At a recent property meet the subject of using an unencumbered property as security for Bridgers came up. Is it true that you can get 100% finance by using the house you’re buying and your unencumbered house as security to get the deposit money and refurb costs from the bridging?
Yes, it is perfectly possible to achieve this using bridging finance. In fact, I teach exactly how to do this under the Fast Funding Formula module in my Ninja Investor Programme workshops.
If you own an unencumbered property you can offer it as additional security to enable you to borrow 100% of the purchase price. More than that, you can also borrow the refurb costs too.
Bridgers will lend you up to 75% of the value of your unencumbered property.
It is also possible when your current property in not unencumbered, but has a lot of equity in it, typically 50% plus and this is a more common situation. Then bridgers will lend on a second charge basis.
Because second charge lending is riskier for a lender than having a first charge on a property, the loan-to-value drops to a maximum of 65%, but 65% of what? Of the value of your property, not 65% of the equity in the property. Take a simple example to illustrate this:
Property value £200,000
65% of £200,000 = £130,000
So bridgers would lend a maximum of £130,000 in this instance, but the first charge mortgage lender already has £100,000 of that so that leaves £30,000 of usable equity for the purpose of a deposit on a property you want to buy.
Why would you not just get a mortgage on your property? Well, you could, but you might not want to for any of the following reasons
If you are wanting to take a second charge against your main residence, your provable income required to get further borrowing from a mortgage or secured loan lenders may be insufficient, but bridgers don’t take your income into account
You should ensure that your project has sufficient profitability that you can repay the loan and return your property to its unencumbered state once the project is either sold or refinanced.