Bridging Loan to Buy a House - Everything You Need To Know

Posted by Brickflow on 22nd August 2024 -

The UK housing market can be tricky, navigating property chains or trying to secure your dream home before selling your existing home. Bridging finance has become a key solution, offering temporary liquidity that can prevent you from missing out on market opportunities.

In this guide, we look at using a bridging loan to buy a house, how it works, the costs involved and how Brickflow’s bridging loan calculator can help you make sure your deal stacks and secure the best bridging finance on the market.

How do bridging loans work when buying a house?

Using a bridging loan to buy a house works in the same way as any other bridging finance - it's short-term, usually up to 24 months, secured against the property being purchased (or other/additional assets) and fast to arrange.

They are agreed on the basis that the borrower will soon have liquidity, either from the proceeds of an upcoming sale or through refinancing onto a longer term mortgage. Your specific exit strategy will be agreed with the lender at the outset and they will monitor whether or not it is proceeding to plan throughout the loan term.

A well-defined exit strategy, such as an agreed completion date for a sale, will make it easier to secure a bridging loan and most likely with better terms and rates.

When using a bridging loan to buy a house, it’s key to understand the difference between regulated and unregulated bridging finance:

• Unregulated bridging loans: Can be used for both commercial, residential and mixed-use investment properties, including things such as buy-to-let flats or houses, HMOs or a refurbishment project.
   
• Regulated bridging loans: Used when the property being purchased (or used as security) will be the borrower’s, or an immediate family member’s, home. Regulated bridging finance offers borrowers protection if they’re sold an unsuitable product or given misleading advice from lenders or brokers, with possible compensation if eligible. It is regulated by the Financial Conduct Authority (FCA) and carries the same rules as a residential mortgage. As such, they are not as fast to arrange as unregulated loans.

Scenarios where bridging loans are used when buying a house?

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