There are many advantages of bridging loans when compared to other types of finance. When finance is only required for a short period of time, they often provide the cheapest option for raising the required funds. In addition they are fast to arrange, have flexible lending criteria so that approvals can be given quickly without extensive checks, and they can be secured on all types of property, including property that is unsuitable to other lenders.
When a property purchase is being funded from the proceeds of the sale of another property, but the sale cannot be completed before or at the same time as the purchase, short term finance maybe required in order to buy before you sell, or bridge the gap, so that the purchase can still proceed. The bridge is just until the sale has been completed, upon which the proceeds of the sale are used to repay the bridge. This is a very traditional use of bridging loans and quite often thought to be the only reason for using one. However there are many other uses!
Very often property is considered to be unsuitable for mortgage purposes. This is usually due to it being in a poor condition, or in the case of residential property and buy to let mortgages it may be just because the property lacks a kitchen or bathroom. Bridging finance can be secured against property that other lenders consider to be unsuitable. This is very useful for property developers and landlords who want to buy a property to restore and then sell, or refinance with a buy to let mortgage, keeping it to rent out.
Refurbishment finance will be categorised as either light or heavy refurbishment. Light refurbishment will cover non-structural works such as installing a new bathroom or kitchen, whilst heavy refurbishment will cover structural works such as building an extension or the removal of retaining walls.
What work is permitted under a light refurbishment loan?
What work is permitted under a heavy refurbishment loan?
We are experts at arranging new bridging facilities to replace existing loans that have gone over or are approaching the end of their term. Facilities can be arranged to replace existing facilities with a cheaper alternative, to extend a loan term and/or to release more funds. Going over term on a bridging loan usually means something has gone wrong and can also prove to be very expensive. Read more about Re-bridging an existing bridging loan.
Many of our customers approach us for bridging finance after finding a property they are keen to purchase without having to wait for someone to buy a property they already own. This is often known as buy before your sell bridging finance, and basically means they can get on with their plans, and can repay the borrowing when the sale eventually takes place.
After making a winning bid at auction typically a 10% deposit is paid that day, and the rest of the agreed purchase price is required within 28 days. This period can sometimes be even sooner! Please see our property auction guide for further information about buying and financing properties at auction. Bridging loans are used to buy properties at auction because they can be set up quickly ensuring that purchases can complete within the required time frame.
Often in order to secure the acquisition of an absolute bargain, the purchase would need to be completed quickly. Funds may not be available to enable the purchase as capital is often tied up in property or some other asset. A bridging loan can be arranged quickly, secured against the available equity in property. The bargain item can then be sold for a quick profit and the bridging loan repaid, or the item maybe kept and a more suitable longer term finance option can be arranged to repay the bridge.
Cash flow problems can arise for a number of reasons when running a business. For example a bank may call in an overdraft facility, customers may be late paying their invoices, seasonal factors or new equipment may be unexpectedly required.
The funds can be used to start any new business venture, as long as you have a reliable exit route planned to repay the loan.
Sometimes funds are required when dealing with inheritance and probate issues. There are many reasons including having to release charges on property, pay tax and other bills, and also to pay off other beneficiaries.
Many bridging lenders will lend against the open market value of a property and not the purchase price. This is useful when buying property that is selling for a price below its market value, for some genuine reason!
If a property is due to be repossessed a bridging loan can be used to pay off the debt and prevent the repossession. This then enables an owner to retain control of the property so that they can sell it on their terms and avoid a forced sale situation.
Bridging loans can be used to raise the funds required to finance property developments.
Buying a property with a short term can be a problem for many mortgage companies, so a bridging loan can enable you to purchase the property and pay the costs involved with sorting the lease, so that you can get a traditional mortgage.
Bridging loans can be arranged quickly, so could be a way to pay a tax bill and avoid penalties.
Funds can be used to settle a divorce if there is a need for speed
When a finance facility is required to raise a large sum of money this would normally be achieved through the use of a business loan, or a commercial, residential or but to let mortgage. These types of facilities can take weeks or even months to arrange. We can arrange fast bridging loans, meaning that funds can be in your bank account in as little as 48 hours.
Please use our bridging loan calculator for a detailed illustration of the different costs involved in taking out a bridging loan.
There are many different bridging loan providers who all have their own unique lending criteria. Generally bridging lenders are not concerned with income, affordability and credit history. They do however want to know about the value of the property being offered as security and also the exit route. This is the method by which the bridging loan is going to be repaid before or at the end of the term.
A bridging loan can be secured against houses, flats, maisonettes, shops, mixed use properties, commercial units, offices, care homes, leisure complexes, farms, land, building plots, development land. Property can be freehold or leasehold even when the leasehold only has a short time left to run.
You can even use property that is listed for sale - which would not be acceptable to other lenders.
Property being offered as security can be in poor condition, derelict or in need of major restoration. Bridging loans are often used to raise funds when the security property is unacceptable to a mortgage provider.
Many mortgage providers will only lend against property that is classed as standard construction. Bridging loans can be secured against property that are of a non standard or unusual construction.
One bridging finance facility can make use of one or more properties as security. This can be on a first or second charge basis, or a combination of both! For example in order to buy a property the full purchase price may need to be raised. Therefore a bridging loan could be set up making use of a first charge on the property to be purchased plus a second charge on another property that already has a mortgage on it, but has equity available.
Traditional lenders tend to only allow borrowing for limited purposes and there often isn't any flexibility. Bridging lenders do not mind what you intend to use the money for, as long as you can prove that you can pay it back.
Receiving an offer from a cash buyer is more attractive to a seller than from someone who needs to sell their property first. You could also use this to negotiate a better price.
Bridging loans are only intended as a short term finance option.
Their monthly rate of interest is high when compared to other methods of finance, so should not be used as a long term option. It is essential to have an exit strategy because at the end of the agreed term the bridging loan will need to be repaid.Written By Holly Andrews
Last updated: 22 November 2023 | © KIS Bridging Loans 2020