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the bridging store offers closed bridging
finance for professional property investors who
typically buy property at 15% or more below market
value.
When purchasing at such a discount as this, it means
you can buy the property with no money down (i.e.
you don't need to invest any of your own money).
This is achieved by having pre-arranged a
re-mortgage offer (typically for 85% or 90% of full
market value) and using bridging funds to purchase
the property for cash and instantly use the
re-mortgage funds to repay the bridging loan plus
fees.
This system avoids the need to buy a property with a
mortgage, in which case you would need to invest the
10-15% deposit yourself. Instead you re-mortgage to
get instant access to some of the equity you have in the
deal.
The
examples below should help explain this concept and
also illustrate the re-mortgage calculation if
you are not already familiar with it.
EXAMPLE 1
-
Here is a hypothetical example deal agreed at 25% below market value,
with a hypothetical re-mortgage product (talk to
your broker for latest rates an lender
criteria).
-
A re-mortgage would be applied for and the
bridging funds booked, alongside instructing
your solicitors.
-
Note: only a handful of lenders allow an instant
re-mortgage (also called a simultaneous or 24
hour re-mortgage). Talk to your broker or
contact our recommend one on the
partners page.
-
The bridging loan amount would be for the
purchase price of £90,000.
-
Based on the market value of the property and
rental it could achieve, the re-mortgage offer
would be £102,000 (based on the lower of the
lender's two criteria in this case). Here the
loan to value criteria is the lower amount - and
therefore is the limiting factor on the amount
that can be borrowed.
-
On the day of completion our bridging fund would
be transferred to make the purchase.
-
Once the purchase is completed, your solicitor
will drawn down your pre-arranged re-mortgage
funds - the same day.
-
After
paying the bridging fee of £675 (0.75% of
£90,000), the original loan amount (£90,000) and estimated purchasing fees
(an example of 2.5% of purchase price is used
here for simplicity) your would receive £9,075
from your solicitors.
-
You would also have a property that still has
over £15,000 of equity remaining (e.g. if the
lenders arrangement fee was 2.5% and was added
to the loan, the mortgage would be £102,000 +
2.5% = £104,550, which is over £15,000 less than
the market value) and could rent for approx £120
more than the mortgage (rent £600pcm, monthly
mortgage of 5.5% x £104,550 /12 = c. £480).
EXAMPLE 2
-
Here is a hypothetical example deal agreed at c. 22.5% below market value,
with a hypothetical re-mortgage product (talk to
your broker for latest rates an lender
criteria).
-
A re-mortgage would be applied for and the
bridging funds booked, alongside instructing
your solicitors.
-
Note: only a handful of lenders allow an instant
re-mortgage (also called a simultaneous or 24
hour re-mortgage). Talk to your broker or
contact our recommend one on the
partners page.
-
The bridging loan amount would be for the
purchase price of £120,000.
-
Based on the market value of the property and
rental it could achieve, the re-mortgage offer
would be £128,571 (based on the lower of the
lender's two criteria in this case). This time
the rental criteria is the limiting factor on
the amount that can be borrowed (note slightly
different pay rate).
-
On the day of completion our bridging fund would
be transferred to make the purchase.
-
Once the purchase is completed, your solicitor
will drawn down your pre-arranged re-mortgage
funds - the same day.
-
After
paying the bridging fee of £900 (0.75% of
£120,000), the original loan amount (£120,000) and estimated purchasing fees
(an example of 2.5% of purchase price is used
here for simplicity) you would receive £4,671
from your solicitors.
-
You would also have a property that still has c.
£23,000 of equity remaining (e.g. if the lenders
arrangement fee was 2.5% and was added to the
loan, the mortgage would be £128,571 + 2.5% =
£131,758, which is over £23,000 less than the
market value) and could rent for approx £135
more than the mortgage (rent £750pcm, monthly
mortgage of 5.6% x £131,758 /12 = c. £615).
EXAMPLE
3
-
Here is a hypothetical example deal agreed at c. 23% below market value,
with a hypothetical re-mortgage product (talk to
your broker for latest rates an lender
criteria).
-
A re-mortgage would be applied for and the
bridging funds booked, alongside instructing
your solicitors.
-
Note: only a handful of lenders allow an instant
re-mortgage (also called a simultaneous or 24
hour re-mortgage). Talk to your broker or
contact our recommend one on the
partners page.
-
The bridging loan amount would be for the
purchase price of £135,000.
-
Based on the market value of the property and
rental it could achieve, the re-mortgage offer
would be £150,000 (based on the lower of the
lender's two criteria in this case). Again the
rental criteria is the limiting factor on the
amount that can be borrowed (note different
cover and rate criteria to example 2).
-
On the day of completion our bridging fund would
be transferred to make the purchase.
-
Once the purchase is completed, your solicitor
will drawn down your pre-arranged re-mortgage
funds - the same day.
-
After
paying the bridging fee of £1,013 (0.75% of
£135,000), the original loan amount (£135,000) and estimated purchasing fees
(an example of 2.5% of purchase price is used
here for simplicity) together, this time, with
stamp duty of £1,350, you would receive £9,262
from your solicitors.
-
For more information about stamp duty rates and
relief for disadvantaged areas
click here.
-
You would also have a property that still has c.
£21,000 of equity remaining (e.g. if the lenders
arrangement fee was 2.5% and was added to the
loan, the mortgage would be £150,000 + 2.5% =
£153,750, which is over £21,000 less than the
market value) and could rent for approx £55 more
than the mortgage (rent £825pcm, monthly
mortgage of 6% x £153,750 /12 = c. £770).
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