Bridging Loans in Scotland

Bridging Loans Scotland: A Guide for Property Developers, Landlords and Property Buyers.

Bridging loans are a type of short-term finance that can help property buyers and developers in Scotland to buy or develop a property or land before they sell their existing one or arrange long-term finance. They can be used for various purposes, such as securing a property quickly, completing a purchase before selling, funding a renovation, conversion, or self-build project, buying a property at auction, or taking advantage of an opportunity or deal. This article will explain how bridging loans work in Scotland, what are their benefits and risks, and how to apply for one.

What are Bridging Loans?

Bridging loans in Scotland are typically interest-only loans that are secured against the property or land that the borrower is buying or developing. They are usually repaid within 3 to 24 months, either by selling the existing property or by refinancing with a long-term loan. Bridging loans are different from traditional mortgages or loans in several ways:

• They have higher interest rates and fees than regular mortgages, as they are generally used for the short term rather the regular mortgage longer term.

• They have less strict criteria and fewer checks than conventional loans, as they are based on the value of the property or land rather than the borrower’s income or credit history.

• They are more flexible and faster to arrange than standard loans, as they can be tailored to the borrower’s needs and circumstances.

Bridging loans that are used by businesses for buying and developing property are typically not regulated by the Financial Conduct Authority (FCA), which means they do not have the same level of protection and recourse as regulated loans. Therefore, borrowers need to be careful and do their research before applying for one.

What are the types of bridging loans?

There are two main types of bridging loans in Scotland: open and closed.

• Open bridging loans do not have a fixed repayment date, but rather a maximum term of usually 3 to 24 months. They are suitable for borrowers who do not have a definite exit strategy or who need more flexibility.

• Closed bridging loans have a fixed repayment date, which is agreed at the outset of the loan. They are suitable for borrowers who have a clear exit strategy and who need more certainty.

There are also other types of bridging loans that can be classified according to their purpose, such as:

• Development bridging loans: These are used to fund property development projects, such as renovations, conversions, extensions, or self-builds. They can cover the cost of materials, labour, planning permission, and other expenses.

• Auction bridging loans: These are used to buy properties at auctions, where the buyer has to pay a deposit of usually 10% on the day of the auction and the full amount within 28 days. They can help buyers secure a bargain or a unique opportunity.

• Bridge to Let loans: These are used to buy property when the intention is retain the property, Refurbish it, Rent it out and Re-finance it with a longer term buy to let mortgage. This strategy is known as B.R.R.R. and is commonly used by landlords as way to quickly build a property portfolio.

How do Bridging Loans Work in Scotland?

Bridging loans work differently in Scotland than in other parts of the UK, due to the different property laws and procedures in Scotland. For example:

• Scotland has a different legal system than England and Wales, which means that there are different types of contracts and documents involved in buying and selling properties.

• Scotland has a different land registry system than England and Wales, which means that there are different processes and fees for registering properties and land.

• Scotland has a different conveyancing process than England and Wales, which means that there are different steps and timescales for transferring properties and land.

One of the main differences between buying a property in Scotland and in England and Wales is that in Scotland, there is a binding contract between the buyer and the seller as soon as an offer is accepted. This is called missives. This means that there is no risk of gazumping or gazundering, where another buyer makes a higher offer or the seller lowers their offer after an agreement has been reached. However, this also means that there is less time to arrange finance. Therefore, if the buyer needs a bridging loan to buy a property in Scotland, they need to act fast and have a reliable broker and lender who can provide them with the funds quickly.

Another difference between buying a property in Scotland and in England and Wales is that in Scotland, there is no stamp duty land tax (SDLT), but instead there is a land and buildings transaction tax (LBTT) and like throughout the UK an Additional Dwelling Supplement (ADS) tax, ADS tax applies when buying a property that is not your main residence. This is a progressive tax that applies to both residential and commercial properties, with different rates and thresholds depending on the value of the property.

LBTT and ADS tax can be instantly calculated using our Property Profit Calculator iOS app which can be downloaded from the Apple AppStore.

What are the benefits of a bridging loan in Scotland?

Bridging loans can offer several benefits for property developers, landlords and property buyers in Scotland, such as:

• They can help them secure a property or land quickly before someone else does. This can give them an edge over the competition and help them achieve their property goals faster.

• They can help them complete a purchase before they sell their existing property or arrange long-term finance. This can help them avoid missing out on a good deal or losing their dream home.

• They can help them fund a renovation, conversion, or self-build project that requires upfront cash. This can help them unleash their creativity and potential and add value to their property or land.

• They can help them buy a property at auction that requires immediate payment. This can help them take advantage of a bargain or a unique opportunity.

• They can help them take advantage of an opportunity or deal that may not be available for long. This can help them grow their portfolio and income and achieve their financial goals. .

How to apply for a bridging loan in Scotland?

If the borrower wants to apply for a bridging loan, they need to follow these steps:

• Find an experienced broker who can offer them a bridging loan and can compare different lenders and their terms and conditions.

• Contact the broker and provide them with some basic information about their property, their financial situation, and their exit strategy. They will then give them an indicative quote and a decision in principle.

• Complete the application form and provide the required documents, such as proof of identity, proof of income, proof of address, valuation report, and solicitor details. The lender or broker will then conduct a credit check and a property valuation to assess their eligibility and the risk involved.

• Review the offer and the terms and conditions of the loan. If you are happy with them, sign the loan agreement and pay any fees or charges that may apply.

• Receive the funds in your account within a few days of completing the process.

Conclusion

Bridging loans are a type of short-term finance that can help property buyers and developers in Scotland to buy or develop a property or land before they sell their existing one or arrange long-term finance. They are flexible, fast, and convenient, borrowers need to weigh the pros and cons carefully before applying for one. They also need to find an experienced and reliable broker who can offer them a bridging loan in Scotland that suits their needs and circumstances.