Bridging finance is a type of lending which is used to fund the purchase of assets, generally property, in a short period of time or used where a conventional mortgage may not be suitable.
Depending on what you’re looking for, bridging finance comes under two different headings: regulated and non-regulated:
- Regulated bridging finance is where the person borrowing the money live, or have lived, in the property that we’re trying to secure funding against.
- Unregulated bridging finance basically covers everything else, from commercial units to land or development funding.
This sort of finance can be used for all types of properties, from residential to commercial, with or without planning permission.
It’s also seen as one of the fastest ways to raise finance across the market and the money can be in your account within a matter of days.
When should i use a bridging loan?
In the same way a residential bridging loan is used, a commercial bridging loan is used to cover a gap in financing when it needs filling quickly. To get a commercial bridging loan, the overall use of the property has to be over 40% commercial. So, if you were purchase a unit with a flat above it, the unit’s value would need be more than 40% of the total value.
When getting a bridging loan, you need to show that you have a viable exit strategy. The usual exit strategy for landlords, for example, is to refinance the loan onto a buy-to-let mortgage.
Scenarios where Bridging Loans may be Best Used
- After buying a property at auction - Typically, a 10% deposit is paid on the day at auction, and the rest within 28 days. A bridging loan could be used as they are set up quickly, ensuring that the purchase will complete on time.
- Business cashflow problems - Whatever the reason, a bridging loan could be a way of easing the pressure on your business’s cashflow or working capital.
- Inheritance tax - There are numerous charges in the tax world, so using a bridging loan when having to release charges on property and other beneficiaries is perfectly acceptable.
- Renovation purposes - If a property is unsuitable to reside in or to get a mortgage on, bridging finance can be secured against the property. This could be useful if you’re a property developer who wants to buy a property, restore it and then sell it on.
- Repossession prevention - If your property is about to be repossessed, a bridging loan can be used to pay off the debt, passing control back to you (the owner of the property) so that you can sell it on your own terms and avoid a forced sale.
Isn’t bridging finance expensive?
The common misconception is that it is. In recent years, the price of bridging finance has fallen drastically and it’s now one of the cheaper ways of raising money, with rates starting as low as 0.39% on a monthly basis, which equates to approximately just under 5% per annum.
This type of finance is an easy way to raise money because there are less questions asked by the lender than there are in your more conventional mortgage process, meaning it’s also used sometimes used to purchase property quickly.
However, it should be noted that, with bridging finance, you’ll need a plan for exiting the loan, as it’s seen as short-term funding, usually spanning from 1-18 months.
The exit can be anything from the sale of the asset to raising other finance, like a commercial mortgage, against it. Our team are on-hand to help you through the process and ensure that you have a plan in place so that everything runs smoothly.
Speak to a bridging finance specialist
You can get bridging loans as 1st or 2nd charge mortgages, and because of the urgency, they can often be completed anywhere between 3 days and 3 weeks.
The minimum loan size can vary but are usually around £30,000 and there is often no early repayment charge. Commercial bridging loans offer:
- No hidden fees to worry about
- Applications decided on value of the property, not whether you can meet payments or the purchase price of the property
To speak to one of our bridging finance specialists, please contact us today.