A Bridging Loan, or Bridging Finance, is short term funding, secured against property or land, which can be used for a number of purposes until either more longer-term finance can be arranged, or the property is sold to repay the loan.
This type of loan can be used for several reasons. Most common are as follows:
• Speed / Auction property
• Refurbishment of a property
It might be difficult to get a loan from a high street lender to develop a property that isn’t deemed suitable for security in its current state. Bridging finance can help you develop the value of your property.
• Conversion of a property
This might include the conversion of a residential property into a commercial one, or the other way around, where they can be purchased with or without planning permission.
• Chain breaking
You might have found a new property but haven’t been able to sell your current one yet, or perhaps the buyer dropped out. Bridging finance solutions allow you to take out a short-term loan on your current property, allowing you to transfer your mortgage to the one you intend to purchase. Once you have sold your previous property you simply redeem the bridging loan.
• Below the market purchase (discounted purchase)
This is where a buyer has negotiated a purchase price well below the property’s current value. Subject to the value of the property being confirmed, it is possible to arrange a bridging loan that is based on the current value of the property, rather than the actual purchase price. This means that the discounted purchase price can reduce the cash deposit required. This type of loan is typically repaid via a remortgage or the subsequent sale of the property.
Please note that the remortgage cannot always be done within the first six months of ownership.
Always be sure what you’re getting into with bridging finance. While there are many advantages, the interest rates for bridging finance tend to be much higher.
If there aren’t many people enquiring into buying your home, then you might end up being forced to take a lower price for your property in order to pay off the mortgage.
We recommend you establish an exit strategy at the point of application to ensure the loan can be repaid.