Short-term Nature
Bridging loans are designed for short-term use, typically from 1 to 18 months. This makes them a great short-term funding option if you're looking for a quick cash injection.
Interest Rates
These loans come with higher interest rates because of the increased risk to the lender.
Quick Access
Bridging finance can release money quickly, sometimes within just a few days, making it an attractive option for those in need of immediate capital to seize time-sensitive opportunities.
How do Bridge Loans work?
A bridging loan gives you quick, short-term funding to "bridge" a financial gap. It’s commonly used when you're buying a property but haven't sold your current one yet, or if you need cash for a renovation or business expense.
These loans are secured against an asset. This means the lender will need a valuation of the property to decide how much they can lend you (usually up to 70-75% of the property’s value).
You can either make monthly interest payments or roll up the interest to pay it all at the end of the loan term. Rolling up the interest means you'll pay more overall but won’t have to make payments each month.
Bridging loans can be helpful if you need funds quickly, but they come with higher costs and need careful planning to ensure you can repay them on time.
How do people use Bridging Loans?
1. Property Purchase
Are you looking to buy a new property but haven't sold your current one yet? A bridging loan can help you move quickly without waiting for your existing property to sell. This type of loan provides short-term financing, allowing you to purchase your new home without being hindered by the sale of your current property.
2. Auction Purchases
If you're interested in a property at an auction, bridging finance can provide you with the necessary funds to act quickly and secure the purchase while you arrange longer-term financing.
3. Property Development
For property development projects, commercial bridging loans can offer the funding needed for refurbishment or renovation, ultimately increasing the property's value. Developers commonly use this type of financing to support projects aimed at enhancing the appeal and value of the property.
4. Business Purposes
If your business is facing temporary cash flow issues, bridging loans can cover these short-term gaps while waiting for longer-term financing to come through. This provides a crucial financial bridge, allowing businesses to address immediate financial needs without disrupting their operations.
5. Chain Breaks
In the property market, things don't always go smoothly. If a property chain collapses, a bridging loan can serve as a lifeline, keeping your plans on track and enabling you to proceed with your purchase.
6. Planning Permissions
Hoping to obtain planning permission to increase a property's value? Bridging finance can provide the necessary funds to acquire the property and obtain the required permissions before refinancing with a long-term loan. This flexibility can be invaluable in seizing valuable property investment opportunities.
7. Un-mortgageable Properties
For properties that are considered un-mortgageable due to their condition, bridging loans can offer the required funding for renovations, enabling you to either remortgage or sell the property once the necessary improvements are completed.
8. Probate Loans
Dealing with an inheritance can be complex, particularly before probate is granted. Bridging loans can facilitate access to funds from the estate's property, providing the liquidity needed to settle inheritance tax bills and other related expenses.
What Lenders Look For
1. Security
Bridging loans are secured against property or land. Lenders will need a clear valuation of the collateral, which may involve a professional appraisal or assessment to determine its current market value.
2. Exit Strategy
A solid exit strategy is essential when obtaining a bridging loan. This plan should outline how you intend to repay the loan, whether it's through the sale of a property, refinancing with a long-term loan, or utilizing another funding source. Lenders need to see a clear and viable plan for repayment to mitigate their risk.
3. Loan-to-Value (LTV) Ratio
Lenders typically offer bridging loans up to 70-75% of the property or asset's value. This means that the loan amount is a percentage of the appraised value of the collateral. The specific LTV ratio may vary depending on the lender and the type of asset being used as security.
4. Credit History
While credit checks are part of the process, lenders might be more flexible with bridging loans compared to traditional mortgages. They focus more on the value of the asset being used as collateral and the strength of your exit strategy rather than solely relying on your credit history. This makes bridging loans potentially more accessible for individuals with less-than-perfect credit.
5. Interest Servicing
When obtaining a bridging loan, it's important to show how you plan to manage the interest during the loan term. Options include making monthly interest payments or choosing to roll up the interest to be paid at the end of the loan period. This flexibility allows borrowers to tailor the repayment structure to their specific financial situation and cash flow needs.
6. Proof of Income
While not as strict as mortgage lenders, bridging finance providers may still require proof of income to assess your ability to service the loan. This could include providing documentation such as bank statements, tax returns, or other financial records to demonstrate your income and ability to fulfill the financial obligations associated with the loan.
Ready to bridge the gap?
At L&C Mortgages, we specialise in a wide range of mortgage products, but we do not advise on bridging finance.
If you want to explore Bridging finance
To ensure you receive the best guidance and support for your project, we have partnered with Propp, an expert in specialist property finance. Propp is an award-winning specialist mortgage broker with extensive knowledge and experience to help you secure the right funding tailored to your specific needs.
Not sure if you need bridging or a traditional mortgage?
Get in touch with us at L&C, it could be worth comparing your options.
Important Note on Broker Fees
Unlike L&C Mortgages, Propp does charge a fee for its service. For expert advice on bridging loans, we recommend you contact Propp, who will clearly explain their fees and service before you commit to using them.
Specialist mortgage advice is provided by Propp, who are authorised and regulated by the Financial Conduct Authority (914408). Propp is not a part of L&C, nor is L&C a part of Propp.
L&C receives a % of the commission that our partner Propp earns. All applications are subject to lending and eligibility criteria.
Propp is a credit broker, not a lender, that works with the whole of the market and is regulated by the FCA.
