Bridging loans are short-term financing options that can be utilised by investors or individuals for a variety of purposes. These types of loans can be particularly useful for those who require quick access to capital, but it is important to fully understand how they work before making any decisions.

For property investors, a bridging loan can provide a much needed financial boost to help cover renovation costs and other related expenses. It can also be used for purchasing multiple properties at once or to complete the purchase of a property that is in need of repair. In addition, it is often used to provide funds for auction purchases, property development or commercial property.

For individuals in need of fast cash, bridging loans offer a very attractive alternative to borrowing money from banks or other traditional financial institutions. The application process is simple and straightforward, allowing borrowers access to capital quickly.

What are the different types of bridging loans available?

The difference between an open bridging loan and a closed bridging loan is that in open bridging finance there is no set date for paying off the loan but is usually done within a year.

Closed bridging loans have a set date with the lender for when the loan will be paid back, as well as an exit strategy at the end of the project, such as selling the property or remortgaging to a standard mortgage for further use or selling the property.

For those in need of short-term financing, bridging loans can be beneficial. We offer both regulated and unregulated bridging loan options, the difference is, the advice given on regulated loans is protected by the Financial Conduct Authority (FCA) but unregulated is not, they are still legal but not protected.

There are typically two types of charges associated with a property - first charge and second charge bridging loans. A first charge loan takes precedence over all other loans and is used to achieve short-term financial goals. In the event that a borrower is unable to make their repayments, their property will be put at risk as it is used as security for the lender.

Second charge loans, on the other hand, can only be obtained if there is already an existing mortgage on the property. In the event that the property needs to be sold, the first lender has priority and full access to the equity within the property.

What are the three ways interest is charged?

• Rolled up - this is when the interest is added to the loan and is paid off when the bridging loan is cleared
• Retained - the interest will be borrowed upfront and any unused interest will be paid back to you, once the agreed period of time is up
• Monthly - this is monthly payments of interest similar to an interest only mortgage

It's important to note that because bridging loans are secured against an asset - the property - they can be a high-risk option. Loans can last between 1 and 24 months, and borrowers typically pay a higher interest rate than they would with traditional financial institutions. It is crucial for those considering a bridging loan to weigh up the potential benefits and risks before making any decisions.

Additionally, interest rates are typically higher than those associated with bank loans, secured loans, so consider all options when choosing the most suitable way to obtain short-term finances. While interest rates on bridging loans tend to be higher, particularly for larger loans, they work similarly to interest-only mortgages, with only the interest being paid off in monthly repayments.

It is important for borrowers to carefully consider their options and seek advice from experienced financial advisors before moving forward with a bridging loan. By understanding the risks and benefits associated with this type of loan, investors can make informed decisions and secure the capital they need to achieve their goals.

If you are looking for a bridging loan, contact us at [email protected] or call us on 0151 662 0188.