A bridging loan is a secured loan, usually taken out over a short period, and primarily used to bridge the gap between a property sale and a property purchase, although there are many other situations where bridging finance can prove valuable.
Bridging is a useful form of finance to ease your journey from A to B. It’s also an often misunderstood form of finance but has an important role to play in the property market.
What can Bridging loans can be used for?
There are many situations where a bridge can prove the right choice. You may have found your dream home but not yet sold your existing property, or seen a sale fall through on your existing property but still wish to buy the new house you planned to move to.
If you’re renovating a property that isn’t habitable, this type of short-term development finance might be the right choice. Buying an auction property might require faster finance, or you might be buying land for a self build project.
Bridging loans are available on commercial property, residential property, new property, and even buy to let properties and refurbishments/redevelopments.
Bridging finance can be the answer to all your problems, giving you access to financing over a short term, usually without having to make monthly interest payments until the loan is repaid.
At Mortgage360, we can help you secure bridging finance. We’re a specialist bridging loan broker, organising bridging finance for clients for all sorts of reasons. It’s usually quicker to secure than a conventional mortgage and can play an important role in ensuring your property plans aren’t derailed by circumstances often beyond your control.
What are the requirements for getting a bridging Loan?
Different loan providers will have different criteria when considering applications for loans in this market. Your bridging loan broker will advise you further.
However, some of the most common criteria include;
- You must be 18 or older and live in the UK
- You can be employed, self-employed or retired
- You must be purchasing or refurbishing a property with the bridge loan
- You must have security – usually a property – to secure the loan against
- You must have an exit route planned, or strategy, in order to repay the bridging loan (selling the property, remortgaging or proof of monies to be received)
- You can be a private individual, a partnership or a limited company
It’s worth noting that some lenders insist that applications for bridging loans are made through a bridging finance broker, thereby protecting the borrower by ensuring that they have access to specialist advice during the process.
How Does a Bridge Loan Work?
Bridging loans can be arranged for a period as short as a week or as long as two years.
You’ll need a deposit
The minimum deposit, or equity already held in a property required for a bridge is usually around 25-30%.
Interest rates are generally higher
Bridge lenders charge higher interest rates than on mortgages. The arrangement fee can often be higher too. This is because lenders assess risk when making the decision to lend, and the commercial value to them in releasing a bridging loan for what is usually such a small amount of time.
Short-term finance facility
A regulated bridging loan is a useful facility for short term loans. Unlike mortgages, which are typically repaid on a monthly basis, bridging loan finance tends to be repaid as a lump sum including the accrued interest ‘rolled-up’ when the loan term expires, or a related property to the transaction completes on it’s eventual sale. This is a useful aspect if you’re waiting for funds from a property sale or a remortgage and can help with your cashflow and outgoings.
You need to show evidence of how you will repay the loan
Bridging finance lenders will want to know exactly how you’re planning to repay the money – known as your ‘exit strategy’. Unlike a long term mortgage, where the capital is paid back over time, this short-term option is repaid as a lump sum, and most lenders will want to know how you will achieve this.
There are a number of options;
- Refinancing by taking out another loan (usually a long-term financing product such as a new traditional mortgage) with a new lender, who repays your bridging loan.
- Selling the property you are securing the bridge against. Bridging loans can be arranged with flexibility on the length of the loan term to allow for a property sale to progress.
- You may choose to sell an asset such as another property, a business or even stocks and shares, or you may be due to receive an inheritance which will pay off the total.
Bridge loans are short-term financing options. At Mortgage360, we’ll look at your personal circumstances to give you the right advice, while organising your bridge quickly so that everything is in place.
Can I get a bridging loan faster than a mortgage?
The speed at which funds can be released is typically much quicker than the mortgage process, which is one of the main advantages of this type of solution. However, they do attract higher interest rates and higher arrangement fees. Bridging loan brokers will advise you on this aspect.
Advantages and disadvantages of a bridging loan
Regulated bridging loans work like mortgages in many ways. Interest (at both fixed and variable rates) is paid on the loan over an agreed term, and lenders place charges on assets, typically a property you already own, or will soon do so. Here are some of the main benefits and drawbacks;
- Speed of arrangement – if you need your finance quickly, the bridging loan process is far quicker than a conventional mortgage.
- No monthly interest repayments – most bridging lenders offer finance on the basis that the interest accrued is paid off as part of your exit strategy. You can, however, opt to make monthly payments if you prefer.
- Flexibility – bridging loan lenders are usually not mainstream providers and are therefore prepared to be more flexible and make swifter decisions.
- Less hassle – bridging finance is usually less complicated to arrange than a mortgage, so long as you have the required security and exit strategy in place.
- Lender fees and other fees – you’ll almost certainly have to pay fees, as you would with a traditional mortgage.
- Cost – this type of finance is more expensive as it is generally viewed as a riskier prospect. However, the reason you need bridging finance will almost certainly justify the higher interest rates.
How can Mortgage360 help you apply for bridging finance?
As a bridging broker, Mortgage360 specialises in sourcing bridging finance. We can secure the best rates and the best deal with the right lender based on your individual circumstances, saving you time and money in this fast-moving sector. We’ll provide you with expert advice and take you through the whole process from start to finish, helping you to achieve your property goals. Call us or complete the form online now to start the process.