To fund projects quickly using short-term finance, residential and commercial bridging loans provide fast access to the money needed. You may want to push ahead with buying your new home even though you haven’t sold your current one. The lease on your property may need to be extended before you can sell it. You may want to expand your workspace or purchase some new equipment for your business. Or you may be buying a property at auction and need funds to complete while your longer-term finance is being finalised.
Whatever your reason for needing a bridging loan, this versatile option lets you proceed with your project quickly. But what are the differences between residential and commercial bridging loans and what exactly can you use them for?
The differences between residential and commercial bridging loans
All bridging loans are available on a short-term basis and require a property as security. Unlike standard loans, which are usually granted based on what the loan is needed for, residential and commercial bridging loans are different. Instead of looking at the purpose of the loan, lenders are interested in the type of property held as security. This determines the type of bridging loan they offer you.
Therefore, regardless of what your project entails, if you use a residential property as security, you’ll be offered a residential bridging loan. Likewise, if you provide a commercial property as security, the lender will offer you a commercial bridging loan. For example, if you need a loan to expand your business and use your home in Pimlico, London, as security, you can access funds provided by a residential bridging loan.
Most lenders are prepared to offer bridging loans when residential properties are provided as security. Not all lenders, however, are willing to accept security in the form of commercial or mixed-use properties.
Regulated and unregulated bridging loans
If the property you use as security is your home or intended to be used as your home, or that of an immediate family member, your bridging loan is regulated by the Financial Conduct Authority (FCA). This type of loan can either be first or second charge. A first charge loan means that it’s the only loan that has been secured against your property. A second charge loan means that the bridging loan lender is second in line behind the first charge lender who may already have approved a mortgage or other type of secured loan. You will need to have adequate equity in the property for your regulated bridging loan to be second charge.
If the property used as security is considered to have a commercial or investment use, the bridging loan is unregulated. This also applies if you take out the loan using a business or company name instead of your own. Just like regulated bridging loans, unregulated ones can be first or second charge.
Mixed-use properties
A mixed-use property has both commercial and residential aspects, such as a shop with a flat above it. When using a mixed-use property as security, the type of loan you qualify for depends on the percentage of the property’s commercial and residential use. To be eligible for a residential bridging loan, the property must usually have a minimum of 40% usage as a dwelling.
The interest rates on residential and commercial bridging loans
Interest rates are usually lower for residential bridging loans. You can benefit from lower overall borrowing costs in most cases. The interest charged on a regulated bridging loan is done so on a retained basis. This means you don’t make any monthly payments and the interest is just added to the overall loan amount. You repay the loan and the interest in one go as defined in your exit strategy.
You can choose whether you prefer the interest to be charged on a retained or serviced basis when you take out an unregulated bridging loan. The latter allows you to make monthly interest payments. This means you only need to repay the original loan at the end of your arrangement.
Using a residential or commercial bridging loan
Aside from providing you with funds quickly, bridging loans are popular because your personal or business income isn’t scrutinised as it would be for other loan types. Instead, your wider finances are taken into account, such as any assets you have. Flexibility is provided for your circumstances too. For example, you can take out either type of bridging loan as an individual, if you belong to a partnership, if you have a limited company or more. You’re also not restricted on what you can use your bridging loan for. Commercial and residential bridging loans in London, therefore, are very appealing to borrowers.
Get your project underway with a residential or commercial bridging loan
Whether you require funding for residential, investment or commercial purposes, our expert financial brokers in Pimlico, Welling and Edinburgh are ready to help you. Give us a call on 01322 907 000 to discuss your project and discover if a bridging loan is the right funding option for you.
Our residential and commercial bridging loan brokers will customise your application and negotiate a competitive rate for you. They will present your application to the right lender to ensure you have the best terms for your needs. You can then look forward to receiving your funds swiftly so that you can forge ahead with your project.