Using a bridging loan to buy a property is a popular strategy among property investors. Bridging loans provide fast and flexible funding, but they are designed to be short-term.
Many investors will use bridging loans to secure a property, and then look to refinance through remortgaging. Mortgages are regulated, long-term loans with lower interest rates that come with more stability than bridging loans.
Here, we’ll talk you through how you remortgage after a bridging loan, so you can make sure it’s a smooth transition.
Why Apply For A Bridging Loan Instead Of A Mortgage?
Mortgages are regulated long-term loans that are great vessels for buying properties. The problem is, that they can come with long approval times that may not work for property investors.
A bridging loan on the other hand is a short term loan, specifically designed to ‘bridge a gap’ between buying a new property and selling an existing one. For example, if you found a property at auction, you would only have 28 days to have the funds ready. (See our guide around Auction Finance).
Mortgages can take over 2 months to secure, whilst bridging loans can be approved within weeks, making them perfect for quick transactions.
When it comes to paying back the loan, bridging loans normally need to be repaid within 15 months, whereas mortgages can be repaid over 40 years. Therefore, it’s very common for investors to use a bridging loan to buy a property, and then refinance into a mortgage to maintain it.
Why Remortgage After Bridging Finance?
There are a few reason that buyers will want to remortgage after bridging. Some of these include:
Lower Interest Rates: Bridging loans tend to have higher interest rates as they are repaid over a short period of time. Remortgaging allows you to switch to a standard mortgage with much lower rates, saving you money in the long run.
Pulling Out Equity: If you’ve used a bridging loan to renovate a property, its value might have gone up, meaning you can pull out some of your equity during a remortgage. This can be used for more property investments or other projects.
Longer Repayment Times: A mortgage can be repaid over a much longer term (up to 40 years) meaning you can rest easy knowing the loan doesn’t need to be paid off as quickly.
How To Remortgage After A Bridging Loan
If you are looking to remortgage after a bridging loan, follow these steps:
Look At Your Finances
Before remortgaging, you’ll need to look at your financial health. Mortgages are highly regulated, so lenders will want to see your credit history, income and employment so they can be sure you’re a trustworthy borrower. Having a good financial profile will improve your chances of remortgaging.
Get Your Documents Ready
Start by pulling together all the paperwork, including bank statements, proof of income, property valuation and details of any existing loans you have.
If you have a property already and are looking to remortgage, make sure you have the professional valuation ready, so you can get a better offer.
Find A Lender
Remortgaging after a bridging loan means you’ll need to shop around to find the right lender. You’ll need to look for the best terms, or use a mortgage broker to help you navigate the process.
Submit Your Application
Once you’ve got your documents together and found a lender, it’s time to submit your mortgage application. The lender will likely do a credit check and look into your financial situation before giving you an offer.
Complete The Legal Process
After approval, you’ll need to sign the mortgage documents and complete the legals. Your solicitor will handle the paperwork, making sure the transfer from the bridging loan to the mortgage is smooth.
Once the money is released, you can go ahead and pay off your bridging loan.
How Long Before You Can Remortgage After A Bridging Loan?
It depends on your mortgage lender, but most companies will want you to have owned the property for a minimum amount of time before you remortgage.
If you want to remortgage before the end of the bridging term, you might also be liable to pay early exit fees. However with Blue Square Capital, we don’t charge any exit fees at all.
Can Your Remortgage Application Be Declined?
Like any loan, mortgage companies can turn down your application. Some common reasons include:
Poor Credit Score: If you have a bad credit score, it’s very likely your mortgage won’t be approved.
Unstable Income: If your income comes in peaks and troughs, mortgage companies might see you as a high-risk lender. Having some proof of regular income can help your application.
Type of Property: Not all properties are able to be secured with a traditional mortgage. Some examples of un-mortgageable properties include: properties with a lease of less than 70 years, properties without a kitchen or bathroom, properties with damp or rot and properties near areas of landfill or areas that have recently flooded. Make sure the type of property you want to remortgage meets all the criteria to avoid rejection.
Remortgaging After A Bridging Loan
Remortgaging after a bridging loan can be a smart move, meaning you can move from a short-term, high-interest loan to a long-term mortgage with a lower interest rate
If you’re unsure about the process, speak to a mortgage broker or financial advisor to make sure you have everything ready to secure the best deal.
