Bridging Loan to Mortgage: A Guide to Remortgaging
The transition from a bridging loan to a traditional mortgage can be a complex but necessary step.
Bridging loans, while essential for securing quick funds, often come with high interest rates and short repayment periods.
Remortgaging can provide a more stable and affordable long-term solution.
At Kerr & Watson, our aim is always to get clients through this transition smoothly, ensuring you make informed and financially sound decisions.
What is a Bridging Loan?
Before diving into the remortgaging process, it’s important to understand what a bridging loan is. Bridging loans are short-term financing options designed to “bridge” a financial gap, often used to purchase property quickly before securing a long-term mortgage. They typically come with higher interest rates and additional fees, making them more expensive over time.
Common scenarios where bridging loans are useful include:
- Buying a new home before selling an existing one. For instance, when a chain has broken or if you have not yet found a buyer, but do not want to lose out on your dream home.
- Financing property renovation or development projects. This may include buying a half finished property and spending months turning it into a property ready to move in to.
- Securing a property purchase in a competitive market or one that is not yet suitable for a conventional mortgage, for example, requiring refurbishment.
The key to effectively managing a bridging loan is planning how to repay it from the outset, and remortgaging is a popular strategy to do so. As this is not always guaranteed, you should consult a mortgage adviser early to make sure the plan is viable.
Find out Your Options
Why Consider Remortgaging After a Bridging Loan?
Switching from a bridging loan to a standard mortgage can offer several benefits:
- Lower Interest Rates: Bridging loans often have higher interest rates compared to traditional mortgages. Remortgaging can significantly reduce your monthly payments and overall cost.
- Stable Repayments: Standard mortgages provide predictable repayment terms, often fixed over 25 to 30 years, depending on your age, giving you more financial stability.
- Debt Consolidation: If you used the bridging loan for property renovation or investment, remortgaging may also allow you to consolidate debts into a single, manageable payment.
For tailored advice on whether remortgaging is right for you, contact Kerr & Watson to discuss your options with our expert advisors.
Timing Your Remortgage: The 6-12 Month Rule
Most lenders require you to have owned the property for at least 6 to 12 months before they consider a remortgage application. This waiting period allows lenders to assess the property’s true value and market conditions, reducing the risk of fraudulent or speculative transactions. However, there are exceptions, especially if you purchased a residential property or made significant improvements.
At Kerr & Watson, we can help you identify lenders who may be more flexible with this timeline. Some lenders are willing to remortgage sooner (which they refer to as a day one remortgage), but there may be caveats, such as valuing the property based on the initial purchase price rather than its current market value.
Steps to Remortgage After a Bridging Loan
Remortgaging requires thorough preparation and documentation. Here’s a step-by-step guide to make the process smoother:
Evaluate Your Financial Situation
Assess your current financial standing, including income, credit score, and any outstanding debts. Lenders will scrutinise these details to ensure you can manage the new mortgage payments. Talk to a mortgage adviser to help you with this.
Get a Property Valuation
A professional valuation will determine the current market value of your property, which plays a crucial role in securing a favourable remortgage deal. If you’ve completed renovations, this could positively impact the valuation.
Choose the Right Mortgage Type
Decide between a fixed-rate or variable-rate mortgage. Fixed rates provide stability, while variable rates may offer lower initial costs but come with the risk of fluctuating interest. Your mortgage adviser will be able to assist you with this.
Prepare Your Application
Lenders will require extensive documentation, including:
- Proof of income and employment.
- Bank statements and credit history.
- Details of the bridging loan and how it was used.
Our advisors at Kerr & Watson can assist in organising these documents and ensuring your application is well-prepared.
Submit Your Application
Once your paperwork is ready, your adviser will submit your application to your chosen lender. They will review your financial profile and may conduct a credit check and property valuation before approval.
Conclusion
Transitioning from a bridging loan to a standard mortgage can be a strategic and needed move to stabilise your finances and reduce costs.
If you have taken bridging finance, it would have been on a short term basis with the plan to exit the loan in the future, whether by sale or taking a mortgage.
It may be that you have bought a property that required significant work and is now ready to remortgage it as your main residence.
The process requires careful planning and expert guidance. At Kerr & Watson, we are committed to helping you make informed decisions that align with your financial goals. Our personalised service ensures you get the best possible deal for your individual situation.
Contact Kerr & Watson today for independent advice.
