What is a bridging loan?
A bridging loan or bridging finance is a short term secured loan or mortgage. The property used as security can be either residential, buy to let or commercial. These types of loans are temporary, allowing you some time to refinance or sell a property.
The bridging loan term can be for just a few days or months, upto 12 months maximum. At the end of the term the lender will require full settlement of the debt.
Loans are available to both Limited Companies and Individuals including landlords and property developers.
One major reason for choosing a bridging loan is speed. They can be arranged very quickly enabling bargains to be secured or problems avoided.
Bridging loans are short term by nature. From a few days up to 12 months maximum, so an exit plan will be needed to repay it.
Bridging is more expensive than regular secured finance. However, the opportunity to secure a project quickly and simply often means the return outweighs the extra cost.
A bridging loan is a great solution when you need quick access to capital
It is a short-term interest-only loan to ‘bridge’ the gap
The cost of a bridging loan
The interest rate charged for a bridging loan is a monthly amount that varies with the type of project it is to be used for.
The lenders will also require an arrangement fee, this is an upfront fee but most lenders will allow it to be added to the loan. There’s also the normal survey fees and legal fees to pay.
Bridging loan eligibility
Finance is available to both companies and individuals. Bridging lenders will look at all aspects of the deal when assessing eligibility.
This will include undertaking credit checks, looking at the property itself, your planned works or improvements and your ability to cashflow or pay for the project until exit.
Why use a bridging loan?
Bridging Finance can be used in so many different ways, to achieve so many different objectives
Here are some examples of what is possible:
- Purchase of an uninhabitable property for a light or heavy refurbishment, which is not suitable for a standard buy to let or commercial mortgage at outset
- Develop a derelict Barn, with full residential planning permission to convert into a house, to be sold, or retained as a buy to let investment property
- Purchase of an investment property that is inhabitable, but could not be considered suitable for letting, because works are needed
- Property purchase at a genuine discounted price with the loan based on market value, not purchase price
- Purchase of any property where speed and convenience is the objective. Once owned you can then apply for permanent longer term finance without deadlines (a popular option for investors who want to move fast)
A bridging loan is one of the most misunderstood types of property finance. A lot of people don’t feel comfortable using them as they don’t understand them. And yet they are actually quite simple in design! To help we have provided An Introduction to Bridging Loans.
Talk to the experts
Drake Mortgages is a bridging finance broker and we can source competitive rates from across the market. We have built relationships with specialist lenders who do not have a presence on the high street to secure finance where others cannot.
We can help arrange a bridging loan, a short-term loan that provides fast access to funding, or development finance for the specific purpose of building new properties or making substantial changes to existing properties.CONTACT US