Benefits of bridging finance
Key benefits of bridging finance include:
- Quick and flexible secured finance
- More lenient eligibility criteria than other forms of property finance
- Can support a wide range of purposes
- Almost all property assets considered, including undeveloped land
Bridging finance can often be completed within 4 weeks, sometimes within 1 – 2 weeks, enabling quick access to large sums of money.
As long as there is sufficient equity in your property, there is likely to be a funder who can consider any purpose you are looking to support, even if your credit profile is impaired.
Our funders provide solutions for almost any type of UK-based property asset, even if it is vacant or derelict.
What is bridging finance?
Bridging finance is a type of short-term loan designed to bridge the gap between the purchase of a property and the sale of an existing property or a long-term financing solution. They can be essential for investors looking to purchase property from auction. These loans are typically secured against the property being purchased, and can be used for a variety of purposes, including property investment, development, and renovation.
Unlike mortgages, these products aren’t the most appropriate solution for long-term finance and should instead be taken out with a clear plan to repay them at the end of the facility. Exit plans often take the form of refinancing through a longer-term mortgage, sale of the property, or receipt of funds from another avenue. We will always discuss your exit plans to confirm you have a clear strategy to repay the facility at the end of the term.
These types of facilities are commonly used by investors who wish to purchase property quickly that they don’t have the funds to purchase without external finance. Bridging finance can also be used to raise money from existing properties that are owned without any existing debt (unencumbered properties). Bridging finance can also be refinanced through “re-bridges”.
A lender will evaluate your creditworthiness and other factors to determine whether you’re eligible for the loan, with primary consideration on the value of the proposed property for them to take security over.
The amount you can borrow will depend on the value of the property you are offering as security up to a maximum LTV, for example, “75% LTV”. This stands for “Loan to Value” and means if your property was worth £1,000,000 the funder would lend a maximum of £750,000.
Interest rates will vary depending on your unique credit and affordability circumstances. Facilities can be available on a serviced basis or rolled-up interest basis. The repayment of capital is typically done at the end of the facility with a bullet payment.
How does bridging finance work?
A commercial owner-occupier mortgage lender will typically assess a facility as follows:
- Loan amount: The lender will provide a loan of to a maximum level relative to the value of the property you are offering as security.
- Deposit: You will be expected to provide a down payment as part of the purchase of the premises, often a minimum of 25% of the purchase price/value of the property. This isn’t required when refinancing property you already own.
- Eligibility: As long as the property value supports the requirement and you have a clear plan to repay the facility at the end, there is likely to be a funder that can support your requirement.
- Loan term: Bridging finance is often structured over terms up to 12 months, though some funders can consider terms up to 24 months on occasion.
- Repayment: Typically repayments are made by a bullet payment at the end of the facility, however some facilities may also have monthly interest payments to service the loan. This type of finance is generally flexible by design, with lots of funders permitting early settlement during the term with savings to be made on the total interest from settling early.
