Bridging Finance
Looking for short-term, flexible finance to fund a new property or investment purchase? Bridging finance can be a good solution for many people, but it doesn’t come without questions. In this article we’ve pulled together some of the most common questions we get asked about bridging loans, so you’ve got lots of useful information in one place.
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What is bridging finance?
Bridging finance is a popular form of short-term borrowing, designed to bridge the gap between two financial points, often the sale of an existing property and the purchase of a new one.
What’s the difference between a bridging loan and a bridging mortgage?
There isn’t one. There are a few different terms that are used for bridging finance that are interchangeable, so if you hear or read about bridging loans, bridging finance and bridging mortgages it’s all referring to the same type of short-term borrowing.
What would I use it for?
There are all kinds of different situations where bridging finance could be a useful form of borrowing, both for individuals and for companies.
These could include:
Buying a new property
Before the sale has gone through on an existing one. This could be a residential home or a business premises - bridging finance is available for both personal and commercial purposes.
To avoid the collapse of a chain
There’s nothing worse than having your chain all set up and ready to go only to be let down by your purchaser. Bridging loans can be a handy way to plug the gap to make sure you can go ahead and buy your new home while you look for a new buyer.
Buying commercial property
You often need to act fast in the business world, but commercial mortgages can be complex and take a long time to arrange, so a commercial bridging loan is a good option if you need to move fast.
Buying an uninhabitable property
Most lenders won’t give you a mortgage on a property that’s not livable, which includes having a kitchen and bathroom, good drainage and generally being weatherproof. You can use bridging finance to fund the purchase while you get the property up to scratch and eligible for a mortgage.
How much can I borrow?
The amount you’re eligible to borrow will depend on your personal circumstances but there are lenders able to offer small loans from around £25,000, up to huge loans of tens of millions of pounds or more.
How do I apply?
Applying for a bridging loan is more straightforward than a traditional mortgage but there will still be plenty of hoops to jump through. A lender will want to carry out credit checks, see evidence of your financial circumstances and also carry out a valuation of the property you’re securing the loan against. They’ll also need to see a strong exit strategy in place.
What’s an exit strategy?
An exit strategy is a plan for how you’re going to repay the loan at the end of the term. For example if you’re getting a bridging loan to buy a house while you wait for the sale of your existing home, the exit strategy would be to repay the loan with the proceeds of the sale when it goes through.
Do I have to make monthly repayments?
No, bridging loans are always on an interest-only basis, which means that you only pay back the capital at the end of the term. Interest payments can be made on a monthly basis if you have the available cash flow, but there are other ways to structure interest repayments if you don’t want to have a monthly commitment.
Can I get bridging finance with bad credit?
Potentially, but it will make it more difficult. Lenders will want to carry out credit checks to assess your reliability and ability to repay your loan, and if you have a history of defaults or missed or late payments then you’ll be viewed as higher risk. That’s not to say that a bad credit credit will mean a definite no, it might just mean approaching a more specialist lender or accepting slightly higher rates or lower LTV limits to offset the perceived risk.
How long can I have bridging finance for?
Bridging finance is designed to be a short-term funding solution so it isn’t offered on the same terms as a regular residential or commercial mortgage. You can find loans available for periods as short as three months, or up to three years, but around 12 months is typical.
Is bridging finance expensive?
It’s not necessarily the cheapest option, but you’re paying a premium for the ability to borrow large amounts of money quickly and flexibly. Interest is normally charged monthly, so if you are able to repay sooner, you could save significant amounts of money.
How quickly can I get a bridging loan?
Speed is one of the main advantages of a bridging loan, so expect things to move more quickly than with a standard mortgage. Rather than weeks, most bridging finance can be approved within days, sometimes it could even be hours in the right circumstances.
Do I need a broker?
Yes, if you want to get the best interest rates it’s always a good idea to get some support from a bridging loan broker. They’ll have access to the whole of the market and have relationships with lenders. They’ll be able to negotiate on your behalf and guide you through the whole process, saving you money, time and stress.
Will I need to pay charges to repay the loan early?
Not usually. Most bridging loan lenders don’t impose early repayment charges (ERCs) so if you pay off the loan earlier than originally planned it won’t cost you anything extra. You will need to factor in other fees though. Most lenders will have an arrangement fee as a percentage of the capital loan amount.
Conclusion
If you have more questions about bridging finance that haven’t been answered here then do get in touch. We’ve got a wealth of expertise and experience that we’re happy to share.
Ready to talk? Speak to an expert today: 0800 077 8980
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