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BRIDGING FINANCE
What are bridging loans?
A bridging loan is a short-term loan secured against property, designed mainly for property buyers and developers. Bridging finance can be used in a variety of circumstances to provide funds until a more permanent form of finance can be arranged, such as a mortgage.
The term ‘bridge’ is often used, as that is exactly what a bridging loan is designed to do. Finance to get you from where you are, to where you want to be. You may need to ‘bridge the gap’ due to monetary issues, time constraints or both.
Funds tend to be provided a lot quicker in comparison to a longer-term mortgage and can therefore make a great alternative. Bridging loans can be classed as either regulated or non-regulated. Anything that is described as regulated means that the security address (the property the bridging loan is being secured against) is a property the borrower or borrower’s family live in or intend to live in. It is for personal, non-business purposes like bridging a house chain gap or renovating a residential home. An unregulated bridging loan is typically used for business, investment, or commercial property purposes such as a buy-to-let or commercial unit. Unlike regulated bridging loans, they are secured against property that the borrower or their family members do not live in or do not intend to inhabit.
Bridging finance can be used for several different purposes: -
Purchase a property while you wait to sell another
Refurbishment / development
Auction purchases
Business finance
What are bridging loan terms?
Bridging loans are designed to be arranged quickly and to run for a 1–12-month duration. They are secured by a first or second charge against the property. As they are secured against property, the same steps in terms of property valuations and legal charges apply.
The most important aspect of a bridging loan is planning on how you will repay the loan at the end of its term. This is commonly known as ‘exiting the bridge’. As a bridging loan is only designed to be for the short-term, you will need to be able to demonstrate to the lender, how you will pay them back. This could be through converting the bridging loan to a buy to let term mortgage or selling a property once it has been refurbished/developed.
How much is a deposit for a bridging loan?
The deposit required for a bridging loan is normally around 25% to 30%, although, 100% funding may be available if you have additional security to offer a lender.
Bridging loan rates?
Interest rates will depend on several different factors such as, but not limited to, property type, credit profile and the equity available in the security property. It is best to speak with an experienced broker about bridging finance to guide you through the process, especially if you have not used this type of finance before.