Bridging Finance

Ideal for those purchases that need to be completed quickly

What is a Bridging Loan? 

A bridging loan is a form of short-term finance that’s commonly used when it’s necessary to complete a property purchase quickly, or when funds are needed to be raised for something fast. 

Unlike a traditional mortgage which is usually taken out over a longer term, say 25 years or more for example, a Bridging loan is usually taken for 12 months or less & funds can be accessed extremely quickly (often within a couple of weeks). For a traditional mortgage, you’re expected to pay monthly payments, but for bridging finance, you can add the monthly payments to the balance you owe the lender, & the full balance can be repaid at the end of the term. 

A lender will agree to lend you money quickly if you can evidence that you’ve got a clear repayment strategy, showing them how you’ll repay their loan, plus interest, in the future. There’s no affordability calculations, the lender usually secures the loan against a high value asset, like for example a property you’re buying, or another property you already own so they have security for the money they are giving you.

Regulated Bridging

Is when the bridging loan is secured against a property you live in, plan to live in, or have lived in in the past. This kind of bridging loan is regulated by the FCA, hence ‘regulated bridging’ 

The most common use for regulated bridging is when you want to buy a new residential home before you’ve managed to sell your existing residential property.

Example:

Your home is worth £500,000 & you have no mortgage (nice, right?)

You’ve agreed to buy a new home for £600,000, but you only have £200,000 saved. Your buyers have pulled out & now you’re left £400,000 short of the money need to buy the new property…so what can you do?? The people you’re buying from aren’t going to wait forever and you’re worried it’s all going to fall through…

You can use Bridging!!! You can “Bridge the Gap” – taking out £400,000 as a Bridging Loan, secured against your current mortgage free residential home

This means the lender will give you the money you need so you can complete on your new property & move house using bridging, BEFORE you’ve sold your other one

… Then you repay the bridging loan, plus fees and interest when your existing home eventually sells

The lender can be confident that you’ve got a reliable repayment strategy, so will lend you the funds without the same level of underwriting as a traditional mortgage, meaning things can move quickly & you have a solution to proceed without losing the house you’re desperate to buy! 

Unregulated Bridging 

Unregulated bridging has no association whatsoever with a home that has been, currently is, or will be your residential property. Unregulated bridging is used by investors typically for commercial purposes to buy investment properties. This type of bridging loan is not regulated by the FCA. 

Common uses for Unregulated Bridging include:

  • “Flipping” property by buying, refurbishing it & adding value, then attempting to sell it for a profit, or remortgaging it onto a Buy to Let mortgage
  • To buy a property quickly (including auction purchases)
  • Repaying a development finance loan 
    Funding a property conversion (from buy to let to HMO for example)
  • Adding value to a property before selling it

 

Advantages & Disadvantages of Bridging

The main advantage is that money can be accessed quickly. It can help you get a property purchase over the line, take advantage of an opportunity that is very time sensitive, or fund investment projects which you hope to turn a profit on. It’s much faster than a traditional mortgage. It’s also a very flexible arrangement & you can borrow large sums of money, without having to make monthly payments.

The main disadvantage is that there are often high fees, higher interest rates than traditional mortgages & interest is charged monthly. This means that it can often be an expensive way to access funds. The loan is also secured against your property so if you fail to repay the loan, in some cases the lender may be able to repossess the property to collect the debt, so that risk needs to be considered carefully. 

Speak To An Advisor

Dec was fantastic at helping me secure my mortgage as a first time buyer. He went over and above to take the time to answer all of my questions and concerns, and helped make the whole process easy and smooth. I'd highly recommend Dec as a great choice for your mortgage advisor. Thanks Dec!

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