Bridging Finance

Five reasons people use bridging loans

1. Funding the purchase of a new property

You may find yourself in a situation where you are purchasing a new property with the funds generated from the sale of another property, but this sale has not yet completed. A bridging loan is a brilliant facility for this scenario as it quite literally ‘bridges the gap’, providing you with the funds you need to complete the purchase of the new property. Once the sale of the other property has been finalised, you can then use the proceeds of the sale to repay the bridge.

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2. Buying a property at auction

Congratulations! You secured the winning bid on an auction property. But what now? Typically, you can expect to pay a 10% deposit on the day, with the rest of the purchase bid required for payment soon after. This can cause a problem for many as a standard mortgage can take more than 28 days to take effect. A bridging loan eradicates any worry of not being able to complete the property purchase within the tight auction timeframe as they can be secured very quickly, being repaid once the mortgage is ready.

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3. Funding a refurbishment or renovation

It can be nigh on impossible to secure refurbishment finance from a traditional lender as they may deem the property in its current state as unsuitable for mortgage purposes. As light refurbishment and renovation works tend to take a short amount of time, a bridging loan can provide the perfect solution.

Bridging finance for refurbishment is particularly useful for property developers or buy to let property investors who need to better the condition of an existing property, add a new bathroom or kitchen, or make improvements prior to renting it out to new tenants. The bridging loan can be arranged quickly to fill the short-term funding gap, before being repaid once a traditional mortgage has been secured after the project has been completed.

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4. Purchasing a commercial property

In order to be a successful property investor in a highly competitive market, it’s no secret that you need to be able to act quickly on a new opportunity when it presents itself. As such, investors looking to purchase a new commercial property need access to funds quickly. This can often be difficult as capital may be tied up in another property or asset.

As commercial mortgages can involve a much higher level of complexity compared to residential mortgages when it comes to long-term loans, traditional lenders typically require large deposits or impose rigorous income stress tests, meaning that accessing funds via this route can be a long and arduous process. Plus, if the process takes too long, investors are at risk of losing their deposits if the sale falls through. Bridging finance is a much more viable option when purchasing a commercial property, as the short-term funding can be drawn down in as little as five days depending on the borrower’s circumstances, allowing property investors to remain competitive.

5. Navigating long-term mortgage delays

Traditional long-term mortgages can take time. In fact, even simple mortgage applications can take over a month to process and release the required funds. This leaves many at risk of their deal falling through if they fail to have the money needed in place before a particular deadline. A bridging loan is again ideal in this scenario as it can cover the time period between the purchase of a property and the completion of the long-term mortgage. Once the traditional mortgage has been finalised, this can be used to repay the bridge.

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