Type of Properties that Bridging Loans are used for
The type of property that the loan will be used to purchase or improve.
When applying for a bridging loan, it is essential to know the type of property that will be used as security. The type of property influences the amount and terms of the loan.
The most common types of property bridging loans are used to purchase residential properties. Residential dwellings suitable for purchasing with, and being used as bridging loan collateral include:
- Apartments
- Bungalows
- Cottages
- Coach houses
- Detached houses
- Flats (including flats over garages)
- Semi-detached houses
- Terrace houses
Residential properties represent the lowest risk to bridging lenders and, as such, offer the highest loan-to-value (LTV) loans compared to other types of property. The loan process is generally straightforward and quick, depending on the lender's underwriting process. However, the loan amount and repayment terms may vary depending on the local property market and the valuation report. For most vanilla bridging loans, an in-person valuation survey can be replaced with a desktop valuation, also known as an automated valuation. This is representative of a perceived lower risk profile of the type of property by the lender.
Commercial and semi-commercial properties may also be purchased using a bridging loan. This type of property tends to attract higher interest rates and lower LTVs as the property type is in lower demand by purchasers of property. The loan process is also more complicated. For instance, the lender may require an in-person survey completed by a RICS-qualified surveyor and is less likely to accept an automated valuation. Commercial property purchases suitable for being used as bridging loan collateral include:
- Offices
- Retail. For example, retail stores, shopping centres, and shops.
- Industrial. For example, warehouses, distribution centres and factories.
- Leisure. For example, hotels, pubs, restaurants, cafes, golf clubs, gyms, sports facilities, holiday parks and marinas.
- Healthcare. For example, GP surgeries, dental practices, medical centres, hospitals, care homes and nursing homes.
- Agricultural. For example, farms and farm buildings, equestrian centres, garden centres, farm shops and acreage.
Other types of property may also be purchased using a bridging loan, such as vacant land or auction properties. Vacant land may qualify for a bridging loan if it is being purchased to be developed or improved. This could include land used for building a new property or a plot of land used for agricultural purposes.
Auction properties may also qualify for auction finance, which is similar to a bridging loan. Auction properties often require additional due diligence on the part of the lender, as auction properties are typically sold ‘as is’ and without building inspections.
When applying for a bridging loan, it is important to make sure that the type of property being purchased is eligible for the loan. Lenders may require additional information and security to approve the loan depending on the type and purpose of the purchase, and this should be disclosed in the loan application.
