What is a bridging loan?
A bridging loan is a short term finance solution that “bridges” a funding gap.
Bridging loans are designed to provide quick access to funds. They usually have higher interest rates than a standard mortgage, as the lender intends you to borrow the money for a short amount of time.
What does a bridging loan do? How does it work?
A bridging loan is secured against a property, either your own or one you are purchasing with the loan. You borrow the money required for your needs for a short period of time and then pay the funds back to the lender.
Bridging loans benefit from not having early repayment charges, meaning you have more flexibility with how and when you pay back the loan. Bridging loans can come in a variety of formats, which we go into in further detail down the page.
Bridging loans can be used by individuals as well as companies, trusts and partnerships.
What can you use a bridging loan for?
Bridging loans can be for a variety of uses, including property renovation, purchase and ground-up development finance. Bridging finance can also be taken out to cover any cash shortfall you may experience.
We work exclusively with landlords and aspiring landlords to find the best un-regulated solutions from our range of lenders.
Some examples of uses of bridging loans:
Properties you could not mortgage
Mortgages usually require your property to meet standards around security or human habitation. Properties that do not have a working kitchen and bathroom, or are suffering from structural issues would fall outside these. If the property you are intending to purchase requires significant development, you could use a bridging loan to purchase it and get the needed work done to qualify for a mortgage.
Auction property purchases
If you are buying a property at auction, you may need access to funds quicker than you are able to secure a mortgage.
You could use a bridging loan to complete the purchase of the property with the auctioneer (who commonly ask for payment to be settled within 28 days), and then mortgage the property without the time constraints.
Bridge to let
A specific type of bridging loan which allows you to finance the purchase of a buy to let or commercial property, and then has a mortgage product lined up at the end of the bridging term.
Renovations to a property
If you wish to renovate your property and believe it will increase the value, you could use a bridging loan to complete renovations and then remortgage with its increased value or sell the property.
What are the steps involved in applying for a bridging loan?
We are here to help! Our team of specialist advisors will help you through the application from start to finish and even assist with paperwork and document chasing if necessary.
- Get in touch with us – you can call, live chat or submit an enquiry here.
- One our bridging specialists will give you a call to complete a FactFind. This is to discuss the purpose of the loan and your financial needs, and take down the details of the property or properties you will be investing in. They will also discuss your planned exit strategy.
- Your dedicated advisor will assess your case against our panel of lenders. They will identify the deal that best suits your needs and achieves your goals.
- With your consent, your advisor will get a decision in principle from the agreed lender. Depending on the speed of service from the lender, we may be able to get this back from the lender within 2 hours.
- Once a decision in principle has been secured and you have agreed to proceed, your advisor will submit an application with the lender.
- Next, the lender will arrange a valuation of the property used to secure the loan. This is a step which protects their decision to lend, by establishing the market value of the property provided is accurate.
- After this, they will pass this valuation onto their conveyancer (property solicitor) to complete the legal work. You may need to instruct your own solicitor at this stage.
Completion and loan payout. Once the lender is happy, they will release the bridging funds to your solicitor, which you can access immediately.
Below market value
If you are looking to use bridging finance to purchase a property at below market value, we can help.Below market value
Bridging loan calculator
If you are considering a bridging finance, understand what monthly payments may look like with our loan calculator.Bridging loan calculator
How much can you borrow with a bridging loan?
How much you will be eligible to borrow will depend on the value of the property as well as your financial situation and sometimes future rental income. Bridging loan lenders typically allow you to borrow up to 75% of the property value.
If you are refurbishing your property you may be able to borrow up to 85% LTV of the current value of the property, providing that this does not exceed 75% of the end value of the property.
Alternatively, you could offer the lender additional security to increase the loan to value they will offer. This can be equity in another property or properties. Through this method, you could borrow 100% of the loan to value.
Our team will work hard to find a bridging lender that suits your situation and circumstance. They do the hard work for you to find a lender that works favourably with cases like yours.
How much deposit do I need for a bridging loan?
The minimum deposit for a bridging loan is typically 25%, however, with extra security you may be able to borrow 100% of the property value.
Your advisor will be able to explain where this variation comes in, depending on your particular project.
What are the types of bridging loans?
There are two types of bridging loan, an ‘open’ or ‘closed’ bridging loan. An open bridging loan had no set end date. A closed bridging loan has a fixed end date, where you will have agreed with the lender to pay back what you borrowed.
You can take out a bridging loan for a term of between 3 and 18 months. You will need an exit strategy for paying off the loan. This might be to sell the property, or remortgage to a buy to let or commercial mortgage.
What is an exit strategy?
An exit strategy is how you plan to pay back the bridging loan.
This strategy will need to be agreed on, in advance, with the lender for your application. You can exit a bridging loan by remortgaging, through the sale of shares, through inheritance or selling a property.
All of the bridging loans we can access come with the benefit of no early repayment charges. If your situation changes and you are able to repay your loan early, it is likely there will only be a modest administrative fee.
What are bridging loan rates?
Bridging loan rates are fixed or variable. If you take out a fixed rate bridging loan, your monthly payment will be the same every month. If you take out a variable rate bridging loan, your payments may vary.
Variable rates typically track another rate, often the Bank of England base rate. If the rate is tracks change, the variable rate can change. It can go up or down, which means your payment can go up or down.
What is a serviced bridging loan?
Bridging loan payments can be “Serviced” or “Rolled up”. A serviced bridging loan is where you pay the interest on the loan each month, and pay back the lump sum you borrowed at the end of the loan term.
A rolled-up bridging loan is where the interest is added to the total loan amount, and this whole amount is repaid at the end of the loan term.
To discuss your bridging finance requirements, please get in touch with our experienced team, and one of them will be able to answer any further questions you may have.
How long does it take to get a bridging loan?
Once we have the appropriate details from you, we can commonly get a decision in principle from a lender within 2 hours.
The length of time it takes to get bridging loan funds paid out is a lot faster than with a mortgage. This is one of the general features of a bridging loan. It is why a common use for a bridging loan is when buying property at auction. Auctioneers tend to want the purchase funds settled, within 28 days of the hammer falling.
We work with a range of lenders and our team of account managers will ensure that your case is handled efficiently and correctly.
What is the minimum loan term of a bridging loan?
We work with bridging lenders who offer a minimum loan term of three months.
However, as bridging loans benefit from no early repayment charges, you can exit early and generally only incur a small administration cost.
Can I get a bridging loan if I’m retired?
Yes! Being retired shouldn’t stop you from getting a bridging loan.
We can help you finance a down-size or even help you capital raise from your property for other reasons.
Can I get a bridging loan if I’m self-employed?
Yes! Being self-employed shouldn’t stop you from getting a bridging loan. We will still need to see proof of your financial status, and there may be other criteria you need to meet.
Can I apply for a bridging loan if I have poor credit?
Yes! Although our advisors may have to find a lender who is confident in your exit strategy, there are lenders who are happy to offer bridging loans to those who have poor credit.
What is a bridge to let?
A bridge to let loan is a specific financial product which is used to buy a property you intend to let, which you may not be able to get a traditional buy to let mortgage for.
Bridge to let loans combine a mortgage and bridge product together so that when you are ready to “exit” your bridging loan, your buy to let mortgage is ready and waiting.