A bridging loan or often called, bridging finance, is a short-term borrowing facility. Bridging finance is usually used to ‘bridge a gap’, usually maximum of 12/24 months, between a property purchase and sale.
Bridging finance can be set up quickly and act as a ‘chain break’ until a property is sold, or a new mortgage has been arranged. They are often used in property transactions when timing is crucial.
A bridging loan can be in the region of £5,000 up to £25m+ and can be set up in a matter of days.
In our experience, a bridging loan is often used by investment property owners looking for development options or high-end residential purchases to plug a gap with a sale and a purchase.
We usually advise clients to factor the cost of bridging into their return-on-investment calculations to get a clear picture of whether it’s worth the additional fees.
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Bridging loans can serve various purposes, including:
Property Transactions – Bridging loans are commonly used in property transactions to bridge the gap between the purchase of a new property and the sale of an existing property. This helps buyers secure a new property without having to wait for their old property to sell.
Auction Purchases – They can be used to secure properties bought at auctions where immediate payment is required. Time is critical here as usually a deposit is paid immediately when the auction ends.
Property Development – Developers might use bridging loans to fund construction projects while waiting for long-term financing to come through. Examples here include a purchase of a doer-upper property that requires renovations including a new kitchen and bathroom etc to allow it to be ‘mortgageable’.
Business Needs – Businesses might use bridging loans for working capital, expansion, or other short-term financial needs.
Apply NowDepending on your personal situation, there may be alternatives to taking out a bridging loan. Here’s a short list of the most popular ones, your advisor will run through these in more detail.
A Regular Mortgage – This will depend on whether this longer-term finance will suit your situation and if the property is in a condition to qualify for a mortgage.
Secured Loan/Second Charge – As above, in addition, you’ll need permission from your existing mortgage lender and enough equity in the property to qualify.
Personal Loan/Credit Cards – If you’re only looking for a small amount it might be worth considering unsecured borrowing such as a personal loan or credit card.
Development Finance – These loans work in a slightly different way and can be a great product for investors looking at refurbishment projects. We’ll help compare options here.
Fast House Buying Companies – These can be useful if you’re looking to release cash in the short term and qualify for a good price.
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A closed bridging loan has a predetermined repayment date, typically when a specific event occurs, such as the sale of an existing property. This type of loan is suitable when you have a clear and fixed timeline for repaying the loan.
An open bridging loan does not have a specific repayment date and is used when the borrower is confident about repaying the loan but hasn’t yet finalised the exact timeline. This type of loan offers more flexibility in terms of repayment.
A residential bridging loan is used by individuals to purchase or refinance residential properties. It can be used for various purposes, such as buying a new home before selling the existing one.
A commercial bridging loan is tailored for businesses and can be used for purchasing, refinancing, or developing commercial properties.
This type of loan is specifically designed for property developers and is used to finance construction or development projects. The loan is usually based on the project’s value and potential future value.
A regulated bridging loan is subject to regulatory oversight, typically when the borrower is an individual and the loan is secured against their primary residence. This is often used when there’s a delay in the property sale.
An unregulated bridging loan is not subject to the same regulatory requirements and is typically used for commercial or investment purposes.
In a first charge bridging loan, the lender has the primary claim on the property’s value as collateral. This is common when the property is unencumbered or has a small existing mortgage.
A second charge bridging loan comes into play when there’s an existing mortgage on the property. The lender takes a secondary claim on the property’s value after the primary mortgage lender.
This type of loan is used to fund the renovation or refurbishment of a property. The loan amount is often based on the property’s after-renovation value.
A bridging to let loan is used by property investors to purchase a property, renovate it, and then refinance with a buy-to-let mortgage once the property is ready for rental.
This type of loan is used to finance the purchase of a property with the intention of quickly selling it at a higher price. It’s often used by property flippers or investors aiming for short-term capital gain.
Auction finance bridging loans are specifically designed for purchasing properties at auctions, where immediate funding is required.
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This will depend on whether this longer-term finance will suit your situation and if the property is in a condition to qualify for a mortgage.
As above, in addition, you’ll need permission from your existing mortgage lender and enough equity in the property to qualify.
If you’re only looking for a small amount it might be worth considering unsecured borrowing such as a personal loan or credit card.
These loans work in a slightly different way and can be a great product for investors looking at refurbishment projects. We’ll help compare options here.
These can be useful if you’re looking to release cash in the short term and qualify for a good price.
While creditworthiness is considered, the decision to grant a bridging loan is often more focused on the value of the collateral and the viability of the exit strategy.
In addition to the interest rate, borrowers should be aware of other costs associated with bridging loans, such as arrangement fees, valuation fees, legal fees, and potentially early repayment charges. All the costs will be explained clearly as part of the bridging finance advice process.
Borrowers need to carefully consider the risks associated with bridging loans, including the potential challenges in securing long-term financing or selling the asset within the expected timeline.
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UK Moneyman Limited is Registered in England, No. 6789312
Registered Address: 10 Consort Court, Hull, HU9 1PU.
Authorised and Regulated by the Financial Conduct Authority.
We are entered on the Financial Services Register No. 627742 at www.register.fca.org.uk
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UK Moneyman Limited is Registered in England, No. 6789312
Registered Address: 10 Consort Court, Hull, HU9 1PU.
Authorised and Regulated by the Financial Conduct Authority.
We are entered on the Financial Services Register No. 627742 at www.register.fca.org.uk
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