Bridging loans offer short-term mortgage solutions secured against property, generally lasting from a week to a maximum of three years. Their most common use is to bridge gaps in property transactions. You may want to buy a new home, having not yet sold your current home, and require short-term finance to make the purchase. An investment property, holiday, trophy home, or buy-to-let property can be used as security against bridging loans.
Keeping the process moving
They can keep property chains moving so you don’t have to pull out of a purchase whilst you sell your existing property or await sale proceeds. Some use a bridging loan to quickly release equity from a home before refinancing elsewhere or to meet the strict payment deadlines when buying a property at auction.
Some less common but undoubtedly valid use of bridging loans is to release funds to renovate a property before you attempt to sell it. The sale funds are then used to repay the loan on completion. Also, to avoid the lengthy mortgage process when you are looking to downsize property, many other scenarios see bridging finance be a suitable and fast-paced solution to short-term borrowing.
Bridging loans can be organized by property finance brokers who have a wealth of market knowledge and experience arranging UK and International high-finance for high-net-worth individuals and businesses.
What types of finance are available?
Auction Finance Lending – going into an auction knowing how much you can borrow and what you can afford through a bridging loan simplifies the auction property-purchase process.
Short-Term Loans – These can be complex to arrange, so they are an option more suited to borrowing significant capital, even over very short periods. In this case, expert advice to know what is available can be invaluable.
International Bridging Loans – It’s essential to negotiate these deals with help to plan for elements of foreign exchange risk. Legal advice may also be recommended to ensure a swift, hassle-free arrangement.
Large Bridging Loans – Large bridging loans can take time to negotiate if you don’t approach suitable lenders in the right way. Many lenders offer the most favorable rates to secure large bridging loans and the speediest timeframes to broker-introduced applicants.
Residential bridging loans – These are a staple of the property market to ease residential properties’ buying and selling process. They offer exceptional flexibility, which with a few basic stipulations, can be used in many ways to support residential property transactions.
Are there disadvantages?
Bridging loans can be more expensive compared to traditional mortgage borrowing. However, they are there to solve a specific problem that a standard mortgage can’t. So it should be expected that there will be a premium for the service.
It’s essential to understand the risk to the lender and the speed at which they act to approve and arrange to lend. When they are the only type of lending you can secure to achieve your goal, so paying a premium may not be such a disadvantage as pulling out or breaking a chain can be.
You repay the capital as a lump sum, and lenders will want to see your exit plan. Understanding whether to use open or closed bridging loans can be explored with an experienced bridging loan broker to help you locate the most favorable arrangements for your situation.