A bridging loan (or bridging finance) is a popular form of short term finance typically used to ‘bridge’ the gap between the purchase of one property and sale of another.
Popular uses include:
Lenders work to varying timescales, our commercial partner firm can complete applications within 5-14 days. Once your application has been received, our commercial partners can usually provide an agreement in principle for you within 4 working hours.
Although they come with a cost, they can be a benefit to you overall. When used to buy property undervalue or refurbish, your profits can far exceed the cost of taking out the loan.
When using bridging finance to keep your place in a chain or purchase a property quickly, they can be used to avoid losing out on a property that you’re keen to secure. The cost of the loan may then pale into insignificance if you then go on to enjoy many years in the home.
There are four major reasons why these loans may be right for you:
Our partner firm can fund up to 80% of the property value and up to 100% of the purchase price. Lenders take a different approach, and terms can vary. Your borrowing power can increase if you are able to offer additional security e.g. another property.
The figure of 80% is based on the gross loan. If you wish to deduct the interest from this amount, the amount you will receive will be 80% minus the interest and fees you have chosen to deduct.
The biggest risk you face is your exit route – this is how you intend to repay the loan. As the interest payments are usually rolled into the loan, even if the interest is high, this often doesn’t cause an immediate problem.
Ensuring you are able to repay at the end of the term is vital – if you hope to repay the loan through refinancing, it is important to ensure that you are able to secure a mortgage in principle on the property. It is good practice to have multiple exit routes.
Where you wish to sell property at the end of the term, ensure you have asked local estate agents the demand in the area and how quickly they believe they could sell the property. This is crucial, as any delays will be costly.
By taking these additional steps, you will remove a large amount of the risk.
Bridging loans are issued on an interest-only basis. They work in much the same way as an interest-only mortgage, in that they must be repaid in a lump sum at the end of the term.
As the term ends, the lender will contact you to ensure your repayment method is on track and the loan will be repaid.
Generally, these loans are used for a reason, but there are alternatives. They won’t always be suitable, but in some cases may be and could save you money.
Yes. There are many lenders who would provide a bridging loan to borrowers who have a history of adverse credit; this includes CCJs, defaults and even current mortgage arrears.
Our free bridging loan calculator is designed to make the process of finding out the likely costs of taking out the loan. There are countless lenders out there, all of whom will charge different interest rates and arrangement fees. Simply enter the details of the loan in the highlighted fields, the “net lender contribution” is the total loan you will receive after fees and interest has been deducted.
This type of financing allows you to borrow money, usually for a term of 1-18 months from either a bank or other financial services company. The interest is usually charged by the month and can be a much more flexible alternative to mortgages.
The costs are primarily made up of the interest charges and arrangement fees. The best rates start at 0.45% per month but some lenders can charge as high as 1.5% per month. The rate charged will depend on an analysis of your circumstances and what you’re looking to do.
Lenders tend to charge a facility fee, usually 2% of the loan. For some larger loans, the facility fee may be reduced and can come in as low as 1% in some cases.
On top of the interest and fees, there may be other charges, such as an asset management fee, exit fee, legal fee and valuation fee. Some brokers will also charge broker fees, although our partner firm do not.
They are a borrowing tool that is growing in popularity. Before taking out bridging finance, you should always be aware of both the pros and cons.
100% bridging finance is short-term finance against a property with no cash deposit used towards the purchase. There are two main types of funding: using another property or asset as extra security or buying undervalue, at say, 70%, of the open market value.