100% Bridging – Borrow 100% Of The Purchase Price
21st November 2023
By Alex Walker
In the realm of property purchasing, the prospect of borrowing the entire purchase price might sound like a distant dream for most. Typically, lenders are inclined to extend only 75% of the property’s value, which is usually determined by the purchase price. However, there are intriguing exceptions to this norm that savvy buyers can explore. This article delves into the world of bridging finance and sheds light on the possibilities of 100% bridging and acquiring finance for a property at 100% of its purchase price.
Understanding the Basics of 100% Bridging:
Conventionally, lenders adhere to a strict policy, limiting the loan amount to 75% of the property’s appraised value, often corresponding with the purchase price. But here’s where the game changes: genuine undervalue purchases open the door to a unique opportunity. If you stumble upon a property priced significantly below its market value, owing to circumstances like being a sitting tenant or a family-related deal that isn’t classified as a gifted deposit, some lenders might consider offering you a loan equivalent to the entire purchase price.
A Real-Life Scenario:
To illustrate this point, consider a recent case where a buyer agreed to purchase a partially completed property. The original builder had abandoned the project due to financial constraints and lack of enthusiasm. The prospective buyer, seeing potential in the unfinished property, agreed on a purchase price considerably lower than its estimated market value, approximately £200,000. With a legal agreement in place, he invested his time, effort, and money to complete the construction, significantly enhancing the property’s value to around £300,000. When it came time to secure the purchase, the buyer managed to secure a loan amounting to 75% of the increased value, allowing him to purchase the property without investing any of his own funds.
The Intricacies of 100% Bridging Loans:
It’s essential to understand that bridging loans, in general, operate differently from traditional mortgages. Typically, the interest on these loans is not serviced monthly but instead added to the loan amount, often referred to as rolled-up interest. In the aforementioned case, the buyer didn’t need to cover the interest separately; it was incorporated into the loan. For those unfamiliar with this concept, see our guide and video on rolled up and serviced interest on bridging finance.
Navigating Regulations:
However, it’s crucial to note that such opportunities aren’t without constraints. If the property you intend to purchase is meant for personal use, falling under the category of a residential property, regulations tighten. The Financial Conduct Authority (FCA) steps in, making the lending landscape more regulated. While lenders might still consider purchases below market value, securing 100% of the purchase price becomes less common in the residential market. In such cases, lenders are more inclined to offer loans ranging from 70% to 90% of the purchase price and 75% of the property’s valuation. Read about Regulated Bridging.
Strategic Considerations:
Potential buyers should not dismiss properties with prices below market value outright. Instead, it’s wise to explore creative ways to structure these deals. While 100% financing might not be the standard, opportunities to secure loans above the purchase price are still feasible. Understanding the intricacies of bridging finance, seeking expert advice, and exploring unconventional deals can pave the way for a successful property purchase. However make sure you have a well thought out and reliable exit to ensure you can pay the loan off. Check out our guide to bridging exit strategies.
Conclusion:
While 100% property financing might not be the norm, there are strategic avenues within the realm of bridging finance that resourceful buyers can navigate. By grasping the nuances of undervalue purchases and leveraging expert guidance, aspiring homeowners and investors can unlock unique opportunities in the property market. For more detailed information, feel free to find more pages on our website or explore our comprehensive range of educational videos on bridging finance available on YouTube. Don’t hesitate to reach out if you have further queries. Happy house hunting!