Can I use a Lisa with a bridging loan?

se2020

FTB, found a property that needs some work doing before I could get a normal residential mortgage against it.

Looking at a bridging loan until the work is done.

Can I use the funds  (and bonus) in my LISA in conjunction with a purchase on bridging finance?

K_S

@se2020 In principle, I can't see why not, as long as you're buying the house to live in.

Only condition that might be problematic (if you can't occupy the house during the renovation) is "buyer must occupy the property as their main residence immediately on completion"

If you do go down this route, as the sols have to do the LISA admin work during conveyancing, it would be best to confirm this with them before instructing.

se2020 said:

FTB, found a property that needs some work doing before I could get a normal residential mortgage against it.

Looking at a bridging loan until the work is done.

Can I use the funds  (and bonus) in my LISA in conjunction with a purchase on bridging finance?

se2020

I would be in occupation from day one, although a standard mortgage company classes the house as uninhabitable so I'm not sure how that would pan out...

K_S

@se2020 As long as the terms of the loan don't stop you from living in the property (like they would for a BTL mortgage), I don't think it should matter but again definitely run it past the solicitor you're going to use before instructing them as they're the ones who'll need to confirm that the applicant meets the terms of the LISA and they're unlikely to have regularly come across FTBs using a LISA with a bridging loan to buy a run down property.

se2020 said:

I would be in occupation from day one, although a standard mortgage company classes the house as uninhabitable so I'm not sure how that would pan out...

Lazybumm

@se2020 could you please provide an update on this? Did you manage to complete with a bridging loan and use your LISA?

I'm in the same situation and no one seems to have a satisfactory answer. 

se2020

Lazybumm said:

@se2020 could you please provide an update on this? Did you manage to complete with a bridging loan and use your LISA?

I'm in the same situation and no one seems to have a satisfactory answer. 

I did discuss this with various professionals, 
The short answer,  yes, my solicitor would have been prepared to draw down funds from the lisa.
I needed to live in the property from day one. 
The fact it was classed as 'inhabitable' was only an issue with a normal mortgage provider. 
The bridging loan needed to be 'regulated' to satisfy the conditions of the Lisa.

As it happens I got outbid by a cash buyer.
Having said that, the fees were horrendous, 
I was looking to borrow £300k on a bridging loan, just the payments on that would have cost me £30k for one year or £55k for 2 years. Solicitors fees were about £1500 more than  a standard purchase as well.
My biggest concern was bringing the property up to the standard needed to get a regular mortgage in 1/2yrs time. 
I was hoping to do most of the work myself but I think I would have struggled to get it done in the 2yrs.
I could have paid help to get it done but I was already taking at least £30k out of my funds for the loan and obviously had the higher loan repayment as I went along. Kind of glad I got outbid as I'd have been panicking for the first couple of years until I knew I could secure a regular mortgage to pay off the bridging loan.

In short, I think a bridging loan might be an option if you have a property to sell or an inheritance coming to repay it with. Would have been a bit of a gamble in my situation. 

se2020

Another thing I didn't like,
There was a £10k fee for arranging the bridging loan.
This seemed to be due once the loan was approved. 
Probably not an issue if you were buying from auction (and guaranteed to exchange) but seemed like an extra £10k risk on a normal purchase where the seller could pull out any time before exchange. 

Lazybumm

se2020 said:

Lazybumm said:

@se2020 could you please provide an update on this? Did you manage to complete with a bridging loan and use your LISA?

I'm in the same situation and no one seems to have a satisfactory answer. 

I did discuss this with various professionals, 
The short answer,  yes, my solicitor would have been prepared to draw down funds from the lisa.
I needed to live in the property from day one. 
The fact it was classed as 'inhabitable' was only an issue with a normal mortgage provider. 
The bridging loan needed to be 'regulated' to satisfy the conditions of the Lisa.

As it happens I got outbid by a cash buyer.
Having said that, the fees were horrendous, 
I was looking to borrow £300k on a bridging loan, just the payments on that would have cost me £30k for one year or £55k for 2 years. Solicitors fees were about £1500 more than  a standard purchase as well.
My biggest concern was bringing the property up to the standard needed to get a regular mortgage in 1/2yrs time. 
I was hoping to do most of the work myself but I think I would have struggled to get it done in the 2yrs.
I could have paid help to get it done but I was already taking at least £30k out of my funds for the loan and obviously had the higher loan repayment as I went along. Kind of glad I got outbid as I'd have been panicking for the first couple of years until I knew I could secure a regular mortgage to pay off the bridging loan.

In short, I think a bridging loan might be an option if you have a property to sell or an inheritance coming to repay it with. Would have been a bit of a gamble in my situation. 

Thank you, appreciate you coming back on this. 

