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.
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 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:
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.
Bridging can also be used for:
Often, as long as you have a viable repayment strategy, bridging can be a quick solution, whether it’s regulated or unregulated.
Open Bridging – has no set end date & can be repaid whenever funds become available, but usually no longer than 12 months.
Closed Bridging – have a clearly defined date where funds must be repaid. Usually used by people who need money for a very short period of time, for example a few weeks upto to a few months.
Open bridging loans will usually incur higher costs due to their flexibility.
You can do Bridging on a first charge or a Second Charge basis. A charge is a legal interest in your property which secures the lenders loan.
A first charge gives the lender the first right of refusal for the proceeds from the sale of the property if somebody has defaulted on their loan. This is usually the case for mortgage free properties that are being used as security for a bridging loan.
A second charges means the lender is behind someone else in the pecking order, so they will only have access to the funds left over from the sale, AFTER the person or organisation with the first charge has been paid in full. For example, if the property has a traditional mortgage against it, the bridging provider would have to take a second charge due to the traditional mortgage provider already being established as having a first charge.
Either are fine for bridging finance, but the bridging lender will only take into account the equity you have AFTER repaying the first charge holder to calculate how much they can lend you for the bridging loan.
Plura is a trading name of Plura Mortgage Advice Ltd which is an Appointed Representative of PRIMIS Mortgage Network, a trading name of First Complete Ltd. First Complete Ltd is authorised and regulated by the Financial Conduct Authority. Registered Office 25-29 Sandy Way. Yeadon, Leeds, LS19 7EW. Registered in England & Wales with company number 14931418. We charge a fee for Mortgage Advice, usually £395, but this can vary depending on the service you are receiving. We’re also paid commission from the lender
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK