How to Use a Bridging Loan to Buy a House in London

Getting on the property ladder in the capital can be challenging - but did you know you could use a bridging loan to buy a house in London?

The London property market is notoriously competitive, so when you find the perfect home, you need to move fast.

Bridging loans are a quick funding option that can be arranged within weeks or even days. Unlike standard mortgages, bridging loans are short-term and flexible, allowing buyers to repay the loan once they secure longer-term financing or sell another property. While bridging loans come with certain costs, they do allow buyers to act quickly and avoid missing out on desirable properties.

In this guide, we explain everything you need to know about using a bridging loan to buy a house in London.

Key Takeaways

• Bridging loans can help buyers secure funds quickly in London’s competitive market

  
  

• They're typically used to break a mortgage chain, make a property purchase with a quick turnaround, renovate a home or buy a property that isn't eligible for a mortgage

  
  

• Bridging loans are short-term, with terms around 12-18 months and can be secured against the property you buy

  
  

• Bridging loans are typically repaid in full after term completion rather than monthly, with interest often “rolled up” and paid at the end

Why Use a Bridging Loan to Buy a House in London?

There are several common reasons you'd use a bridging loan to buy property in London. Generally, these can be broken down into three main categories:

• When you don't have enough time to apply for and secure a mortgage, e.g. when buying at an auction, there is a 28-day limit to complete the purchase.

  
  

• If the property is unmortgageable, e.g., it has no working kitchen and bathroom or needs significant renovation work.

  
  

• You already have a residential mortgage on a property that you can't (or prefer not to) sell before purchasing your new property, e.g. if you find a perfect house to buy, but your current home is taking a while to sell.

Regulated bridging loans can often be agreed upon within days, meaning you can act fast and then take your time with refinancing later, either by selling another property or getting a standard mortgage.

If you're looking to buy investment property in London, such as a buy to let, it's likely you will need an unregulated bridging loan.

2024 Bridging Market Update

The bridging market has had quite a transformation in the past few years. With rates starting at 0.55% per month, the costs aren’t dissimilar from those of a mortgage, and the combination of flexibility, quick turnaround time and less stringent eligibility criteria has led to bridging finance growing in popularity.

It’s now seen as a product in its own right instead of an expensive alternative to long-term finance.

Our finance brokers are seeing more repeat clients, particularly investors who have turned their attention to property flipping considering the slim profit margins the buy to let market has been seeing. HMO conversions have also grown in popularity amid more rigid rental legislation.

According to our team of advisers, a high volume of first-time borrowers already have an understanding of bridging loans before approaching us, showing that bridging is becoming more recognised in the industry.

As bridging finance becomes more mainstream, lenders are reviewing and reducing rates more frequently, offering more flexibility around costs.

How Bridging Loans for Property Work

A bridging loan works like a mortgage but with some key differences:

• Like a mortgage, bridging finance is usually secured on the property you are using to buy; however, a bridging loan can also be secured on an additional property or deposit (for example, the one you're selling), allowing you to borrow more or get a better interest rate.

  
  

• A bridging loan can also be arranged much faster than a mortgage: within weeks, or even days.

  
  

• You can borrow against an uninhabitable property that mortgage providers won't lend against. Then, you can renovate and refinance once it's ready for a standard mortgage. 

The amount you can borrow will depend on the property's value, any renovation costs you may have, and the potential value of the property once improved (where applicable).

Most bridging loans are for a term of 12 to 18 months, so much shorter than a standard mortgage. This is why you need an exit strategy in place. 

You don't repay bridging loans monthly as you do with a mortgage. Instead, you repay the balance in full when you have the funds available from your exit strategy (e.g., selling another property or getting a mortgage).

Even the interest you owe can be rolled up and repaid at term as opposed to on a monthly basis.

How to Get a Bridging Loan to Buy a House in London

Bridging finance is usually only offered by private banks and lenders or by dedicated subsidiaries of high street banks. All of these are generally available through specialist finance brokers.

The lending criteria for bridging loans are usually more flexible than mortgages, meaning that issues such as complex income streams, credit score or non-UK residency will not necessarily be an issue as they might be for a high street mortgage.

The Cost of Bridging Loans for London Property

When you take out a bridging loan, there are three costs you generally need to think about:

• Arrangement fees (typically 1-2% of the capital, paid when your first take out the loan)

  
  

• Interest (usually paid monthly or rolled up and paid as a lump sum when your loan is repaid)

  
  

• Exit fees (not charged by all lenders, but also generally 1-2% of the capital where they apply)

  
  

These costs vary from lender to lender, so it is good to work with a whole of market broker who can find you the best deals from across the market.

Is London Property Still Worth Investing in?

The Evening Standard recently reported on house prices in London as being poised for a robust recovery – faster than any other UK region.

Here’s a snapshot:

• London house prices could grow by 11.6% over the next four years

  
  

• Partially because London has had lower growth over the past five years, so some respective catching up to do.

  
  

• Potentially lower mortgage rates by 2025 could also spur further recovery, particularly in London where homeowners tend to have larger mortgages in relation to their income.

Get a Bridging Loan to Buy a House in London

Are you looking for a bridging loan to buy a London property? At HiLo Finance, we have an award-winning bridging team dedicated to getting the best results.

Our team of experienced specialist bridging loan brokers have access to all the leading lenders so that we can offer you the most attractive deals on the market.

We can help you get the best deal available using a wide range of contacts throughout the bridging finance industry. We can also assess your situation and make sure you're getting the right product for you. 

You can quickly get the money you need to buy your London property at an affordable rate and with minimal fuss.

Bridging advice gives you peace of mind you're making the right financial decision for your situation. 

We can give you a clear idea of your options and guide you through the bridging process, including finding tailored finance solutions.

To see what we can do for you, call us at 0203 750 0305 or book a consultation.