It may be harder to get a contractor mortgages than in the past, with lenders clamping down on self-employed borrowers more generally. The economic fallout from the pandemic is such that lenders are more closely scrutinizing the income of the self-employed, and in some instances reducing the maximum loan-to-value they will lend. But when it comes to bridging finance, lenders do not take a borrower’s employment status into account. With investors preferring bricks and mortar over the volatility of the stock market or leaving their cash in savings accounts paying pitiful rates of interest, bridging can be a useful tool. Day-rate contractors investing in property should be able to borrow as much as their employed counterparts. Depending on the property, of course, and as long as they have a considered exit strategy in place.
Unlike a mainstream residential or buy-to-let mortgage from a high-street bank. Bridging finance is designed for when you need flexible funding, quickly. A standard mortgage application can take weeks to get approved, particularly in the current environment. When lenders are dealing with significant backlogs and many staff working from home.
A bridging loan can be agreed and funds released within days rather than weeks. As speed is one of the main selling points of bridging finance. It is often used by those buying at auction when contracts are exchanged on the day. Leaving the winning bidder with just 28 days to pay the balance (a 10 per cent deposit is payable on the day of the auction).
Bridging on your main residence
If you are planning on buying property at auction, it is worth checking out the finance options available to you before bidding. This will give you an idea as to how much you can borrow, ensuring that you are bidding in the knowledge that you will be able to arrange the necessary finance within a tight timeframe.
To qualify for a standard mortgage, a property must be habitable, with a kitchen and bathroom. The lender will also assess the applicant’s income and outgoings to ensure they can afford the mortgage. If you are buying a property which requires a lot of work, most high-street lenders will refuse to lend, which is where a refurb loan comes in. Bridging lenders will not credit score you, nor ask for your accounts or proof of income. Once the refurb loan is in place, you can fund all or part of the required works before refinancing onto a mainstream residential mortgage. (if you plan to live in the property) or a buy-to-let if you are renting it out, or sell the property and repay the refurb loan.
Find a Buyer
With many buyers trying to take advantage of the stamp duty holiday before it ends in March. There is precious little stock around. If you have seen a property you want to buy to live in. It would be wise not to hang around but if you haven’t sold your existing home. It may be difficult to proceed. This is where bridging can help. If you have found a property you wish to buy, but have not yet managed to find a buyer, or you have. But the sale won’t complete in time, a bridging loan advances you the money you need to buy your new home before your existing home is sold. The bridging finance is repaid once your existing home is sold. Buying you time and ensuring you don’t miss out on the property you want.
How AWS can advise
Bridging finance is a specialist product, so you will need to go through a mortgage broker to secure a bridging loan. This is where AWS can help; we are a whole-of-market broker, with plenty of experience in arranging bridging finance, as well as mortgages for contractors. We take your situation into account, advising on the right funding for your circumstances. Please get in touch for more information.