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.
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.
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.
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!
Promise Money is a broker not a lender. Therefore we offer lenders representing the whole of market for mortgages, secured loans, bridging finance, commercial mortgages and development finance. These loans are secured on property and subject to the borrowers status.
More than 50% of borrowers receive offers better than our representative examples
The %APR rate you will be offered is dependent on your personal circumstances.
Mortgages and Remortgages
Borrow £270,000 over 300 months at 7.1% APRC representative at a fixed rate of 4.79% for 60 months at £1,539.39 per month and thereafter 240 instalments of £2050.55 at 8.49% or the lender’s current variable rate at the time. The total charge for credit is £317,807.66 which includes £2,500 advice / processing fees and £125 application fee. Total repayable £587,807.66
Secured / Second Charge Loans
Borrow £62,000 over 180 months at 9.9% APRC representative at a fixed rate of 7.85% for 60 months at £622.09 per month and thereafter 120 instalments of £667.54 at 9.49% or the lender’s current variable rate at the time. The total charge for credit is £55,730.20 which includes £2,660 advice / processing fees and £125 application fee. Total repayable £117,730.20
Annual Interest Rate (fixed) is 49.7% p.a. with a Representative 49.7% APR, based on borrowing £5,000 and repaying this over 36 monthly repayments. Monthly repayment is £243.57 with a total amount repayable of £8,768.52 which includes the total interest repayable of £3,768.52.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Promise Money is a trading style of Promise Solutions Ltd – Company number 04822774Promise Solutions, Fullard House, Neachells Lane, Wolverhampton, WV11 3QG
Authorised and regulated by the Financial Conduct Authority – Number 681423The Financial Conduct Authority does not regulate some forms of commercial / buy-to-let mortgages
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