Yes so far I found out that there's regulated and unregulated bridging loands. Given that I intend to live in the property from day 1, it needs to be a regulated one. That means you cannot go directly to the lender, it needs to go through a broker and their fees for such products are in the 1000-1500 range. There's additional arrangement and legal fees from the lender side etc. 

In my case it's not so bad as I only need the loan to meet the qualification criteria for drawing from my LISA. Best quote I've had so far was ~3000 in fees and interest (inclusive) for 1-2 months, as I intend to pay this back instantly as soon as the transaction has completed. 

It's still an unexpected 3k expense but better than the 25% penalty on the LISA that I would have to take otherwise. 

Posting here in case anyone else finds this useful as I really struggled to find more info online.

It's unfortunate that the gov stipulates this term to penalise cash buyers. When I started contributing to my LISA some 6-7 years ago I had no idea what kind of property I'd be looking to buy, when and how... I'm buying a property for a bit under 140k, about half the national average house price. If this term was intended to exclude well-off people, I don't see how it's suceeding at that. With 140k in savings in my mid-30s, have I been diligently saving for a long time? Yes. Am I particularly "rich"? Not by a long shot...

se2020

Just get the actual figures for the bridging loan cost and do the maths. 
It might work out cheaper to take the hit on the Lisa withdrawal charge.

If the only reason you need the bridging loan is to meet the Lisa conditions a personal loan would certainly be cheaper then leave the funds in the Lisa for retirement. 

I believe a "personal mortgage" is also acceptable within the Lisa rules if you have any friends/relatives that can lend you the cash short term?

se2020

Lazybumm said:

It's unfortunate that the gov stipulates this term to penalise cash buyers. When I started contributing to my LISA some 6-7 years ago I had no idea what kind of property I'd be looking to buy, when and how... I'm buying a property for a bit under 140k, about half the national average house price. If this term was intended to exclude well-off people, I don't see how it's suceeding at that. With 140k in savings in my mid-30s, have I been diligently saving for a long time? Yes. Am I particularly "rich"? Not by a long shot...

I don't think it's intended to penalise cash buyers.
I think the original point of the Lisa was to help first time buyers save the minimum amount needed for a deposit and to help increase house prices.

I was aware when I opened my Lisa that I may not potentially be able to use it against my first purchase.  I didn't/don't actually need it to raise the minimum amount I would need.for a deposit but due to my above average age for a ftb I'd rather be going in with a 25% deposit and a shorter mortgage term than a 10% deposit and higher monthly payments or a term that takes me into retirement. 

The 25% bonus paid was far to tempting not to take the risk of filling it each year. 
I don't currently have any pension arrangements either so, if I can't use it in conjunction with my ftb purchase I'll switch it to a s&s and plan to use it for retirement savings.


Is there anything actually wrong with the property you are purchasing?
If not, It might well work out cheaper not to use all of your savings to be a cash buyer.
Just take out a normal mortgage for the minimum amount you can borrow (about £50k?)
Pick an offset mortgage or one with no fees for overpayments and you might be able to clear it for £1500 or so in fees.

Lazybumm

Bridging loan will cost ~£3k if paid back within a month (inclusive of arrangement fees, broker fees, redemption fee and a month's worth of interest). 

LISA atm has ~£42k so the 25% penalty would be >£10k.

Property has a 57 year lease with an absent freeholder. Whilst the former was not neccessarily a dealbreaker for mainstream lenders, the latter most def was. Property was won at auction. 

There's nothing wrong with the property and the main reason I'm purchasing is because I like it. The short lease is easily extensible, especially with the reforms kicking in soon that will abolish mariage value. It will just take some time to get it all sorted (or even better purchase the freehold if the 2nd leaseholder in the building agrees). 

Personal loan or personal mortgage are most certainly options - I was not aware that these would tick the eligibility criteria for the LISA. I'm mainly confused by the wording in the guidance the government provides for conveyancers re LISA found here assets.publishingservice.gov.uk/government/uploads/system/uploads/attachment_data/file/691773/conveyancer__1___5_.pdf

 The purchase must be— (a) funded by a loan that will be secured by a charge over the land by way of— 
    (i) a legal mortgage (if land in England and Wales),   

and then further down

You must:  - purchase a legal interest in land with a loan taken as a charge over the property i.e. a mortgage but not a ‘buy to let’ mortgage; 

Unsure if you can get a personal loan with a 1st charge over the property whilst purchasing the property. Secured personal loans seem to be most targeted at people that have built up equity. Though theoretically I don't see any issue here. I can try talking to my bank about this.

Re borrowing money from friends / family looks like it's def possible to create a legal charge against the property so this should in theory qualify. The land registry has a couple of forms that need to be filled to register the charge and some legwork for my solicitor to draw the agreement. 

I will be picking this up with my solicitors first thing in the morning. 

Thank you kind stranger you might have just saved me ~£3k as I was ready to go ahead with the bridging loan application tomorrow.