If you are fed up of trying to find your dream home, why not consider building it yourself?
Starting a self-build project and being able to customise everything is an attractive prospect. But, if you’re building a property from scratch, it’s important to secure a new build bridge loan in order to guarantee completion without delay.
There are many advantages to owning a brand new home, such as higher energy savings, reduced maintenance costs and the opportunity to tailor each individual aspect to your own taste.
But building a house from the bottom up requires a large amount of upfront capital. Making sure that the right finance is in place beforehand can help reduce the overall cost of the project in the long term.
If you’re planning to build a home or invest in a development, at Bridging Options we specialise in new build loans.
Best bridge loans for self builds
A bridge loan is a type of advanced loan that allows developers and builders alike the opportunity to raise funds towards the initial purchase of a property or land, as well as providing the necessary costs for the construction process.
For most people, they will use the equity they already have in their current property in order to fund the building of a new home. As they still need to reside in their house whilst the construction work takes place, the easiest way to “bridge the gap” between buying, selling and raising finance is take a bridge loan.
If you are having a house build on your own lot, with your own design however, then you will only need to arrange funding for the construction phase. This requires funds to be supplied in stages in order to tie in with the building process.
Things to remember when taking a bridge loan
It is important to remember that most bridging loans have a requirement for full repayment to be made within a set period of time.
Therefore, if you are considering taking a bridge loan for your new build project, you need to ensure that you can raise the necessary repayment capital or get suitable finance before the end of the exit period.
What are the benefits of taking a bridge loan?
Bridging loans are becoming increasingly popular for individuals who are looking to build their own house, as they can provide large sums of money in a short period of time.
Bridging loans can be secured against commercial property, residential property, building plots or even land without planning permission, and although they are often more expensive than other finance options, they offer flexible terms and can help to overcome a timing squeeze.
How to get a new build bridge loan
At Bridging Options, we review each self-build project on an individual basis and before providing any finance, require details of your exit plan.
An exit plan is your chosen form of repayment that will need to be agreed within a specified time frame.
Bridging loans for new builds should only every be used as a short-term solution and are generally offered for a period of up to 18 months. Once the project is complete, you will be expected to pay the full amount borrowed back to the lender (plus any interest and additional fees incurred).
The most common forms of repayment include the sale of the property at a profit or the securement of more permanent finance, such as mortgage, against the new build once the construction is complete.
The bridging loan market is vast and complex. In order to receive the best advice, you should always speak to a professional broker. If you require a bridging loan for a self-build property, then speak to our experts at Bridging Options as they can scour the market on your behalf to find the most competitive rates for your situation.
Is a new build bridge loan right for you?
The advantages often outweigh the disadvantages when it comes to bridging loans, but you do need to be aware of the good, the bad and the ugly. Here we detail the pros and cons of taking a new build bridge loan so that you can evaluate whether it is right for you.
The Pros of taking a bridge loan
A little information goes a long way and can help us to assess your situation, providing you an honest and open appraisal on whether bridging finance is the right solution for you. Here are just of the reasons to take a bridge loan with us.
- Quick to arrange. If your application is successful, then you can expect the funds to be available within a matter of days. This is particularly good for properties when timing may be of the essence, such as purchasing at auction, or in order to keep a project on track.
- Simple repayment terms. The majority of bridge loans are designed so that at the end of an agreed time frame, on a pre-determined date, the money borrowed (plus any additional interest and fees) is repaid. This means that the overall costs are simple to understand and are kept at a minimum.
- Suitable for most needs. Bridging finance is so flexible that it can used for a variety of purposes. This includes funding the property or land purchase upfront, paying for the construction project over a set period of time or through a combination of both.
- Experience isn’t everything. Whilst some lenders will look at credit scores and past development experience, most will base eligibility on a solid exit strategy. This makes bridging finance a viable option for most when other forms of finance may not be available.
- No early exit fees. Unlike other types of finance that punish you for making early repayments, most bridging lenders offer preferential deals to those who can repay their loans as quickly as possible without any early exit fees.
- LTV Rates. Depending on the nature of your new build project and your financial situation overall, some lenders will provide loan to value rates of up to 70% of the acquisition value, and 100% of the conversion costs. Please note that this is negotiable and determined on an individual basis.
The cons of taking a bridge loan
As with any loan agreement, a bridging loan is not something that you should rush into without having fully understood the implications, rates, repayment terms, and suitability. Here are some pointers to look out for.
- Higher than average interest rates. Bridge loans are only ever intended for those who require finance in the short term. This is why interest rates are often elevated and can work out more expensive than other long term lending.
- Additional fees. Most bridging loan lenders will impose additional fees and charges such as administration costs, competition fees and arrangement charges. These all get added to the overall cost of the loan and can increase it substantially.
- Sufficient equity. In order to take a new build bridge loan, you need to be able to show that you have enough equity to cover the repayment. Failure to meet the exit plan may result in repossession.
Get the right new build bridge loan advice today
If you are in the market for a new home but want to custom build it yourself, then why not apply for a new build bridging loan?
At Bridging Options, our independent brokers will undertake a market comparison on your behalf, in order to ensure you get the best possible deal to suit your requirements and budget.
For specialist advice from a bridging loan broker who understands the self-build market, please get in touch with us today.