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Bridging finance

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Paul and Deborah felt they were stuck. See how bridging finance worked for them.

Paul and Deborah are both retired, with good pensions and a home they own outright. They also own a mortgaged buy to let which brings them a gross profit of around £300 a month. They have always liked the location of the investment property and planned to move to it when its time to downsize, however they wanted to extend it first. They needed £60,000 to build the required extension, their age made it difficult to re-mortgage their main residence or to get a bank loan. There was insufficient equity in the buy to let property to make this viable either. It was frustrating because they had around £600,000 in equity and they couldn’t understand why it was difficult to secure finance.

Bridging finance was the solution for them. The main focus of bridging finance is the exit strategy. Because they planned to sell their residential when the extension was built, the equity available compared to the loan required made this low risk to the lender. They don’t require repayment upfront but add this to the loan, but add this to the loan to be repaid and so income and age do not factor like they would on a residential mortgage.

Interest rates on the loan and admin fees were higher than they would be for a mortgage, but on a short term basis they were acceptable to them and in their mind the value of the extension far exceeded any costs of borrowing the money. From their perspective they felt it was good value for money. The application process was almost identical to that of a standard mortgage application and was completed within around 3 weeks.

There were some risks associated with this transaction. Paul and Deborah understood that if they didn’t achieve all this within a 12 month time-scale it could prove very expensive. Therefore, they secured planning permission and waited until the tenant moved out before drawing down the bridging finance. The extension was started immediately and they were able to put their own home on the market within 3 months of securing the bridging loan. Allowing plenty of time to find a buyer before the 12 month loan period expired.

This case study is specific to these clients and everyone’s situation and circumstances are different so you should seek advice which is specific to yourselves.

Author: Stuart Phillips

Author: Stuart Phillips

Fully CeMap qualified, Directly Authorised by the FCA and with over a decade of experience, Stuart has a wealth of experience in both specialist BTL and residential mortgages.

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