Bridging Loans Query

[eekoh]

I'm looking into bridging loans as a potential means of part funding purchase of a plot - this would make a big difference to the type and size of plot I can buy, opening up potential opportunities for land where planning consent has lapsed or hasn't yet been sought. (I know there are other issues with that type of project such as risk of not getting consent, overage clauses etc but that's a separate thing and its the bridging aspect I need to understand first.)

 

What I'm not clear on at this stage is whether the bridging loan is secured against the land purchased (as a mortgage would be),  or does it need to be held against other assets such as another property, or can it be a combination of both?

[Ferdinand]

 I think think there are both sorts of Bridging finance, but either way you may end up with a Credit Card style level of interest. That is 1-2% per month potentially.

 

Not a good one imo if you are going to have it for more than a small number of months.

 

But there are millions of other options out there, depending on the amount and the circs.

 

In the BTL world there are bridge to mortgage products that automatically change from a Bridge while renovating to a normal mortgage after you have rented it out. In that world it saves a second set of fees.

 

If you going without pp then a secured loan will only be on a % the agricultural value, unless you borrow from a speculator with a healthy profit share.

 

F

Edited June 12, 2019 by Ferdinand

[lizzie]

Can't you just take a bit more on your existing mortgage to fund it?  Would be cheaper and easier.

[eekoh]

@Ferdinand Yeah I've seen the interest rates are higher than other types of loans, but as I'd only be looking for 50-60k even if I keep it for the full year the total cost is only about £5k, which isn't huge in the grand scheme of things.  

From my internet research so far lot of the bridging finance companies don't even do loans that small, though their max figure is millions!

 

 

@lizzie If I had that much equity available I wouldn't be looking for bridging finance!  (I live in a rented place with my partner now and I'll get about £50k cash some time in the next month from sale of my old house, which is the deposit for this project.)

 

 

[lizzie]

@eekoh ok sorry had not realised you did not have a current property.  Good luck.

[eekoh]

@lizzie The finance will totally depend on the type of project.  For some types the deposit will be sufficient to get a self build mortgage, but there's a particular one that I've found where the planning consent has lapsed so isn't immediately mortgageable.  For this one it would be the bridging finance that makes it feasible because without it I wouldn't have sufficient capital to buy the plot, even though once I've renewed the consent the figures appear to stack up fine for a mortgage.

[the_r_sole]

.

Edited September 26, 2019 by the_r_sole

[Ferdinand]

30 minutes ago, the_r_sole said:

If you are looking at bridging, make sure you 100% have an exit - bridging is expensive and I've heard horror stories of people doing property deals on bridging without a proper exit, then losing all the profit to interest payments...

 

Example of how it easily turns into a runaway train:

https://www.propertytribes.com/please-help-desperate-situation-t-127640494.html

 

Due diligence and an exit strategy are everything here.

 

 

Edited June 12, 2019 by Ferdinand

[eekoh]

Wow, that really is a horror story!  

I take your point about being certain of your exit and I do feel for those folks, but seems they were already in a financial pickle before they went down this route (poor credit history and facing imminent repossession of a property) so turned to it in desperation rather than making a well-considered investment decision. Their lender sounds rather like a loan shark too rather than a reputable investment firm!

 

For me its a very different situation, a loan would be a tool to facilitate getting a project started and only if it stacks up within the overall project budget and schedule - there is no way on earth I'd ever let anything financial get that out of control.

I wouldn't be committing to that level of borrowing, I never 'just sign' without understanding the repayment terms and there would most definitely be a planned exit, either repaying it in full with a self-build mortgage or just selling the land - which would be a disappointing outcome, but infinitely better than spiralling debt.

[Hecateh]

I got in a mess with bridging.  It was at 13% so extortionate but I planned for it and all should have been fine.  

 

Then the house took much longer than planned

 

Then my old house didn't sell and still hasn't

 

I am lucky my sister is loaded and loaned me the money to pay it off but as I am not earning anything I would have been totally up the khyber if she wasn't able to help.