months since the bridge loan was taken out. This can prove challenging if you intend to use a mortgage as your exit strategy for the bridge loan.
However, lenders may be less cautious if financing is regulated - i.e., a residential property in which you live. This typically allows a borrower to remortgage far sooner than the general 6-12-month rule.
That being said, remortgaging after a high-risk loan, such as a bridge loan, can make finding a lender willing to facilitate a mortgage more difficult. Lenders will also have their own set criteria as to whether you are eligible.
Regardless, the best course of action if you’re looking to remortgage after bridging finance is to seek the help of an expert bridging loan broker; someone who can help you through the entire process and give you salient advice on whether remortgaging is the best option for you.
At Clifton Private Finance, we can help you find favourable mortgage rates from a variety of lenders, and from specialist lenders willing to facilitate a remortgage after a bridging loan.
Bridging Loan Calculator
See what a bridging loan could cost you with our bridging loan calculator.
Can You Be Refused a Remortgage?
Like with any loan, lenders can refuse a mortgage application - especially when considering the additional rule of ownership, which requires a certain period to elapse before a property can be remortgaged after a bridge loan.
Generally, however, the requirements for taking out a mortgage after bridging finance and your eligibility will be similar to all other types of loans; here are some of the reasons why a lender may refuse a mortgage application:
- Debt-to-income ratio - While remortgaging is a good way to consolidate debts, lenders may be concerned if you have a large number of outstanding debts when you apply to remortgage. This could result in lenders refusing your application.
- Credit history - Lenders always evaluate your credit history when you apply for a loan of any type; mortgages have some of the most stringent requirements in this regard. When factoring in the bridge loan, they will need to assess the affordability of a remortgage, and lenders will look to your past credit history to see if this is a factor to be concerned about before they offer you a mortgage on the property.
- Employment and income – Lenders may look at your current employment, your income, and whether you are self-employed or have a history of switching jobs often. Like your credit score, this could be a cause for concern regarding the affordability of a remortgage after a bridge loan.
- Low Equity - Your purchased property may not have enough equity to meet the requirements for a lender to offer a mortgage.
The impact of loans already taken out or secured on the same property, such as with bridging finance, can always affect remortgaging. It will, however, be relative to your own circumstances and financial situation – previous loans are not as complex a barrier as many borrowers may think.
With this said, it’s important to get an overview of your options from a financial advisor if you have an adverse credit score, previous loans, or any of the above issues that may hinder your ability to remortgage after a bridge loan.
How to Remortgage After a Bridging Loan
Here at Clifton Private Finance, we can help guide you through your options, whether you're new to remortgaging or are more experienced with this type of financing.
We have a team of mortgage and bridging specialists in-house who can offer tailored advice for your circumstances and find you the most suitable product for your long-term financial needs.
When making any significant financial decision, especially when looking at lenders regarding a remortgage after a bridge loan, it's always best to seek the help of a mortgage advisor. This will ensure you're getting finance at an affordable and favourable rate.
Call us today at 0117 959 5094 to see how we can help, or book a consultation with us below.
FAQs
Is It Easier To Remortgage With an Existing Lender?
If you intend to remortgage in the future after getting a mortgage on the property financed through a bridge loan, remortgaging with your existing lender can be beneficial in terms of making the application process faster and retaining existing rates as a previous customer. However, it is also a good idea to look at your options through alternative lenders who may be offering better products.
How Long Do You Get To Pay Back a Bridge Loan?
With bridge finance, the terms are typically 12 months, but many are repaid within a year. In the case of remortgaging, you consolidate the bridge loan repayment into a mortgage, meaning you’ll repay monthly over a longer term.
Does a Bridge Loan Show on Your Credit History?
Yes, any previous loan will show on your credit history, and as bridging finance can be considered a higher-risk loan, your ability to remortgage after taking out a bridge could potentially be impacted.
