Bridging Loan Guide
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In this guide to bridging loans:
- What is a Bridging Loan?
- What are the main benefits of a Bridging Loan?
- When might you need to use a Bridging Loan?
- How long can I have a bridging loan for?
- What’s the difference between a regulated and an unregulated Bridging loan?
- How will a mortgage broker help me with a bridging loan? Why should I use one?
- Brunel Bridging – our specialist lending arm
- Contact information
What is a Bridging Loan?
Bridging loans are short term finance solutions providing a quick injection of capital when it’s needed in a range of scenarios.
As with other types of mortgage, a bridging loan is secured against the property being purchased. Term length varies between lenders but is usually between 6 and 18 months.
They were originally created to provide a buyer with the funds needed to complete on a house purchase while still waiting for the sale of their current home to go through (to ‘bridge’ the gap between selling and buying property), but they’re being used for a growing number of reasons, particularly by property investors looking to capitalise on a fleeting opportunity or to buy a property that could not be purchased with a standard mortgage.
What are the main benefits of a Bridging Loan?
- Speed
Bridging loans can be arranged in as little as 3 days so if you’re pushed for time or have been let down by another lender, they can be ideal
- Flexibility
Bridging loans are arranged without the stringent affordability and property criteria of standard mortgages so they can be used for a wider range of properties and situations.
Many lenders allow for bridging loans to be redeemed after just one month if your situation has changed and, when the loan is due to end but the finance is still required, it’s fairly straightforward to set up a new deal to ensure you avoid heavy penalties and increased rates (to “bridge a bridge”).
When might you need to use a Bridging Loan?
- Preventing a sale chain from breaking down
The most common use for a bridging loan, the finance essentially funds or “bridges” the timing gap between the purchase and sale of properties and helps the borrower to continue within the sale chain and complete on their purchase when there has been a delay with the sale of their existing property.
The finance only needs to be in place until the sale of the property has completed at which time it is repaid in full.
- Buying a property at auction
The timeframe for completing a purchase at auction is often very tight, typically within 28 days of having a bid accepted. Bridging loans can be a quick and flexible way of ensuring that the finance is in place to complete the sale within these deadlines. After the sale has been completed, the purchaser then has time to arrange a longer-term solution which, once in place, will repay the bridging finance.
- Property renovation and development
One of the major benefits of bridging finance is flexibility in the type of properties that it can be secured against. Properties that are in poor repair, made of unsuitable building materials, in need of a change of use or being developed can often struggle to be accepted by traditional mortgage lenders. Using bridging finance enables the borrower to complete the purchase, do the work and then either re-sell the property or refinance it with a traditional or buy to let lender once the property meets their more stringent criteria.
Property developers and buy to let landlords adding to their portfolio often utilise bridging finance to fund their projects at the outset until they can secure longer term funding.
- Solution to short term cash flow issues
For businesses which own their premises, bridging finance can be a flexible and straightforward option to enable them to solve short term cash flow issues caused by unexpected capital outlays, seasonal downturns or defaulting debtors.
Borrowing from banks since the banking crisis has become much harder for businesses so this can provide them with a relatively straightforward solution and enable them to utilise an existing asset on a short-term basis.
- Avoiding an unnecessary forced sale
For anyone facing the prospect of a forced quick sale either as a result of the threat of repossession or as part of a divorce settlement, bridging can allow them to pay off the debt and buy them time to find a longer-term solution. Similarly, funding problems during probate or due to inheritance issues like paying tax or buying out other beneficiaries, can be resolved by a bridging loan in the short term.
- 100% lending available
It is possible to borrow 100% of a property’s purchase price if the client has additional property that could be used as security. Bridging lenders will allow clients to use the equity in their additional property(ies) to increase the available loan.
How long can I have a bridging loan for?
You can usually borrow funds using a bridging loan for 6 to 18 months. Most lenders will let you repay the balance after 1 month if you’re ready to and we can help you find another bridging loan if you need it when your existing deal is due to end.
What’s the difference between a regulated and an unregulated Bridging loan?
If you’re buying a property to live in, then you need a regulated bridging loan which will be covered by the Financial Conduct Authority. The Financial Conduct Authority aim to protect consumer’s interests and promote best practice among financial institutions.
If the property you’re buying is not where you’re going to live, you will use an unregulated bridging loan.
How will a mortgage broker help me with a bridging loan? Why should I use one?
Here’s how we can help you get a bridging loan:
- Expert knowledge
Our experience and connections mean that, once we understand your situation and objectives, we can quickly search for the right products with criteria we know you’ll meet, saving you hours of research and frustration.
We even have a loan comparison tool on our sister website, Brunel Bridging, which includes a quick way to understand the potential returns of any given property investment.
- Exclusive access to deals
As an impartial broker, we’re not tied to a particular lender and can find you the right product from a comprehensive range available. We even have access to deals not available directly to borrowers so it’s always worth running your situation by us.
Brunel Bridging – our specialist lending arm
Mortgage Style is an award winning, Bristol-based mortgage broker. In 2023 we launched our new sister brand, Brunel Bridging. Created as a bridging loan, commercial mortgage and development finance specialist, Brunel Bridging provides us with access to a wider range of options for our property investment clients. In addition, Brunel Bridging gives us greater scope to source innovative and flexible deals for clients who need to move fast to make the most of a development opportunity.
Get in touch today
We hope this guide has been helpful and you now know more about bridging loans. Contact our friendly team to talk more about your specific circumstances and what you’d like to achieve.
Call us on 0117 907 0818 or email contact@mortgage-style.co.uk