What is Bridging Finance?

Bridging finance is a short-term loan that can be used to finance the purchase of a property. It is primarily investors and developers and is used as either a temporary loan or even a short-term mortgage. Bridging can be used in a variety of different circumstances to provide finance until a permanent form of finance can be arranged, such as a mortgage or cash from a sale.

The benefits of bridging finance include,

• Purchasing a new property before selling your current property.

• Financing a fast purchase at auction.

• Funding a property development or renovation.

Bridging finance can be a good option in comparison to a traditional mortgage should you not require funds from your lender for a substantial time.

How does a bridging loan work?

Bridging loans are normally granted for between a month and a year. The loan is repayable at the end of the term specified within the offer:

There are two kinds of bridging finance options available:

• Closed Bridging Loan - With this option you will have to make plans on how you intend to pay off the loan from the outset or an exit strategy. An example being, if you are selling a property, the repayment date could be the completion date. These typically tend be shorter in duration.

• Open Bridging Loan - You will not need  to make early arrangements to settle the loan from the outset and you will usually have a year to repay the loan.

Unlike a traditional mortgage, your lender will not apply an early repayment charge and therefore you have the option repay your entire mortgage within the term, free from penalty.

However, it is important to note that bridging loans tend to accompany higher interest rates as opposed to a standard mortgage.

Should you not meet your repayments before the conclusion of the term, a financial penalty could be imposed. If you are unable to still pay this, your property may be disclosed.

What are the requirements for bridging finance?

In order to qualify for bridging finance, you will usually have to own an existing property. This is so that the lender may secure a charge against this property. If there is a mortgage already over the property, a second will be registered, meaning if you fail to meet your repayments the primary lender takes priority over the bridging lender.

You will also need to provide:

• Proof of income.

• The lender will want to know plans for repaying the loan.

• A business plan (if a commercial venture).

• A record evidencing previous success in developments if you intend  to use the bridging loan to develop a property.

If you are looking to purchase a property using bridging finance, please contact us more.