From Dream to Reality: A Bridging Loan can Make Your Goals Achievable Now!
Using a bridging loan
Bridging loans, often referred to as bridging finance, are versatile financial tools designed to address short-term funding needs, providing a swift and flexible solution for individuals and businesses. These loans “bridge” the gap between the need for immediate capital and the eventual availability of long-term financing or sale of the security.
Key Uses of Bridging Finance:
- Property Transactions: Bridging loans excel in property-related scenarios, facilitating quick purchases or bridging the gap during property sales. Whether you’re securing a new property investment or awaiting the finalisation of a project, bridging loans offer rapid access to funds.
- Downsizing and Upsizing: Individuals looking to downsize or upsize their homes can benefit from bridging loans. These loans enable a smoother transition, allowing borrowers to move faster without waiting for the sale of their existing property.
- Auction Purchases: Bridging loans are popular among buyers at property auctions. The fast-paced nature of auctions requires immediate financial commitment, and bridging loans provide the necessary funds to secure properties under competitive conditions.
- Business Ventures: Entrepreneurs often turn to bridging finance to capitalise on time-sensitive business opportunities. Whether it’s seizing a lucrative deal, covering operational costs, or managing cash flow gaps, bridging loans offer agility.
- Property Development: Property developers frequently utilise bridging loans to kickstart projects. These loans provide the initial capital needed for acquisitions, construction, or renovations, with the intention of refinancing once the project reaches a more stable phase.
In essence, bridging loans are a dynamic financial tool, offering speed and flexibility for various needs. As a reliable solution for short-term financial gaps, they empower borrowers to navigate challenges and capitalize on opportunities without delay. If you’re seeking swift and efficient financing, consider the strategic advantages of a bridging loan.
Types of bridging finance products:
Standard bridging loan
Used for an auction purchase or other situation where speed of funds being available is of the essence.
Also used for a below market value purchase of a property or portfolio to allow up to 100% borrowing against the purchase price.
Regulated bridging loans
Where the security for the loan is a first charge against your residence or a close family member then the case becomes a regulated bridging loan under the Financial Conduct Authority rules which can restrict the products and terms available.
If you are using a bridging loan in this way it is very important to discuss this with your broker to ensure the product arranged is the perfect regulated bridging loan.
Refurbishment loan
Where a property is being purchased to improve it, convert it or where the property has been deemed unsuitable for mortgage purposes then a refurbishment loan is the answer.
Just an unusable bathroom or kitchen will mean that a standard mortgage lender deem the property unsuitable, meaning a refurbishment bridging loan is likely to be the answer.
Refurbishment loans can be heavy refurbishment or light refurbishment. This depends on the amount of work required, whether or not it is structural and if planning permission is needed.
Our comprehensive guide to refurbishment finance can be found here.
Development loan
For ground up developments a simple bridging loan is not normally the ideal answer.
Development finance is based on the finished value of the build project. Funding based purely on the value of the land would be insufficient to complete the build.
Our guide to development funding will give you the understanding you need to get your next build project out of the ground.
Bridging finance – Frequently Asked Questions.
What is a bridging loan?
A bridging loan is a short-term loan that can be used to bridge the gap between buying a new property and selling an existing one, refinancing or selling the subject property.
How does bridging finance work?
There are two types of bridging loans: closed bridging loans and open bridging loans.
With a closed bridging loan, there is a fixed repayment date, which is usually given if the buyer has exchanged contracts but is waiting for a property sale to complete, the property is being refurbished prior to refinance or sale or refinanced following an auction purchase
With an open loan, there is no fixed repayment date, but the borrower is expected to pay it off within three years.
The lender will want to see evidence of a clear repayment strategy, such as using equity from a property sale or remortgaging the property.
How much can you borrow with a bridging loan?
It is possible to borrow varying sums of money, ranging from £25,001 to hundreds of millions of pounds.
The limits are really set by the value of the property available as security (which can be your existing portfolio as well as what you are purchasing) and your ability to meet your exit plan.
Lenders will typically allow funding of up to 75% loan to value but up to 80% is available in some cases and even 90% for refurbishments or conversions.
What are first and second-charge bridging loans?
When you take out a bridging loan, a ‘charge’ will be placed on your property. This is a legal agreement which prioritises which lenders will be repaid first should you fail to repay your loans. Both a first and second charge bridging loan (and sometimes even a third charge) take your property as security in case you default on repayments. Typically, if you still have a mortgage on your property, the bridging loan will be a second charge loan, meaning that if you failed to meet repayments and the property was sold to pay off your debts, the mortgage would be paid off first.
This means that with a second charge bridging loan there is greater risk for the lender. This can reflect in a higher interest rate or a lower loan to value.
What are the pros and cons of a bridging loan?
Advantages of a bridging loan include quick access to funds, flexible repayment options, the ability to secure a property quickly, the ability to raise finance on a property which is “not suitable for mortgage purposes” or one which you’re not planning to retain.
Disadvantages of bridging loans include higher interest rates than typical mortgages, high fees, and the risk of losing your asset if you cannot repay the loan at the end of the term.
How many bridging loan lenders are there?
The Acorn.finance lending panel includes well over 100 bridging lenders, each having their own lending criteria, specialisation and uses.
Your expert bridging finance broker will work with you to ensure that you get the funding you need, when you need it!
What is a bridging mortgage?
The term “bridging mortgage” is an alternative but not often used term for a bridging loan, although the term “mortgage” often refers to a long term loan secured against property it is actually the act of taking the security against a property. So Bridging Mortgage is just another term for bridging finance!