In essence, an investment property bridge loan is utilized to finance the purchase of a new investment property before the sale of an existing one is completed. It is particularly useful in situations where properties face delays in selling, such as during periods of low demand or being stuck in a chain of properties.
How does an investment property bridge loan work?
An investment property bridge loan is a short-term financing option used to acquire a new investment property before selling the old one. The loan can be repaid in full by selling the old property at the end of the agreed-upon term, eliminating the need for regular monthly payments.
Obtaining an investment property bridge loan
To finance the purchase of an investment property, individuals often rely on a bridge loan. This short-term loan is commonly used by buyers who have been approved for a buy-to-let mortgage but have yet to complete the sale of the property. By taking out a bridge loan, the buyer can proceed with the purchase and take possession while the mortgage is being processed. The bridge loan is then repaid in full once the mortgage is finalized.
Numerous companies offer bridge loans, and a quick search on Google will yield a multitude of results. It’s important to note that many of these results may be brokers rather than direct lenders, so it’s advisable to consider this factor.
Repaying an investment property bridge loan effectively
Bridge loans typically have a duration of 6 to 12 months, although some lenders may offer the option to extend the loan term and create a new arrangement if needed.
The loan is repaid using the proceeds from the sale of the old investment property, along with any applicable fees and interest.
Are investment property bridge loans a good idea?
If you’re considering purchasing a new investment property before selling your old one, exploring the option of an investment property bridge loan can be beneficial. Bridge loans can be versatile and serve various business purposes, making them a valuable tool depending on your circumstances.
Understanding closed and open investment property bridge loans
There are two main types of investment property bridge loans: closed bridging loans and open bridging loans.
Closed bridging loans are used to finance the purchase of an investment property when the sale of an existing property is pending. These loans cover the difference between the purchase price of the new property and the expected sale price of the old property. Closed bridging loans come into play when there is a delay in selling the existing property, such as when an investment property is on the market but has not yet been sold.
On the other hand, open bridging loans do not have a fixed repayment date, making them attractive to borrowers who are uncertain about the timing of obtaining long-term financing. However, due to the uncertainty of repayment, lenders typically charge higher interest rates for open bridging loans.
Understanding first-charge and second-charge investment property bridge loans
In the context of investment property bridge loans, a first-charge loan refers to a loan secured by the property being sold, while a second-charge loan is taken out against the property intended for purchase.
Determining the loan amount for an investment property bridge loan
Several factors come into play when determining the loan amount for an investment property bridge loan, including the requirements of the lender and the value of both the old and new properties.
Most lenders allow borrowers to borrow up to 70% of the value of the property.
To get a more accurate estimate, it is advisable to use a bridging loan calculator or consult with the lender directly.
Qualifying for an investment property bridge loan
Borrowers with investment properties or tangible assets possessing sufficient equity may qualify for investment property bridge loans.
Where can I obtain an investment property bridge loan in the UK?
There are numerous options for obtaining an investment property bridge loan in the United Kingdom. One notable option is Bridge Direct, a popular choice with over 30 years of experience in mortgages and bridging loans. Bridge Direct is a direct lender, which means they have direct access to funding and offer free instant decisions on all applications. Additionally, they consider applications even from individuals with adverse credit.