Overseas Bridging Finance Guide
Have you ever considered buying property abroad as an investment, a family or personal getaway, or possibly even a place where you can enjoy your retirement later on in life. If the notion of overseas property appeals to you, then you ought to look into overseas bridging finance.
What is overseas bridging finance?
To review, bridging finance – also known as bridging loans – is a short-term property-backed financial instrument.
Banks and lenders usually offer bridging finance for a period of as short as two weeks or a maximum of 18 months. They are commonly used by those who wish to purchase a new home or a piece of industrial or commercial property but do not have ready funds for the transaction to take place.
Bridging finance calls for a clear exit strategy as an assurance to the lender that it will be paid off at the end of the stipulated period. These funds for payment usually come from the proceeds of one’s old house or the rent collected from refurbished property let out to commercial clients.
Overseas bridging finance to purchase property works on a similar principle: it is a short-term funding solution for buying property overseas, regardless of whether it’s for a holiday home, a timeshare, or an offshore investment or expansion option for a corporate entity.
Why would you get overseas bridging finance?
- Overseas bridging loans gives you time to sell an existing property in the UK. You can settle the remaining balance on an overseas property purchase or arrange for more traditional finance;
- It enables you to make prudent – and quick – decisions regarding overseas properties that are going fast. You can expect loans released within 24 hours; and
- If you aim to purchase property at an auction, having a bridging loan in hand ensures that you have available cash for a successful transaction.
On what occasions would you need overseas bridging finance?
Overseas property bridging loans come in handy for individuals under the following circumstances:
- If you find an ideal overseas property that requires an immediate offer or an urgent sale;
- The property you’re interested in is under a complex title under local property laws;
- You cannot access your main financial lenders/partners due to distance; or
- A long mortgage application with a traditional lender wouldn’t be a practical choice given the location.
How does an overseas bridging loan work for an overseas property?
Let’s say you paid a substantial deposit on a house or any other piece of property abroad. However, given the challenge of raising finance to pay off the balance in the country where the property is located, you’re in danger of losing that deposit and the property.
If you go for an overseas bridging loan, you will have the finance to tide the transaction over. The loan can be secured for a few weeks or months on an existing home or any other UK-based property you have. This runs for the period covering the time between the date of purchase and the maturity date of the endowment.
Note that overseas bridging loans can be used to cover up to 75 per cent of a property’s loan-to-value (LTV.)
What can overseas bridging loans be used for?
Most bridging loans can be used to cover the cost of purchase, construction finance, or refurbishment of any of the following abroad:
- Property for residential, commercial, or mixed-use;
- Raw, undeveloped land;
- Hospitality venues such as hotels and resorts;
- Corporate structures such as office buildings and towers;
- Industrial property and/or warehousing facilities;
- Build-to-rent property;
- Retail structures or enclaves; or
- Development exit bridging.
For those who want to purchase overseas properties for business, these bridging loans can:
- Be used to pay for the conversion of commercial property into a residential zone;
- Serve as temporary financing for property purchases prior to the placement of commercial finance instruments;
- Be used to pay local/national taxes in the country where the property is located;
- Serve as financing for a startup or franchise;
- Serve as finance for commercial business auctions; and
- Be used to pay to extend a standing business lease.
What should you look for in overseas bridging finance?
Regardless of whether you’re using it to purchase, build, or renovate domestic or offshore properties, a good bridging loan should work on your terms. In which case, it is best to ask the following details:
- What is your ideal duration for the loan?
- How many weeks or months will it take you to completely pay it off?
- What are the borrowing limits stipulated by your lender/lenders?
- Do your lenders offer flexible interest payments?
- Do your lenders offer rolled-up interest that you can pay for in one go upon the completion of the project?
- Will the interest on your loan be serviced monthly or can you and the lender agree on different terms?
Things to remember before securing any type of bridging finance:
- Regardless of what type of finance options you avail of, lenders will ask you to present a clear exit strategy prior to approval. We have stated before that your exit strategy is the manner by which you will repay the full amount of the loan by the time its maturity date rolls around. For the most part, exit strategies usually involve using the profit earned on the sale of existing UK property to repay your loan.;
- To avoid paying monthly interest on a bridging loan, ask if you can roll out the interest and pay it at the end of the finance’s duration. Rolling out the interest enables you to direct the full amount of the loan to your purchase of property abroad as opposed to using it to service monthly interest payments. You do, however, need to pay the full amount upon maturity of the loan.
Get in Touch with The Bridging Loan Company
Don’t second-guess your overseas bridging loan needs. Get in touch with an expert broker like us for advice and a fast quote. To get some online indicative prices, use our bridging loan calculator to work out potential costs.
For more information, fill out the contact form here and leave your contact number and other information, or give us a call at 0808 301 9509.