How long can you have a bridging loan for?

Written by: Sean Horton CeMAP

If you’re considering getting a bridging loan, one of the first questions you’ll likely have is “How long can I have it for?”

After all, these loans are designed to be short-term solutions, but what exactly does that mean in practical terms?

Understanding the potential timeframe is crucial because the length of the loan directly impacts both the costs involved and whether it aligns with your overall financial strategy.

(BTW Bridging finance can get really expensive if you have it too long.)

Typical Bridging Loan Terms

While the standard duration for bridging loans is a few weeks to a year, the specific time period you choose can significantly impact the overall experience.

Let’s break it down:

Shorter Terms (a few weeks to a few months):

  • Ideal for fast-paced scenarios like securing an auction property.
  • Generally, have slightly lower interest rates since the lender is taking on less risk.
  • Require a very clear and immediate exit plan (for example, the confirmed sale of your existing property).

Longer Terms (6-12 months and sometimes beyond):

  • Provide more breathing room if there are potential delays in your exit strategy.
  • Might offer more flexibility if you’re renovating or expecting unexpected complications.
  • May have slightly higher interest rates to compensate the lender for the extended period.

Maximum Term

Short term bridging lenders aren’t in it for the long game. They want to lend quickly and get repaid quickly. So many won’t be interested in anything beyond one year.

Nearly all lenders will offer terms of 12 months, a few more will go to 24 months, and some stretch to 36 months.

Open vs. Closed Bridging Loans

Bridging loans generally fall into two categories, and understanding them is key to choosing the right term for your situation:

Open Bridging Loans

Open bridging loans don’t have a fixed end date, offering maximum flexibility. While you typically wouldn’t hold them for longer than 12 months, they offer some breathing room if your exit plan faces unexpected delays. Keep in mind that the interest rate might be slightly higher due to the greater flexibility.

Closed Bridging Loans

Closed bridging loans come with a specific repayment date, usually aligned with your expected exit strategy, such as the anticipated completion date of a property sale. A closed loan is ideal when you have a high degree of certainty about the timing of your funds becoming available.

How Does This Affect the Loan Term?

If you have a concrete timeframe in mind and a solid exit plan, a closed bridging loan often works best and is preferred by lenders. If your situation has some uncertainty, for example, delays in a property sale, an open bridging loan might be more suitable, allowing you to repay sooner or later as needed.

Regardless of the type, communication with your lender and broker is crucial. If circumstances change and you anticipate needing the loan for either a shorter or longer period, it’s best to discuss it with your broker as soon as possible.

Factors Affecting How Long You Can Have a Bridging Loan

The duration of your bridging loan isn’t just about how long you want it for, various factors will influence the term a lender is willing to offer:

Lender’s Policies

Each lender has its own set of criteria, including maximum loan terms. Some might prefer shorter terms, while others are more willing to offer longer periods based on your situation.

Your Exit Strategy

This is the most important factor. Lenders want to see a clear and credible plan for how you’ll repay the loan. If your exit strategy involves selling your existing property, having a buyer lined up increases lender confidence and may make it easier to secure a longer term.

The more convincing and well-defined your exit strategy is, the better your chances of securing a the bridging loan term you need.

Your Financial Circumstances

One selling point for bridging finance is you don’t need a squeaky clean credit file to borrow money. However, a strong financial profile indicates a lower risk and could open opportunities for a longer loan term if needed.

The Property

The type of property you’re purchasing (or using as security) can sometimes play a role. Standard residential properties often have more straightforward lending than commercial or uninhabitable properties, which could impact the lender’s willingness to extend a longer term.

Regulated Loans

If you need a Regulated Bridging Loan then the maximum term is normally 12 months.

The Benefits of Shorter Bridging Loan Terms

While longer terms offer flexibility, it’s wise to consider the significant advantages of minimising your bridging loan duration:

Substantial Cost Savings

Bridging loans have monthly interest charges which can become substantial over time. The shorter the loan term, the less you’ll ultimately pay in interest. This can free up significant funds for other priorities.

Reduced Risk

Shorter bridging loans are generally viewed as less risky by lenders. Choosing a shorter term can potentially improve your chances of approval and might even secure you a more favourable interest rate.

Greater Financial Control

A shorter bridging loan timeline encourages a more focused and disciplined approach to resolving your property situation. It provides a strong incentive to execute your exit strategy smoothly and on time.

While circumstances might sometimes necessitate a longer-term bridging loan, aiming for the shortest possible duration aligned with your realistic exit plan is a financially savvy strategy.

What if You Need More Time?

While everyone aims for a quick turnaround, life throws curveballs.

Delays in building work, mortgage approvals, or finding a buyer can all make a longer bridging loan necessary. Arranging a slightly longer term than you initially anticipate can be a wise move.

If not, some lenders may agree to extend the loan, though it’s important to understand this will likely increase your overall costs.

Early Repayment

While you choose your bridging loan term based on your predicted needs, it’s reassuring to know that most bridging loans allow for early repayment. This can be a brilliant way to reduce your overall costs if your circumstances change.

If your exit strategy materialises sooner than expected (e.g., your existing property sells quickly), repaying your bridging loan early can lead to significant interest savings.

Be aware that some lenders charge an exit fee or early repayment penalty. Make sure you factor these into your initial calculations, as they can offset some of the interest savings by paying off the loan early.

If you’re considering early repayment, always inform your lender as soon as possible. They may have processes to follow and can help you understand the specific costs involved.

How a Broker Can Help and Add Value

Bridging loans can be complex and hard to find, making expert guidance from a mortgage broker invaluable.

A broker takes the time to deeply understand your needs and financial situation. They’ll help you determine whether a bridging loan is the right solution, or if another financing option might be more suitable.

The bridging loan market is full of different lenders with varying terms, rates, and fees. A broker’s in-depth knowledge helps you compare options and find the best fit, potentially saving you significant time and money.

Brokers often have strong relationships with lenders. They can leverage these connections to negotiate more favourable interest rates and terms for your loan.

The application process for bridging loans can be overwhelming and time consuming. Your bridging finance broker handles the paperwork, liaises with lenders, and helps anticipate and overcome potential issues, ensuring a smoother experience.

Helping you formulate a robust exit strategy is crucial. Brokers can advise on the most effective repayment plans, minimising stress and maximising your chances of success.

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Sean Horton is a co-owner of Drake Mortgages and has worked in financial services, mortgages and insurance since 1988. He regularly writes about mortgages, bridging loans and commercial finance.
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