Everything you need to know about bridging finance & how they can help you.
Whilst interest rates remain at historically low levels new lenders have been propelled to market on a wave of liquidity. Private investors and family offices, hedge funds, challenger banks and even the average man in the street through peer-to-peer platforms have all fuelled the growth of the short- term lending market. Ten years ago, there were only a handful of specialist lenders but now there are literally hundreds with fierce competition ensuring ever greater product diversity alongside increasingly competitive rates. Little wonder then that bridging finance has become an appealing option for an increasingly diverse range of individuals and businesses seeking fast and effective solutions to their many and varied needs.
Bridging loans can be an ideal solution if you need finance quickly to take advantage of either time limited opportunities or to resolve emergency situations. Also known as short term loans they are usually secured against residential or commercial property but sometimes just against land to “bridge the gap” until longer term finance can be arranged, or the underlying security is sold. The increasing product diversity mentioned above means that bridging loans can now be used for a wide variety of reasons from purchasing properties at auction with short completion deadlines to releasing funds from property to resolve pressing creditor issues. They are often seen as the ideal way to prevent a chain break, to inject money into a business or to downsize by releasing equity in an existing property to complete a new purchase but in truth there are a huge range of uses. Whatever the use however speed of completion is usually of prime importance.
The key components of a successful bridging loan are a suitable asset, an acceptable use of funds and a clearly defined exit strategy. The main difference between a longer-term loan or mortgage and a bridging loan is the time it takes to arrange the funding. It can take months for a traditional lender to complete a deal but bridging loans can be turned around in as little as 24 hours. More usually the process will take at least 7 days but even in the case of complex loan enquiries these are still usually completed inside 28 days. To turn loans around so quickly lenders will, as stated above, want to see evidence of a clear repayment strategy, such as using equity from a property sale or taking out a longer-term mortgage. Bridging loans can be secured against a diverse range of freehold and leasehold properties including both residential and commercial buildings and, as already mentioned, sometimes even on just on land. A key factor in securing a fast completion is to engage the services of a solicitor who specialises in this type of lending. A lawyer experienced in bridging loans will be able to offer the best advice and make the process as smooth as possible.
The short answer to this question is almost anyone who has property assets and a need for quick funding! Tailored solutions from the most suitable lenders can increase liquidity, protect wealth, resolve pressing creditor problems and in many cases open-up new and exciting opportunities. Typical short-term borrowers include clients who have experienced a chain break but do not want to lose a property, investors and developers buying property at auction, businessmen needing a cash injection, professionals with short term credit issues such as a large tax bill and so many more besides. As bridging loans have become more and more flexible and diverse in nature their popularity has surged. Yes they are more expensive than longer term funding but in simple terms they can be a very powerful tool allowing you to secure profitable deals or resolve pressing problems that you wouldn’t otherwise be able to do.
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A bridging loan is a short-term loan secured against property. It allows you or your business to “bridge a gap” until either longer-term finance can be arranged, or the underlying security or other assets can be sold.
Bridging loans can be used for a wide variety of purposes. Perhaps the most common purpose is to allow you to buy a new home or business premises before you have sold your existing property. They can also be used by investors to buy property at auction, landlords to acquire buy-to-lets, developers to acquire and renovate properties and businesses to raise working capital. There are a myriad of different uses and Bridging.com can help to find the best loan for you.
Loans generally range from £10,000 to £50M with smaller or larger amounts provided on an exceptional basis. The value and equity within the property or properties you are securing against will determine how much you can borrow. The maximum loan to value (LTV) currently offered by most lenders ranges between 65-80%
In general most bridging loans will fall between 0.5% and 1.5% per month although occasionally they can be either slightly cheaper or slightly more expensive. Each loan is priced on risk with particular attention paid to the property, its location and the strength of your exit strategy.
Many lenders can agree terms in hours and funds can be in place in days rather than weeks. Average completion times with some lenders can be in the range of just 7-14 days. When you require speed to take advantage of a time-limited opportunity Bridging.com can help you to find the best lender for your unique circumstances.
Given that bridging loans are asset backed many lenders won’t credit score or ask for personal guarantees. They will look at where you are going rather than where you have been, placing an emphasis on the exit, how the loan will be repaid, rather than focussing on any arrears, CCJ’s or adverse credit history.
Not necessarily. Many lenders will still consider you provided they are satisfied with the intended purpose of the loan and the redemption strategy or exit plan you have in place to pay the loan back.
Generally loans range from 1-24 months in duration although they can, in exceptional cases be both shorter and longer. It is wise to go for a period slightly longer than you think you need to redeem the loan given that reputable lenders will refund any unused interest if you settle them early. Bridging.com can help you to find these lenders.
Bridging loans are usually repaid from either the sale of the security property or other assets or from the re-financing of the property onto a longer-term mortgage.
Most lenders will accept security on residential, commercial, and mixed residential and commercial properties. Some will accept security on land with planning permission and some even on purely land or other assets.
A bridging loan is regulated when it is secured against a property that is currently occupied, or will soon be occupied, by either the borrower or an immediate member of their family. All bridging loans that enable the commercial acquisition of a property or for funds to be raised exclusively for business purposes are not regulated by the Financial Conduct Authority (FCA). The split between regulated and unregulated bridging loans is roughly 50/50 now.
A 1st charge bridge is the principal loan on a property, and it takes precedence over all other charges. A 2nd charge loan meanwhile is secured against a property that already has a loan or mortgage outstanding. 2nd charge loans generally require consent from the 1st charge lender.
Closed bridging loans have a fixed repayment date. You would normally be given this kind of loan if you have exchanged contracts but are waiting for a property sale to complete. Given the greater degree of certainty around exit, closed bridges can sometimes be offered at slightly lower rates. By contrast, with an open loan there is no fixed repayment date, but you will normally be expected to pay it off within 12-18 months. Whichever kind of loan you take (and open loans are far more common) the lender will want to see evidence of a clear repayment strategy.
Nearly all lenders will charge a valuation fee which covers the cost of surveying your property and determining its value. Most will also charge an arrangement or facility fee to cover the cost of setting up a loan. This is usually around 2% of the loan amount. Finally, prior to completion of your loan, most lenders will also charge a legal fee, usually charged at a set rate, and used to cover their legal fees for completing the loan. Valuation and legal fees are usually charged up front whilst administration and arrangement fees are often built into the terms of the loan.
Most, but by no means all, lenders will not charge an early exit fee. It should be remembered however that many lenders do impose a minimum term of 1-3 months on their loans.
Yes. It is obviously best to do this after any minimum term has elapsed and provided you have chosen a good lender you should be refunded any unused interest and shouldn’t incur any early exit fees. Bridging.com can help you select the best lender to suit your circumstances.
Many will. They will lend to an LTV percentage of the open market value and often to a higher percentage of the under-value purchase. As a rough rule of thumb most lend against whichever of these two figures is the lower.
This is an increasingly popular form of loan that allows developers to complete and market their finished property/properties by paying off the existing development finance. They can then hopefully maximise the developments GDV (Gross Development Value) and their profit as a result.
Bridging.com can help you secure a bridging loan tailored to your own unique circumstances in a matter of days. We can guide you through the entire process from initial enquiry to funds being released in the shortest possible timeframe.