Bridging finance

Bridging finance, often referred to as bridging loan, is a financial resource for those looking for a fast purchase that they will pay back in a few months. They are often used to ‘bridge’ the gap between purchase and longer-term finance.
It’s a solution for when the mortgage will take too long to be approved, or the property will not be approved for a standard mortgage (for example, if it has structural problems or if you are yet to find a buyer for your current home). In this article, you will gt to know more details about using bridging for many situations where this type of finance can be your solution.

What is a bridging loan?

A bridging loan is a type of flexible, short-term finance that is often used when quick payment is required, and there is no time to arrange an alternative, like a mortgage.

They are very quick to arrange, and it’s sometimes possible to have one in place within 72 hours, although 5-10 days is more typical - and this can depend on the service offered by the lender, and solicitor, as well as how straightforward your application is.

Interest is charged monthly, rather than annually, as a typical bridging loan term is 1-24 months. Rates are typically higher than other forms of finance, but competitive rates can be found with the right guidance!

Underwriting is usually more flexible than for longer-term finances, such as a mortgage. Credit scores and property condition are not a big focus for the lender. You will need an exit strategy in mind when you apply, often this is refinancing onto a long term form of finance, but could also be sale of the property or asset.

What can it be used for?

Bridging finance is most effective for purchase situations where fast payment is needed, for example:

Auction purchase - to meet the 28 days payments terms for any type of auction purchase.
Break a chain - you won’t need to miss out on your new dream home if you can’t sell your current residential property quickly enough.
Investment Properties - Bridging finance can be useful for investors looking to purchase properties to renovate and then resell for a profit. Standard mortgages might not be suitable due to the short-term nature of the investment.
Property Type -Some property types, like unconventional or non-standard construction, might not be eligible for standard mortgages. Bridging finance can be used to acquire such properties while alternative financing solutions are sought.
Property renovation - get your uninhabitable residential or commercial property into a mortgageable state before you apply for long-term finance.
Commercial development - prepare your residential and non-residential investment property for rental or resale to maximise profitability before going to market.
Business purchases - non-property related commercial purchase, such as assets, inventory or even complete business and management buyouts.
Land purchase - whilst application for planning permission is made so that you can refinance onto a land mortgage.
Inheritance tax - Whilst waiting for inheritance funds to clear

How does bridging finance work?

The time it takes to arrange a bridging loan can sometimes depend on the size of the loan needed, with modest amounts typically arranged more quickly. Multi-million pound loans can take a little longer, but are certainly something we can help with.

You can use resale of the purchased property as an exit strategy, but bear in mind that some lenders require you to have owned the property for six months before you resell it. This is something to consider when deciding how long to take your loan for.

Interest can be paid monthly, much like an interest-only mortgage or can be ‘rolled up’, which means it’s added to the total cost of the loan and repaid at the end of the term. You can also choose a retained interest bridging loan - where the interest is pre-agreed at the beginning of the loan.

Bridging loans can be repaid at any time and you will only pay interest accrued up to the point of repayment unless you opt for the retained interest option or you repay within the first 30 days.

What costs are involved in bridging finance?

Deposit - typically 30-40% of the asset value, although some lenders offer a higher LTV (loan to value). In some cases lenders may be willing to consider other forms of collateral instead of cash deposits, such as high-value assets.
Arrangement fees - between 1-2% of the loan value, but varies by lender and loan size.
Exit fees - most lenders won’t charge you an exit fee. An exit fee of 1% may be payable for some development loans.
Legal fees - both personal and the lender’s legal expenses are payable by the borrower.
Valuation fees - varies depending on the value of the asset.
Drawdown fees - sometimes known as an admin fee, this is the cost to access the loan.

Will I need a regulated or unregulated bridging loan?

It depends what you need the loan for. Owner-occupier bridging loans will always be regulated by the FCA (Financial Conduct Authority), whereas commercial purchases for both private business use and investment will not be.

There are fewer regulated bridging lenders in the market, but we have access to plenty of options, should you need one for this purpose.

Who is eligible for a bridge loan?

Eligibility requirements can vary widely depending on the lender's policies. Lenders typically consider factors such as the value of the property, and exit strategy (how the borrower plans to repay the loan). As the asset is the guarantee, credit score and income are not in the spotlight. That being said, generally, the following individuals and scenarios are more likely to be eligible:

A private individual, partnership or limited company.
Purchasing or refurbishing residential or commercial property.
Over the age of 18 years old - some lenders have an upper age limit.
Live or have a registered address in the United Kingdom.
Has a form of security – usually one or more properties that the loan can be secured against.
Has a defined exit route – plans to sell the property, refinance or money due to be received.
Wants to borrow at least £100,000.
Employed, self-employed or retired.

Loan terms

Loan size: £100k - £50m
Length: 1-24 months
LTV (Loan to value): Max 75%
Rate types: Fixed or variable
Acceptable exit strategies: Sale or refinance (buy-to-let advice available)
Acceptable security: Residential property, commercial property or land
1st or 2nd charge
Property location: England, Scotland or Wales

Swift Application

Speed is the key benefit of bridging finance, so if this is your priority, Home of Specialist Finance will recommend the most appropriate lender for a quick turnaround. Bridging finance can be arranged in as little as 3 days in some cases - 7 days on average - with 3 weeks the typical time taken to draw down the loan.

Applications for bridging finance are assessed on their own merit, so it’s important to have a robust application to maximise your potential for success. Home of Specialist Finance can review and help to improve your application, as well as aid negotiations with the lender to ensure transparency of terms and costs.

Commercial mortgages can be used to support high-value buy-to-let portfolios or larger commercial investments, such as retail or leisure. However, keep in mind that the majority of these options take much longer to arrange than bridging loans. The main advantage offered by a bridging loan is speed!

If you’re looking to refinance on exit, we can advise you on the best next steps, whether that’s buy-to-let, development finance or a commercial mortgage.

Contact our expert team today on 0208 5171141.

Why speak to Home of Specialist Finance?

At Home of Specialist Finance we pride ourselves on our expert knowledge, speed and competitive pricing. We can guide you through any complexities in the process and clarify jargon, as well as providing expert advice on the type of product that will serve you best.

Our expertise and knowledge can play a huge role in securing the right lender and product for your needs.

Whatever your bridging finance needs, we can offer jargon-free advice and guidance throughout the entire process. Find out more about how we can help here.

Contact our expert team today on 0208 5171141

Bridging Finance FAQs

Should I use an open or closed bridging loan?

Closed bridging loans have a fixed repayment date, and are generally only available to those with a substantial exit strategy. They often have lower interest rates as they are considered lower risk.

Open bridging loans can be useful for property development, as there is more flexibility if you experience project delays. However, this means higher interest rates to balance the additional risk.

Are there any alternatives to bridging finance?

Yes there are, although whether they’re suitable will depend on your needs. For example:

In the case of breaking the chain, a second charge mortgage or remortgage could be used.

Buy to let mortgages can be used for investment properties that need little to no renovation.

Development finance is a similar short-term finance aimed specifically at property developers.

Commercial mortgages can be used to support high-value buy-to-let portfolios or larger commercial investments, such as retail or leisure.

However, keep in mind that the majority of these options take much longer to arrange than bridging loans. The main advantage offered by a bridging loan is speed!