Bridging finance is a short-term loan that provides capital quickly to those in need of funding. Often used by property investors, the goal of bridging finance is to give the borrower access to money until longer-term financing can be secured. A bridging loan helps bridge the gap between traditional financing and immediate requirements, allowing borrowers to take advantage of short-term business opportunities.

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. 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.

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

What are the purposes of bridging loans?

There are a few reasons why people may require a bridging loan such as a broken property chain, this is when there is more than one sale going through at the same time in order for people to purchase their next property.

This type of loan is a short term finance solution often used by property developers when they purchase a property at auction and don't have the funds to hand when wanting to do work on it. This loan is also for individuals looking to do work on a property to either sell or live in themselves. If you are looking at this type of loan for commercial reasons then a bridging loan will run alongside a business mortgage.

What are the costs associated with a bridging loan?

The costs involved with this type of loan are still similar to a standard mortgage such as valuation fees, a valuation survey will still need to be done to weigh up how much sufficient equity the property holds. There may also be arrangement fees such as a broker fee to be payable when arranging the mortgage, broker fees may vary as a lot more work/research goes into the lending criteria for these finance options, as well as legal fees when the solicitors are handling the legal aspect of the finance.

This is a type of short term borrowing which often means you borrow larger sums to conduct property conversions or improvements. Whether you can obtain a bridging loan depends on the property purchase price and property value.

What are the different bridging loans that are 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.

What are the two types of charges on a property?

A first charge bridging loan is the loan that takes precedence over any other loan, this will help you achieve short term financial goals. If you fail to pay back your loan this is where the first charge loan becomes involved as this is the security for the lender as your property will be at risk if you fail to keep up with your repayments.

Second charge bridging loans are in the background of a first charge loan as they can only be taken out when there is already an outstanding mortgage on the current property. If the property ever needs to be sold, the first lender or provider has first and full access to the equity held within the property before the second charge is considered.

If you have a mortgage on the property this will be the first charge loan, if you wish to take out a bridging loan, this will be the second charge. The second charge loan will need permission from the first charge to take out the bridging loan, they tend to be more expensive than first charge bridging loans.

Bridging loans don't come without risk, however. Because these loans are typically secured, this means that the loan is secured against an asset (the property). This type of loan can last between 1 month and 24 months.

Additionally, borrowers should expect to pay higher interest rates than those offered by traditional financial institutions. It is important to understand the risks associated with bridging loans and compare them against the benefits before making any decisions.

We are regulated by the financial conduct authority which means we can offer both a regulated bridging loan or unregulated bridging loans. The difference is, the advice given on regulated loans is protected by the FCA but unregulated is not, still legal but not protected. We can sort this finance with lenders for commercial properties and residential properties.

Don't be put off by the fact that it may not be traditional lenders that are available to you, after all this isn't a traditional mortgage. Interest rates tend to be higher with this type of loan especially if you are looking at large bridging loans, this works similarly to an interest only mortgage as it is only the interest paid off in monthly repayments.

Using a bridging loan can be a great option for those in need of quick access to capital, but it is important to make sure that the loan is used responsibly. Borrowers should carefully consider their options and speak with an experienced financial advisor before making any decisions. By weighing the risks and benefits of bridging loans, investors can make informed decisions that will help them secure the capital they need, to pursue their financial goals.

Ultimately, bridging loans can be an invaluable tool for those in need of short-term financing. It is important to understand how it works and what the risks are before taking advantage of this type of loan. With careful consideration and professional advice, investors can take advantage of bridging loans to pursue their financial goals.

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